Operating conditions and real performance improved, but the report performance declined under the influence of the new leasing standards. In the first half of 2021, the company achieved an operating income of 410 million yuan, an increase of 9.7% over the same period last year, and a net profit of 0.67 yuan, down 16.1% from the same period last year. The main reasons for the growth of the company's operating income in the first half of the year are as follows: 1, the low base of the same period last year; 2, the contribution to the revenue of the three mergers and acquisitions completed in the first half of the year. The main reason why the growth rate of homed net profit is lower than that of operating income is due to the substantial increase in recognized financial expenses due to the implementation of the new leasing standards. Without considering the new leasing criteria, the company achieved a 17.6% increase in net profit in the first half of the year, and its operating performance and real performance improved.

The expansion of operation service area is positive, and the growth of leasing operation projects is the fastest. By the end of the first half of the year, the company's operating service area was 104 million square meters, an increase of 160,000 square meters over the beginning of the year, accounting for 76% of the new area for the whole of last year, reflecting the company's more active business development after the impact of the epidemic gradually faded. Among them, the leased operating area is 720,000 square meters (an increase of 150,000 square meters over the beginning of the year), the participating operating area is 110,000 square meters (an increase of 30,000 square meters compared to the beginning of the year), and the entrusted operating area is 210000 square meters (down 20,000 square meters from the beginning of the year). As the leasing mode has a negative impact on the statements due to the new accounting standards, the company will also increase the proportion of light asset mode and joint venture operation mode in the future.

Under the two-pronged approach of outbound expansion and mergers and acquisitions, the fund model is expanded and set sail. In terms of extension, the company announced in May that it had leased two properties located in Hengshan Road and Huaihai Road in Xuhui District, which are scarce core assets in first-tier cities. The signing of this major contract will help the company to re-create benchmarking projects and continue to enhance the influence of the brand. In terms of mergers and acquisitions, the company acquired 60% of Tongchang Shengye (Beijing), 100% of Shanghai Yuyi and 100% of Shanghai Haoyi in April, making continuous efforts to expand high-quality properties in first-tier cities in Beijing and Shanghai. In addition, the company participated in initiating and setting up an industrial investment fund with a total size of 1 billion yuan. in the future, the company will also rely on the fund model to invest in urban renewal projects and develop cultural and creative industrial parks with more diversified channels.

Downgrade earnings forecast and maintain buy rating. Due to the adverse impact of the implementation of the new leasing criteria, we have lowered our original profit forecast and estimated that the company's EPS for 2021-2023 will be 0.32 shock 0.40 shock 0.49 yuan (the original forecast for 2021-2023 is 0.43 pound 0.52 pound 0.61 yuan). Be optimistic about the performance of the company's multi-channel expansion projects and maintain the buy rating.

Risk hint: the rental rate is lower than expected; the expansion of new projects is lower than expected.