Results for the first half of 2019 are in line with market expectations
Easyhome announced its results for the first half of 2019. Guimu's net profit was 578 million yuan, an increase of 23.6% over the previous year. The company does not pay dividends in the medium term.
The first-hand housing agency service business is growing steadily. The company completed new housing agency sales of 320 billion yuan in the first half of the year, an increase of 25% over the previous year, generating commission revenue of 2.6 billion yuan, an increase of 16% over the previous year. The implied commission rate fell to 0.81% from about 0.9% in history. The main reason was that the commission rate corresponding to the sales portion of joint ventures established with leading real estate companies' sales teams was low.
Roommate platform performance improved. In the first half of the year, new home sales reached an additional 50.2 billion yuan through the platform, generating commission revenue of 1.3 billion yuan. The commission rate increased to 2.6%, mainly because the real estate market was generally popular and developers relied more on channel diversion.
Operating margins fell 10 percentage points year over year to 18.2%, mainly because the share of revenue from low-margin tenant platforms rose to 30% (7% in 2018).
Development trends
The first-hand housing agency service business is expected to maintain steady growth. Considering sufficient sales resources for the whole year, reaching 1.5 trillion yuan, we expect the company's annual new housing agency sales to increase 26% year-on-year to 675 billion yuan.
It is expected that the Roommate Platform business will continue to expand. With more than 20,000 partner brokerage stores (including 10,000 tenant stores), we expect new home sales completed through the platform to reach 124 billion yuan and commission revenue will reach 2.5 billion yuan in 2019.
Profit forecasting and valuation
Taking into account forecast adjustments for the development of major business lines, we lowered our profit forecasts for 2019-2020 by 14% and 21% to $1,244 billion and $1,498 million, corresponding to year-on-year increases of 30.5% and 20.8%, respectively. Reiterating that it is outperforming industry ratings, but considering profit forecast adjustments, we lowered our target price by 31% to HK$11.2, corresponding to 12 times and 10 times the price-earnings ratio from 2019 to 2020. There is room for a 24% increase from the current stock price. Currently, the company is trading 9.5 times and 7.9 times the price-earnings ratio of 2019-2020.
risks
New home sales and operating margins fell short of expectations.