Overview of events
Zhengrong Service released its semi-annual report for 2020. The company achieved 450 million yuan in operating income in the first half of the year, an increase of 49.6% over the same period last year, and its mother's net profit was 60 million yuan, an increase of 106.8% over the same period last year.
Rapid growth in performance and stable profitability
2020H1 achieved an annual operating income of 450 million yuan, an increase of 49.6% over the same period last year, and a net profit of 60 million yuan, an increase of 106.8% over the same period last year. In terms of profitability, the company's gross profit margin and net profit margin are 35.00% and 13.60% respectively, which are up 0.87pct and down 1.57pct compared with the end of last year, and the overall profitability remains stable.
The management scale continues to grow, and the regional deep ploughing highlights the advantages.
By the end of the first half of the year, the contracted area and managed area of the company were 43 million square meters and 28 million square meters respectively, an increase of 16.2% and 21.1% over the end of last year. From the perspective of regional distribution, the proportion of the company's managed area in the Yangtze River Delta and the west coast of the Taiwan Strait has increased to 82.0% from 79.6% in the same period last year, giving full play to the advantages of deep cultivation around the key cities on the Yangtze River Delta and the west coast of the Taiwan Strait. While the company is ploughing deeply in key cities, the number of business radiation cities has expanded to 37 in more potential cities such as Xuancheng and Changde.
Continue to optimize the business structure and actively promote digital transformation
The income of the company's property management services, community value-added services and non-owner value-added services was 225 million yuan, 60 million yuan and 158 million yuan respectively, an increase of 37.2%, 24.6% and 90.7% over the same period last year, accounting for 50.8%, 13.6% and 35.6% respectively, and the business structure was further optimized.
The company actively promotes investment in digital transformation, benefiting from measures such as digital upgrading, process standardization and improved cost control capabilities. The company's sales cost accounts for 65.0% of total revenue, a decrease of 5.1 percentage points compared with the same period in 2019.
Investment suggestion
Zhengrong service performance is growing rapidly, adhere to high-quality scale expansion, value-added services are steadily promoted, and the valuation is at a low level. We estimate that the EPS of Zhengrong Service in 2020-2022 will be 0.18 yuan 0.30 pound 0.42 yuan (HK $1 = 0.8830 yuan) respectively, corresponding to a corresponding PE of 25.4 yuan 15.8 pound 11.3 times, covering the company for the first time and giving the company an "overweight" rating.
Risk hint
Third-party expansion is not as expected, labor costs are rising
