Main points of investment
Increase dividend: the company's mid-term operating income in 2022 was 906 million yuan, down 20.6% from the same period last year, mainly due to the outbreak of the epidemic in March-April; the net profit was 261 million yuan, down 28.9% from the same period last year, and the company's medium-term performance was in line with expectations. The interim dividend per share was HK5.64 cents, the same as last year, and the dividend payout rate increased to 41.5% from 28.7% in the same period last year. The company plans to increase the dividend payout rate to 60% in the next 2-3 years, increasing the return to shareholders.
Revenue structure continues to optimize: of the company's segment income, cemetery services, funeral services and supporting services are 7.28,1.64 and 105 million yuan respectively, accounting for 80.3%, 18.1% and 1.6% respectively, and the proportion of funeral services is only 18.1% higher. From a regional point of view, the revenue of Shanghai, Anhui and Liaoning in several major regions of the company was 3.29,0.92 and 74 million yuan respectively, down 33.6%, 7.5% and 27.8% respectively from the same period last year, accounting for 36.8%, 10.3% and 8.3% respectively.
Strengthen cost control: due to the impact of the epidemic in the first half of 2022, the employee cost rate of the company's major operating costs increased by 2.8 percentage points, but marketing and sales rates fell to a new low. The company continues to maintain high profitability, with operating profit margins and net interest rates of 45.1% and 28.8% respectively, down 4.4 and 3.4 percentage points from the same period last year. It is expected that profit margins will be restored to normal levels as business recovers in the second half of the year.
Adequate reserves ensure sustained growth: by mid-2022, the company operated a total of 31 cemeteries and 30 funeral facilities, with a new project in the first half of 2022. The remaining total saleable area is 264 million square meters, and the land area used by 2021A/2022H1 is 4.45 million square meters and 1710 million square meters respectively. The company has sufficient reserves to ensure its continued growth.
Maintain a "prudent overweight" rating with a target price of HK $7.80: the company experienced a decline in revenue and profits due to the epidemic in the first half of the year, and we believe that the company's business performance will enable the company to be repaired in the second half of the year.
The company is financially sound and cash-rich, and the company plans to increase its dividend payout to 60% in the next 2-3 years, increasing its return to shareholders. We estimate that the net profit of shareholders belonging to the listed company in 2022Compact in 2023 is 8.2 yuan and 920 million yuan respectively, an increase of 13.7% and 12.4% respectively over the same period last year. We maintain the company's "prudent overweight" rating with a target price of HK $7.80, which is equivalent to 17 times the 2022 2023 19 PE.
Risk hints: regulatory risks in the industry; fierce competition in the industry; acquisitions do not meet expectations; integration of new acquisition projects is not as expected.