Event: the company issued a performance announcement on March 29, 2022.

Main points of investment

The revenue of the diversified business has increased, and the profitability has declined: in 21 years, the company achieved 28.84 billion yuan in revenue, + 84.9% year-on-year, and 4.03 billion yuan in net profit, + 50.2% last year. Among them, property management services maintain rapid growth through endogenesis and extension, and the proportion of revenue decreases from 7.3pct to 48%, which still belongs to the company's main business; while community value-added services, urban services and commercial operation services achieve rapid growth, the proportion of revenue has increased, and the company's sources of income have become more diversified. The company's comprehensive gross profit margin in 21 years is 30.7%, which is lower than that in 20 years. The main reasons for the decline are: 1) the increase in labor costs caused by the government's cancellation of social security relief policy in 21 years; 2) the rapid increase of urban services with low gross profit margin; 3) the company continues to innovate infrastructure and increase investment in intelligent transformation of facilities.

The scale of M & An assistance has reached a new level, and the proportion of third parties has surpassed: in 21 years, the company's property management business achieved revenue of 13.79 billion yuan, + 60.3% compared with the same period last year, and the contract management area except "three supplies and one industry" business was 1.438 billion yuan, + 75.2% year-on-year. At the same time, the managed area is 770 million square meters, + 102.9% compared with the same period last year, and the co-management ratio is 1.9, while the scale continues to take the lead. Continuous optimization of the structure: 1) the proportion of core cities has increased: the company has improved the energy level of service cities through external expansion. In 21 years, the managed area of first-and second-tier cities has reached 360 million square meters, and the proportion has increased by 7.1pct to 47.1%. 2) the proportion of third parties exceeds that of related companies: the company acquires large property management companies such as Garbo Services, Fuliang Global and Neighbourhood Lok. Of the newly added 617 million square meters of contract management area in 21 years, the contribution of M & An is 445 million square meters and 388 million square meters in the management area. The contribution of M & An is 278 million, thus the proportion of the third party in the management area is increased to 55% and the dependence on the parent company is reduced. And the company does not rely heavily on mergers and acquisitions. In 21 years, the company has increased 84 million "contract management area" and 38 million "management area" through brand expansion. We believe that through mergers and acquisitions, the company will not only improve the scale of management, but also help to quickly cut into the new track and make up for the property types of management.

In 22 years, the company will slow down the pace of mergers and acquisitions, focus on post-investment integration and improvement of quality and efficiency, and strive to achieve high-quality development.

Community value-added services continue to make efforts, "three supply and one industry" profit improvement: 1) Community value-added: 21 years to achieve revenue of 3.33 billion yuan, year-on-year + 92.2% CAGR reached 100% in 19-21, growth rate of more than 90% for three consecutive years, accounting for 11.5% of total revenue, gross profit margin of 60.5%, compared with 20 years-4.6pct. The company has successfully developed six major business sectors, of which the revenue from community media services increased by 179.1% to 980 million yuan compared with the same period last year, and the income from local life services providing community retail business increased by 107.1% to 1.11 billion yuan. 2) "three supplies and one industry": the company began to undertake the "three supply and one industry" business of state-owned enterprises through the establishment of joint ventures with professional companies in the past 18 years. In the "three supplies and one industry" in 21 years, property management services managed an area of 85.2 million yuan, with revenue of 2.51 billion yuan, + 62.8% compared with the same period last year, thanks to the provision of value-added services to increase gross profit margin to 11.6%. The heating area reached 42.3 million yuan, and the heating business achieved revenue of 1.22 billion yuan, + 5.4% compared with the same period last year. Through the energy saving and efficiency brought about by the transformation of facilities and equipment, the gross profit margin was raised to 10.4%, which has become an example of the reform of state-owned enterprises.

The growth of urban services accelerated, and commercial operations set sail light: 1) Urban services: as the newly expanded business in 20 years was fully merged in 21 years, the revenue from urban services increased by + 412.3% to 4.53 billion yuan, accounting for 15.7% of the total revenue. The company focuses on the five core tracks of municipal, space operation, industrial park, campus and hospital, and its comprehensive management ability is constantly enhanced. 2) Business operation: as a new business in 21 years, the revenue is 650 million yuan, the gross profit margin is 50.3%, accounting for 2.3% of the total income, there are more than 100 shopping malls in the camp, and the construction area is more than 5 million yuan. It has formed complete product lines such as Bile City, Bile Square, Bile time and other light asset operation projects such as Beicheng No. 8 in Chengdu and Leduhui in Wuxi, with a total reserve of more than 3 million yuan.

Investment advice: buy. We believe that after the company successfully achieves the jump in scale and the increase in the proportion of third parties through M & A, and slows down the pace of M & An and focuses on project integration, it is expected to improve the quality and efficiency of M & A projects and promote the landing of value-added services. With the continuous enrichment of the company's management formats and the continuous enhancement of the comprehensive management capacity, the synergy between the various formats is expected to be achieved and should enjoy a certain valuation premium. We expect the company to have an EPS of 1.68 in 2022, giving the company 25 times PE in 2022, with a target price of HK $51.83 and maintaining a "buy rating".

Risk hint: aggressive M & A leads to too high goodwill, and there is a risk of impairment in the integration.