In the first half of the year, the company still achieved good performance under multiple unfavorable factors such as epidemic control and the downward cycle of the industry, with contract and management area increased by 33% and 60% respectively, and the third party's share of tube area and income increased. In spite of this, we believe that the premise that the company can overcome the bottleneck of development is that Xuhui holding Group has good credit and delivery on schedule. Before Xuhui holding Group's financing channels are significantly restored, the company is expected to face continuing challenges in terms of culture, brand and personnel management.

The company's performance growth in the first half of the year was in line with expectations, and the interim dividend was announced for the first time. The company announced that its income in the first half of 2022 was 3.16 billion yuan, an increase of 53.6 percent over the same period last year, and its net profit was 380 million yuan, an increase of 33.4 percent over the same period last year. The company decided to pay an interim dividend of 113 million yuan for the first time, with a dividend of HK $0.074 per share and a dividend yield of 30 per cent.

The scale of the management continues to expand, and the extension advances steadily. As of June 30, 2022, the contracted and managed floor area of the company was 290 million square meters and 210 million square meters respectively, an increase of 33.0% and 60.0% respectively over the same period last year. Nearly 70% of the contracted floor area of the company is located in first-and second-tier cities. Under the premise of only an increase of 3% in the resident cities, the management area has increased significantly, and the project density scale has been effectively increased. In the first half of the year, the company's external expansion remained stable, with a new bidding scale of more than 2000 million square meters and saturated contract income of 570 million yuan, which was basically the same as that of the same period last year. At the same time, the proportion of related parties in the managed area decreased by 1.3 percentage points to 17.2% from 18.5% in the same period last year, and the proportion of related parties in property management income decreased by 4.2 percentage points to 27.2% from 31.4% in the same period last year. As of the first half of the year, the company has successfully reached strategic cooperation with 27 development enterprises or urban construction investment companies, and will give priority to the property management rights of strategic partner development projects.

Changes in business structure have led to a slight decline in gross profit margin and optimization of expense rates. The company's comprehensive gross profit margin in the first half of the year was 25.7%, down 4.2 percentage points from the same period last year, of which the gross profit margin of property management services was 23.5%, the same as that of the same period last year, and the gross profit margin of community value-added services was 42.6%, down 3.9%. The gross profit margin of non-owner value-added services decreased by 4.1 percentage points, and the gross profit margin of urban services was 7.2%. Thanks to the company's continued investment in areas such as technology empowerment, the company's expense rate in the first half of the year fell 1.5 percentage points from the same period last year to 8.4%, the lowest since the company went public. The company continues to improve the ability of the business team and promote the increase of employee income. In the first half of the year, the company adjusted the salary to cover the front line of 1max 3 and the platform employees of 1max 4, with an average income increase of more than 7% in the regional front line.

The real estate credit crisis is expected to still have multiple effects. The real estate credit crisis affects the development of value-added services for non-owners. The general extension of the delivery cycle will affect the transformation of the contract area to the tube area. Share the brand with related development enterprises (although the company's brand independence is stronger than other private enterprises), which means that the core assets of property management companies are still inseparable from the credit of real estate enterprises. The homology of corporate culture and operating personnel means that the development of the company will inevitably be affected by the shrinking table of the development enterprise, and this spread will not stop at the delivery of related parties.

Risk factors: secondary operating risk that may be brought by the credit risk of affiliated enterprises; the risk of repayment of accounts receivable by the company.

Investment suggestion: the company is a private property management company with relatively steady growth, balanced capacity and rich experience in independent operation. In spite of this, we believe that the premise that the company can overcome the bottleneck of development is that Xuhui holding Group has good credit and delivery on schedule. Before Xuhui holding Group's financing channels are significantly restored, the company is expected to face continuing challenges in terms of culture, brand and personnel management. Taking into account the decline in revenue from value-added services and the decline in comprehensive gross profit margin, we downgrade the company 2022Universe 2023max 2024 EPS forecast to 0.46max 0.56 pound 0.67 yuan per share (the original EPS forecast 0.49max 0.68pm 0.96), the current private property management companies according to the credit of related parties and the scale of operation, the PE valuation in 2022 is generally at 8-15 times. The company is still a complete and healthy brand and a sound choice of endogenous development momentum. We give the company 13 times PE in 2022, corresponding to HK $6.80, maintaining the company's "buy" investment rating.