China Jinmao Earnings: Top-Line Decline and Net Loss Disappointing; Valuation Cut by 53%

China Jinmao’s 2023 results were underwhelming, with a 13% decline in revenue and a CNY 6.9 billion net loss. Stripping out one-off items, Jinmao’s adjusted earnings dropped by over 80% due to subdued property sales profit and elevated operating costs. The property development segment's gross margin tumbled to 9% in 2023 from 13% a year ago, which management ascribed to low contribution from higher-margin primary land development and falling home prices. That said, we factor in a pickup in the segment’s gross margin to 12% by 2028, amid a price recovery. Given a more conservative housing sales outlook, we also lower our five-year development revenue CAGR to 4.0% from 6.0%. Moreover, we think Jinmao’s rising net gearing ratio and funding cost, compounded by a lack of final dividend payout for 2023, are of concern to shareholders. More borrowings also led to an over 50% rise in net debt to CNY 85.2 billion as of end-2023, which negatively affects our valuation. As such, we lower our fair value estimate to HKD 0.70 per share from HKD 1.50. While Jinmao's shares remain underpriced, we think state-owned peers such as China Resources Land offer investors a more appealing risk/reward and dividend yield.