The company announced its 2022 annual results announcement. Operating revenue fell 9.8% year on year to 7.13 billion yuan, gross profit fell 35.6% year on year to 1.60 billion yuan, Guimu's net loss was 480 million yuan, and Guimu's core net profit fell 45.6% year on year to 760 million yuan.
Results in '22 were under pressure, market-based adjustments were made to non-owners' services, and the core business remained in scale. The main reason for the company's loss of performance in '22 was the decline in value-added business of non-owners and the impairment of accounts receivable. Affected by the downturn in real estate and the credit risk of related parties, the development of value-added services for non-owners suffered a setback. The company made trade-offs between projects based on the repayment situation based on the principle of marketization, and the gross profit share of the non-owners' business dropped sharply. After the adjustment, the company was less affected by the real estate industry, and the operating cash flow of the company's related parties' businesses turned positive in the second half of '22. The scale of core business (excluding non-owners) remained stable, with gross profit of basic services, lifestyle services and commercial operation services totaling 1.54 billion yuan, the same as the previous year.
Related party receivables accrue significant impairment, and the negative effects have yet to be digested continuously. The company accrued 1.54 billion yuan in bad debt provisions in '22, and it is estimated that most of this will be impairment of accounts receivable from related parties. After excluding one-time effects such as impairment and amortization, the parent's core net profit for 2022 was 760 million yuan. The original value of trade receivables from related parties of the company at the end of the year was 3.37 billion yuan, a further decrease from 3.65 billion yuan at the end of the first half of the year. The influence of related parties is not limited to owners' business, but is also reflected in aspects such as vacant fees for basic services and commercial management operations. The pressure on related parties has yet to be digested continuously.
The management base market is stable, and outward expansion will be the main source of future growth. The company's core management area was stable, reaching 240 million square meters at the end of 2022, an increase of 13% over the previous year, of which 37% came from third parties. As of the end of '22, the company had a reserve area of 150 million square meters, of which 63 million square meters were acquired through external expansion from third parties. The delivery of reserve area by related parties is uncertain. The new contract area is difficult to rely on in the medium to long term. The company's future management scale growth will mainly depend on market-based expansion capabilities. The company's total market development volume declined in '22, and the number of contracts signed in a single year fell 10% year-on-year to 1.08 billion. Outsourcing was also partially affected by the risks of related parties. The company's service capacity based on core inventory and managed projects in Tier 1 and 2 cities is its main advantage.
It was downgraded to an increase in holdings rating, and the target price was lowered to HK$3.49. The business situation of related parties had an adverse impact on the company's management area growth and value-added services for non-owners. Based on this, the growth rate and gross profit ratio of the company's basic property services and value-added services for non-owners was lowered. After the adjustment, the company's EPS forecast value for 2022-2024 was -0.16/0.34/0.43 yuan (the original forecast for 22-23 was 0.55/0.73 yuan). Referring to comparable companies, the company was given a PE valuation of 9x for 2023, with a corresponding target price of HK$3.49. (HKD 1 = RMB 0.876).
Risk warning
The pressure on accounts receivable from related parties has further increased. Outreach is uncertain. The growth rate of lifestyle services fell short of expectations.