Performance review

The 2018 results are in line with the market's unanimous expectations

Yiju Enterprise announced the company's 2018 results: the company's net profit increased 35.4% year-on-year to 950 million yuan; after excluding the impact of option fees, the company's core net profit was 1.1 billion yuan, in line with market expectations. The company announced a final dividend of HK$0.2267 per share, corresponding to a 30% payout rate (based on net profit) and a 1.8% dividend rate.

First-hand housing agency service sales reached RMB 531.6 billion (year-on-year increase of 22.8%). Although the real estate market began to enter a downward cycle in the fourth quarter of 2018, which led to a decline in the company's removal rate (44% in 2018 and 63% in 2017), the company's saleable resources were sufficient (about 1.2 trillion yuan, a year-on-year increase of 75%), which provided strong support for the company's sales growth.

Operating profit margin increased 3 percentage points to 23.8% year over year, mainly due to first-hand housing agency services and economies of scale in real estate data and consulting services. However, the new Roommate Platform business recorded a loss in 2018. The business accounted for 7% of the company's total revenue (basically zero in 2017 and before), which offset the improvement in profit margins to a certain extent.

Development trends

We expect the company's first-hand housing agency service sales to reach 846 billion yuan in 2019 (corresponding to 59% year-on-year growth). We expect the company to have sufficient saleable resources in 2019 (estimated to be about 1.8 trillion yuan, corresponding to a 50% year-on-year growth rate), and we expect the overall removal rate to rise slightly to 47% in the context of the bottoming out of the real estate market in major urban agglomerations.

Profit forecasting

Taking into account the adjustment of profit margin forecasts, we raised the company's 2019 net profit forecast by 2% to 1.44 billion yuan (corresponding to a 52% year-on-year growth rate). At the same time, for the first time, we introduced a net profit forecast of RMB 1.9 billion for 2020 (corresponding to a 31% year-on-year growth rate).

Valuation and advice

We maintain the company's “recommended” rating and target price of HK$16.32 (there is 32% upside compared to the company's current stock price, corresponding to 15 times the 2019 price-earnings ratio and 11.5 times the 2020 price-earnings ratio, respectively) to reflect that the company's profit is expected to maintain steady growth during the period 2019-2020. Currently, the company's stock price corresponds to 11.4 times the 2019 price-earnings ratio and 8.7 times the 2020 price-earnings ratio, respectively.

risks

The real estate market performance and company sales fell short of our expectations.