occurrences

The company released its annual report. It achieved operating income of 910,000 million yuan in 2021, an increase of 22.9% over the previous year; achieved net profit of 124 million yuan, a decrease of 20.5% over the previous year; and EPS was 0.26 yuan.

Brief review

Excluding the impact of the new leasing guidelines, performance increased steadily, and operating cash flow improved markedly.

Benefiting from the recovery in rental rates after the pandemic and the completion of 5 acquisitions throughout the year to increase revenue, the company achieved revenue growth of 22.9% in 2021, up 33 percentage points from 2020. The main reason why Guimu's net profit growth rate was significantly lower than revenue growth was due to the adverse effects of the implementation of the new leasing rules. The interest expenses generated by the company's leasing debt reached 155 million yuan, compared to 0 in 2020. Excluding the influence of leasing standards, the company achieved net profit of 178 million yuan to the mother in 2021, a steady increase of 13.7% over the previous year.

We think the growth rate of the company's performance in 2022 will subside due to the new leasing rules. Furthermore, there was a marked improvement in operating cash flow, which reflects the company's actual operating conditions. Net cash flow generated by operating activities in 2021 increased 104% year-on-year.

The scale of operation has grown rapidly, and core cities have continued to be deeply cultivated. By the end of 2021, the company's total number of operating projects was 70, an increase of 6 over 2020, with an excellent layout, including 60 in Shanghai, 7 in Beijing, 2 in Hangzhou, and 1 in Nanjing; the total operating area was about 1.12 million square meters, an increase of 27.3% over the previous year.

Among them, the leased operating area was 720,000 square meters, an increase of 150,000 square meters from the beginning of the year; the participating operating area was 120,000 square meters, an increase of 40,000 square meters from the beginning of the year, and the contracted operation area was 280,000 square meters, an increase of 50,000 square meters from the beginning of the year. The leased operation project grew the fastest. In the future, the company will increase the proportion of asset-light models, joint venture operating models, and property management business expansion to reduce the adverse impact of the new leasing standards on profits.

Driven by external expansion, mergers and acquisitions, and industrial investment funds, the expansion model is gradually taking shape. The company achieved rapid growth in the scale of operation through external expansion contracts, mergers and acquisitions: 1. With a contract amount of 1,075 million yuan, it leased about 37,000 square meters of properties in the two core locations of Hengshan Road and Huaihai Middle Road in Xuhui District of Shanghai. The geographical location was scarce, which helped the company to build another benchmark project in Shanghai and continue to enhance its brand influence; 2. The company achieved 5 acquisitions within the year, namely 60% of Shanghai Tengjin's shares, 100% of Shanghai Haoyi's shares, 100% of Shanghai Haoyi's shares, Tongchang Shengye's 60% equity, and Tongchang Shengye's urban renewal. 3% equity, Shanghai Shaojin 100 % equity, with a total investment of about 389 million yuan. Through mergers and acquisitions, the company obtained the right to operate high-quality projects and achieved deep cultivation in the first-tier cities of Shanghai and Beijing.

In addition, the company also participated in initiating the establishment of an industrial investment fund, with a total scale of 1 billion yuan, accounting for 89% of the company, opening up a new expansion model for finding and reserving high-quality project resources.

Keep the buy rating and target price unchanged. We expect the company's net profit to be 137/169/203 million yuan for 2022-2024, respectively, a three-year CAGR of 17.9%, and the corresponding EPS of 0.29/0.36/0.43 yuan respectively (the original forecast for 2022-2023 was 0.40/0.49 yuan). Optimistic about the performance of the company's multi-channel expansion project, keep the purchase rating and target price of 12.90 yuan unchanged.

Risk warning: Due to repeated adverse effects of the epidemic; the expansion of new projects may fall short of expectations.