The 2022 results are in line with our expectations

The company announced its 2022 results: revenue of 1.39 billion yuan, a decrease of 4.3%; net profit of 270 million yuan, a decrease of 17.6%, corresponding to profit of 0.21 yuan per share, which is basically in line with our expectations; after deducting non-net profit of 180 million yuan, a decrease of 12.6%, non-recurring profit and loss mainly came from government subsidies. On a quarterly basis, Q1-Q4 revenue was +17.1%/-31.4%/-7.2%/+4.1%; after deducting non-net interest rates, it was 22.7%/13.8%/6.6%/10.0%, respectively, and profitability improved month-on-month in the fourth quarter.

Development trends

1. The revenue side is under pressure under pressure due to the epidemic, and the performance of the new health care business is impressive. By business, 1) Property leasing and management: achieved revenue of 770 million yuan, a decrease of 22.7%; the company implemented rent reduction policies during the pandemic to reduce the burden on market operators; 2) Retail and supporting property sales: achieved revenue of 380 million yuan, an increase of 16.8%; 3) Product sales: achieved revenue of 0.5 billion yuan, an increase of 0.4%; 4) Hotel services: achieved revenue of 0.2 billion yuan, an increase of 14.9%; 5) Healthcare services: achieved revenue of 0.4 billion yuan, an increase of 65.3%, and the steady development of the health industry represented by rehabilitation hospitals and homes ; 6) Financial services: New business was added in 2022, achieving revenue of 80 billion yuan for the whole year.

2. There is pressure on the Maori side, and government subsidies increase profits. The company's gross margin fell 3.6ppt to 40.3% in 2022, mainly due to an increase in carry-over sales costs for retail and supporting property sales. On the cost side, the sales expense rate dropped 0.4ppt to 5.5%, maintaining better cost control; the management expense rate increased by 0.8ppt to 8%, which we expect was mainly due to the disruption of offline channels by the pandemic; the financial expense rate increased by 0.5ppt to -0.7%.

In addition, the company received 82.48 million yuan in government subsidies, an increase of 27.9% over the same period. Under the combined influence, net interest rates fell 3.1ppt to 19.4%, and net interest rates fell 1.3ppt to 13.2% after deducting non-net interest rates.

3. Follow up on the progress of business transformation and business diversification. 1) Business transformation: The company completed the digital construction 2.0 framework in 2022 and relied on digital systems to improve operating efficiency. The company promotes the integration of offline business formats with online platforms to improve supply chain ecosystems such as Picheng Cloud Approval, Picheng Strict Selection, and Picheng Logistics on the basis of consolidating base operations. 2) Business diversification: In terms of health, in 2022, the company's rehabilitation hospital expanded revenue growth with “integrated rehabilitation” and “nursing for the disabled” business; summer home added rehabilitation and testing projects, and smart nursing homes were completed. 3) Foreign investment: The company continues to explore foreign investment channels. In 2022, it participated in connecting with various investment institutions and investment projects, and strengthened research and analysis of projects in sectors such as new energy, high-end manufacturing, and finance. Focus on the results of the business transformation and potential business collaborations of the invested projects.

Profit forecasting and valuation

The 2023 profit forecast remained basically unchanged, and the 2024 net profit forecast of 260 million yuan was introduced. The current stock price corresponds to 2023/24 25x/25x P/E. Maintaining a neutral rating and target price of 4.2 yuan, corresponding to 21 times/21 times P/E in 2023/24, there is 15% downside.

risks

Competition in the industry continues to intensify; online transactions are being diverted; Big Health's business is progressing less than expected.