2022 results fall short of market expectations
The company announced its 2022 results: revenue increased 9% year on year to 15.38 billion yuan, and net profit of the mother fell 20% year on year to 1.84 billion yuan year on year, lower than market expectations. It was mainly due to factors such as a decline in gross margin of segmented businesses and an increase in impairment provisions for trade receivables.
The non-cyclical business continues to develop steadily. The overall development of the company's non-cyclical business (including basic property management, owners' value-added and urban services) continued a steady trend in 2022. Among them: 1) on the basic property side, the company's third party expanded additional contract area of 60.55 million square meters throughout the year, corresponding to annualized saturated revenue of about 2.2 billion yuan. The overall expansion situation was basically the same as in 2021; 2) owners' value-added service revenue increased 24% year on year to $2.32 billion. Among them, the lifestyle and integrated services and home improvement business increased 36% and 43% year-on-year respectively; 3) Urban services were driven by merger factors. Revenue growth was 88 million square meters year-on-year, corresponding to annualized saturated revenue of about 2.2 billion yuan. % to $1.31 billion.
Developer-related businesses continue to drag down profits and cash flow performance. Affected by pressure on the real estate industry, the company's outbound value-added service revenue fell 40% year on year to 1.71 billion yuan in 2022. Among them, casefield property management services and other external value-added services fell 38% and 42% year on year, respectively. Throughout the year, the company added 1.90 billion yuan in related party trade receivables and added 620 million yuan in other related party receivables (1H22 added trade receivables from related parties of 1.14 billion yuan, and operating cash outflow of 1.43 billion yuan).
Segmented business gross margins are under phased pressure. In 2022, the company's comprehensive gross margin fell 5.5 percentage points year on year to 22.0%, of which the underlying property fell 1 percentage point year on year to 19.1% year on year. If the impact of intangible asset amortization brought about by mergers and acquisitions is not taken into account, gross margin increased 0.6 percentage points year over year; owners' value-added services fell 11.5 percentage points year over year, mainly due to factors such as the impact of the pandemic on the development of some businesses and adjustments in some business models; affected by related developers, the gross margin of extended value-added services fell 14.8 percentage points year on year.
Development trends
The company aims for steady growth in its core business. It is recommended to focus on market changes and receivables repayment on the development side. The company's target core business is to maintain compound revenue growth of around 10-15% over the next three years, mainly considering the continuous transformation of third-party outsourcing and the continued development of the owners' value-added service professional circuit; in terms of outbound value-added services, we think it is necessary to continue to pay attention to Agile's business situation in terms of sales and land acquisition. Considering the company's current large scale of trade and other receivables, we also recommend continuing to monitor the repayment of receivables.
Profit forecasting and valuation
Based on prudent assumptions such as gross margin of segmented businesses, we lowered our net profit forecasts for 2023 and 2024 by 7% and 8% to 1.94 billion yuan and 2.03 billion yuan respectively, up 5% and 5% year-on-year. Maintaining a neutral rating, the target price was lowered by 30% to HK$8.1 (corresponding to 5.0 times the price-earnings ratio in 2023 and 18% upward margin), mainly reflecting the adjustment of profit forecasts and the uncertainty of the company's future profit growth. The company is currently trading 4.2 times its 2023 price-earnings ratio.
risks
The progress of accounts receivable repayment falls short of the anticipated risk, and the expansion of third-party projects falls short of the anticipated risk.