"Big Banks" JP Morgan: CHINA JINMAO has a clear inventory clearance plan, valuation attractive, rating "Overweight"

JP Morgan published a research report indicating that CHINA JINMAO (00817.HK) saw its core net profit (after deducting perpetual bond distributions) decline by 10% year-on-year to RMB 696 million last year, mainly affected by impairments, but 8% higher than the bank's expectations. During the period, there were signs of stabilization in the gross profit margin of developed properties. If the scale of impairments does not expand further, it is expected that the annual compound growth rate of profits from 2025 to 2028 could reach 22%, with a rebound in profitability anticipated.

The report stated that Jinmao will be one of the few Chinese developers to achieve positive growth in contract sales this year, with an expected annual growth of 7%. The management has set a clear inventory clearance plan, aiming to handle RMB 160 billion in inventory, of which 36% was achieved last year, indicating that the new management has a detailed plan to restore land reserves. Last year, new land investments accounted for about 52% of contract sales, and the pace of replenishing land reserves this year is similar to last year.

In terms of assets and liabilities, the net debt ratio at the end of last year rose to 69% from 67% at the end of the previous year. If perpetual bonds are included in liabilities, the net debt ratio decreased from 126% to 112%. The cash coverage ratio for short-term debt fell from 1.6 times to 1.2 times, still above the 1 times level. The management indicated that they would not support investments by increasing the scale of debt, and the average new financing cost last year fell to a new low of 2.75%. JP Morgan believes that although high leverage remains a major concern for investors, considering the state-owned enterprise background and smooth financing channels, liquidity risk is relatively low. Given the attractive valuation, corresponding to a forecasted price-to-book ratio of 0.4 times this year, the bank maintains an "Overweight" rating on Jinmao, with a target price of HKD 1.75