1H21's strong performance; maintain "buy" given low valuations
Hejing leisurely released interim results, with strong gross profit margin and profit growth. Reported net profit / core net profit 1H21 increased by 158% compared with the same period last year, mainly due to an 83% year-on-year increase in revenue and an improvement in gross profit margin (1H21% 44%, up 5% year-on-year). The community value-added services sector achieved strong growth, and 1H21 revenue increased by 192% compared with the same period last year. By the end of 1H21, the area under management had expanded to 165 million square meters (an increase of 297% over the end of 2020), mainly driven by mergers and acquisitions. In view of the orderly progress of the company's high-intensity expansion plans, we believe that the strong medium-term results have strengthened investor confidence in its aggressive development plans.
We maintain the company's 21-23 EPS forecast of 0.36 pound 0.53 plus 0.75 yuan respectively. We are optimistic about the steady delivery of the company's projects from the parent company, while the company accelerates mergers and acquisitions, we give the company 19.9x2022 annual target PE (comparable company valuation average: 19.8x 2022, based on Bloomberg data and our earnings forecasts), and in view of the low valuations, we reiterate our "buy" rating.
The high-intensity expansion plan is carried out in an orderly manner.
We are optimistic about the company's prospect of achieving tenfold growth through the implementation of a high-intensity expansion plan (with a managed area of about 400 million square meters by the end of 2023, mainly through mergers and acquisitions), and believe that its 1H21 performance supports this view. With the rich resources of its parent company, 1813 HK, we believe that the company is expected to seize the opportunity of large-scale mergers and acquisitions to expand the types of projects (such as public service projects) on the basis of the successful completion of the acquisition by 1H21. At the same time, the company's gross profit margin 1H21 rose slightly by 5 percentage points to 44% (1H20VO39%), which we believe is mainly due to the improvement of operating efficiency and the continued rich service portfolio, which will support the company's future profitability.
Business operation services drive future growth
The company's business operation services sector is growing rapidly, and 1H21 revenue is up 92% compared with the same period last year. With its brand awareness and in-depth cooperation with the parent company, the company plans to open 11 new shopping malls / office buildings in the next 2-3 years. We expect the company to further expand the size of the sector, with a compound annual revenue growth rate of 61% from 2020 to 2023, giving the division a higher valuation in view of its more flexible revenue model and higher profit margins than residential.
Lower valuation, reiterate "buy"
The company's medium-term results are strong, and in view of its strong and high-quality growth, we reiterate our positive view of the company. The current share price corresponds to 10 times the 2022 forecast PE, which we find attractive. We maintain the company's 21-23 EPS forecast of 0.36 pound 0.53 plus 0.75 yuan respectively. We maintain the target price of HK $11.90 (unchanged). In view of the low valuation, we reiterate our "buy" rating.
Risk tips: 1) labor costs increase faster than we expected; 2) access to third-party projects (especially through mergers and acquisitions) faces uncertainty; 3) adverse changes in the regulatory environment and industry regulation and control measures.