Yuexiu’s 2024 revenue grew by 7.7% YoY to RMB86.4bn, 1.1% higher than our estimation. Gross margin narrowed by 4.8ppts to 10.5%, 3.2ppts below our estimation, partially as a result of RMB2.27bn impairment loss on inventory (2023: RMB1.57bn). As such, gross profit declined by 26.1% YoY, 22.5% below our estimation. SG&A was 4.9% of revenue, increasing by 0.4ppt, in line with our estimation. Net finance income of RMB119m in 2023 turned into RMB354m net finance cost in 2024 (our estimation: RMB189m net finance income). There is also RMB1.63bn non-recurring impairment loss of other long-term assets, partially offset by RMB868m gain on disposal of a project, both we believe are not excluded in the core net income. As a result, core net income declined by 54.4% YoY to RMB1.59bn, 56.3% below our estimation. We cut our 2025-26E by 56.2- 56.8%, respectively, based on more conservative revenue booking and gross margin assumptions, and cut our TP by 27.1% to HK$5.52. Yuexiu generated RMB21.7bn OCF in 2024, up 160% YoY, leading to 5.3ppts improvement in net gearing to 51.7%, after active and value accretive land acquisitions with 71% spending in tier-1 cities. We think these could well position Yuexiu to continue delivering one of the better contracted sales performances in the sector, and maintain BUY rating on the stock.
　　Key Factors for Rating
　　Contracted sales declined by 19.4% YoY to RMB114.5bn in 2024, compared to 24.4% YoY average decline for top 10 China developers. As a result, according to CRIC, Yuexiu’s contracted sales ranking went up from 2023’s number 12 to 2024’s number 8. Management targets to achieve RMB120.5bn contracted sales in 2025, representing 5.2% YoY growth, making Yuexiu the only developer under our coverage that gave such target for 2025. Saleable resources planned for 2025 amounts to RMB235.4bn (not including new land to be acquired in 2025), similar to the actual saleable resources launched in 2024. The target is made based on increased contribution from tier-1 cities, RMB10bn more new projects to be launched as opposed to old inventory compared to 2024, and the assumption that market will be better in 2025. 2M25 contracted sales grew by 23.8% YoY, continuing to outperforming most peers.
　　Key Risks for Rating
　　Property market recovery may be slower than expected.
　　Valuation
　　We cut our estimated NAV by 27.1% to HK$7.88, factoring lower gross margin which is partially offset by larger-than-expected improvement in net gearing and value accretive land acquisitions. The stock currently trades at 0.3x 2025E P/B, and 37% discount to NAV, which we think is undemanding, considering Yuexiu’s superior landbank quality, continued contracted sales outperformance, and solid financial position.