The current situation of the company
The share price of Asahi Yongsheng Services has fluctuated greatly recently, and we update our view on it. We believe that the company's core business is still moving forward steadily, but due to the impact of the economic and real estate environment, business income, including non-owner value-added services, Meiju, etc., may be lower than previously expected. We lowered the company's 2023 net profit forecast to 700 million / 800 million yuan, an increase of 13% and 16% respectively over the same period last year. The company currently has a market capitalization of HK $7.5 billion and a net cash of 3.83 billion yuan on hand, trading at 9 times 2022 earnings and 4 times cash earnings. The share price implies concerns about the development trend of the affiliated company Xuhui Holdings Group (884.HK). We believe that between the implementation of the real estate lift policy and the dynamic interpretation of liquidity risk of real estate enterprises, the company's stock price may fluctuate up and down repeatedly.
Comment
We will continue to steadily promote scale expansion. In the first half of the year, the company's new contract area for third-party outsourcing is about 2000 million square meters, and the corresponding saturated annual income is about 570 million yuan, which is basically the same as the same as the same period last year. We estimate that the annual saturated income for the whole year is about 1.2 billion yuan, which is basically the same as last year's expansion volume. The company has an income of 4.7 billion yuan in 2021, taking into account Metro property merger table and external project delivery, and assuming that the project area delivered by Xuhui decreased by 50% year-on-year in 2023-24, we expect property management revenue to grow by 55% year-on-year in 2022 and 22% in 2023-24. In terms of profit margin, we expect it to be robust this year and rise or decline slightly with the proportion of third parties in the future.
Value-added services are disturbed by the real estate and economic environment. The sales volume of Xuhui Holdings fell 46% from January to October this year compared with the same period last year. We believe that non-owner value-added services have been seriously affected, and the annual income is expected to decline by 30%. The income of community value-added businesses such as Sino-American housing and parking space sales are also affected by this. In addition, the economy and the epidemic have affected the business of housing brokerage and housing repair, and we expect the income from community value-added services to be roughly flat for the whole year. In the next two years, considering the uncertainty of whether and when Xuhui Holdings can resume turnover, we assume that non-owner value-added service income will decline by 50% a year, and Meiju services will also assume a decline.
Cash flow performance or marginal improvement, goodwill impairment pressure can be controlled. In the first half of 2022, the company's operating cash flow was 130 million yuan (0.3 times the return net profit), and trade receivables increased by 58% to 1.42 billion yuan compared with the end of 2021. Looking forward to the second half of the year, we expect the performance of receivables to improve month-on-month compared with the first half of the year, and the coverage ratio of operating cash flow to return net profit for the whole year is expected to be higher than that of 1H22. At the end of the first half of the year, the company's goodwill was 1.45 billion yuan, and the company's past mergers and acquisitions were prudent. Among them, the operation of non-residential M & A targets such as Meikailong property and Qingdao Yayuan is stable, and we believe that the impairment pressure of goodwill can be controlled as a whole.
Profit forecast and valuation
Taking into account the pressure on businesses such as non-owner value-added and beauty services, we cut profits by 12% and 20% in 2022 and 2023 to 700 million yuan (up 13% year-on-year) and 800 million yuan (up 16%).
We cut the company's target price by 13% to HK $7.0, corresponding to 63% upside and 15 times the 2022 target price-to-earnings ratio. Maintain an industry rating that outperforms. The company is currently trading at 9 times 2022 and 8 times 2023 earnings.
Risk
The policy change or fundamental repair of the real estate industry is not as expected, and the expansion of third-party projects is not as expected.