Event

Nandu property (603506) released its mid-2022 report, the main contents of which are as follows:

In the first half of 2022, the company achieved an operating income of 897 million yuan, an increase of 17.36% over the same period last year, and a net profit of 90 million yuan, an increase of 6.73% over the same period last year. Of this total, the operating income in the second quarter reached 482 million yuan, an increase of 23.70 percent over the same period last year, and the net profit returned to its mother was 53 million yuan, an increase of 1.99 percent over the same period last year.

Core viewpoints

The performance increased slightly compared with the same period last year, and the positive factors included the increase in revenue, the increase in profit and loss in changes in fair value, the decrease in effective income tax rate, and so on. The company's first-half net profit rose 6.73% compared with the same period last year, achieving a slight increase. The positive contribution factors include: 1) the company's business expansion, including external acquisition of property management companies, etc., resulting in an increase in operating income of 17.36% over the same period last year. 2) the fair value change profit and loss of the company's transactional financial assets increased to 8.1498 million yuan from 2.9382 million yuan in the same period last year. 3) the effective income tax rate dropped to 28.22% from 30.29% in the same period last year.

Property management business expanded smoothly, the newly signed area increased significantly, and continued to focus on the Yangtze River Delta. During the reporting period, the company's property management business expanded smoothly. On the one hand, 61 new projects were signed in the first half of the year, with a newly signed area of 7.813 million square meters, an increase of 100.63% over the same period last year; on the other hand, the acquisition of Pratt & Whitney property and Zhongda property Company was completed. Pratt & Whitney property companies are mainly non-residential, including corporate office buildings, commerce, parks and hospitals, while CUHK property companies are mainly residential properties.

By the end of the reporting period, the company had signed a total of 696 projects, with a total signed area of 83.0687 million square meters, of which the Yangtze River Delta region (Jiangsu, Zhejiang, Shanghai and Anhui provinces) accounted for 85%, up 3 percentage points from the end of 2021.

In the optimization of tube area structure, the proportion of non-living area is increased. The company increased the proportion of non-residential management area, and the proportion of new signings was higher than that of stock in the first half of the year. Of the newly signed areas in the first half of 2022, residential projects accounted for 40%, commercial projects accounted for 21%, and urban service projects accounted for 39%. Of the total contracted area of stock at the end of the first half of 2022, residential projects accounted for 67%, commercial projects accounted for 23%, and urban service projects accounted for 10%. The company continues to promote full-format layout and actively enhance the core competitiveness of various sub-formats in the non-residential field.

The income from asset management services has increased significantly, while the income from value-added services has declined. Thanks to a series of improvement measures taken by Dayue Business, the company's asset management service revenue increased by 46.18% in the first half of 2022 compared with the same period last year. Relevant measures include: withdrawing from the loss-making long-term rental apartment project and undertaking new projects with entrusted operation mode; Xixi Islands Hotel continues to act as an epidemic isolation hotel, maintaining stable income; focusing on the development of property developers' operation direction, new Wuzhen assets business, and so on. Affected by the epidemic and the declining property market, the company's value-added business income declined in the first half of the year, with property value-added services and non-owner value-added services down 10.10% and 20.16% respectively compared with the same period last year.

Investment suggestion

It is estimated that the operating income from 2022 to 2024 will be 1.851 billion yuan, 2.197 billion yuan and 2.662 billion yuan, the net profit will be 193 million yuan, 229 million yuan and 274 million yuan, the EPS will be 1.03,1.22,1.46 yuan, and the corresponding PE will be 12.26,10.34,8.65 times. The company's property management business expansion is smooth, less affected by the epidemic and the property market decline, and the future performance has support. For the first time, coverage gives a "cautious recommendation" rating.

Risk hint

There is uncertainty in the progress of market expansion, uncertainty in the impact of labor costs on profitability, and uncertainty in the impact of the epidemic on property seizure rates.