Turn losses into profits in the first half of the year. In the first half of 2017, due to the increase in property management income, the company's total revenue was 100 million yuan, an increase of 81.9%. During the period, property management income reached 4.75 billion yuan, an increase. In addition, the company outsourced the O2O platform in April this year, and although the revenue of the O2O sector declined, the loss was effectively controlled. In the first half of the year, the company's gross profit margin was 30.38%, up 1.31% from the same period last year, and the gross profit during the period was 1.45 billion yuan, an increase of 90.1%. The company turned losses into profits in the first half of this year, from a loss of 6 million yuan in the same period last year to a net profit of 45.5 million yuan this year.
Pay more attention to the growth of the property management sector. After outsourcing the O2O platform, the company pays more attention to the growth of the property management sector. By the end of the first half, the company had a total area of 63.3 million square meters in 39 cities, an increase of 3.3 million square meters over the end of last year. The undelivered area is 14.3 million square meters.
As a result, property management income increased by 86.8 per cent to 4.75 billion yuan during the period. The company acquired a property company last year, of which Yongcheng property made a net profit of 32.2 million yuan in 2016, with an area of 10,000 square meters under management. To meet the requirements of previous acquisitions, the company decided to increase its equity investment from 70 per cent to 77.5 per cent in June at a cost of 22.5 million yuan.
The loss of the business can be controlled. As the O2O platform did not meet expectations, the company decided in April to outsource the platform and pay a monthly fee of 100000 yuan. Although outsourcing led to a reduction in O2O revenue to 300000 yuan from 3.9 million yuan in the same period last year, the segment's losses have fallen by 87.5 to 3.9 million yuan. Judging from the current situation of the company, we believe that shrinking the O2O business is an effective solution to the loss.
Raise profit forecasts and target prices. Due to the better-than-expected growth in the company's property management sector and the control of O2O business losses, we raised our profit forecasts for 2017-2019 by 11.5%, 24.3% and to 97 million, 128 million and 144 million yuan, respectively. The company is currently valued at 5.9 times 2017 or 4.5 times forecast earnings, lower than the industry average for the same period. As of June 2017, the company's net cash was 286 million yuan. Based on the target price of 7 times forecast 2018 earnings, we raise the target price from HK $1.13 to HK $1.33. The potential increase is 56.5%, maintaining the buy rating.