Performance review
The performance of Hejing leisurely living 1H22 is lower than market expectations.
Hejing leisurely announced 1H22 results: revenue of 2.064 billion yuan, an increase of 68% over the same period last year; net profit of 314 million yuan, unchanged from the same period last year, and performance below market expectations, which we believe is mainly due to the slow expansion of scale, the slow development of businesses such as community value-added services, and the obvious decline in the overall profit margin.
Overall business development has slowed down. On the area side, in the first half of 2022, the company's tube area and contract area increased by 30% and 29% to 214 million square meters and 286 million square meters respectively compared with the same period last year, and the growth rate of the company's size slowed significantly at a high base. In the first half of the year, the company bid for a total contract area of about 1400 million square meters, of which about 37% contributed to urban service projects. On the income side, affected by multiple factors such as the macroeconomic environment, the unfavorable real estate market, and repeated epidemics, the company's revenue from community value-added services in the first half of the year fell 41% to 192 million yuan compared with the same period last year. Residential pre-sale management services were also directly affected by the decline in real estate sales, with revenue down 24% from the same period last year to 134 million yuan.
There was a marked decline in profitability. The company's consolidated gross profit margin in the first half of 2022 was 30.1%, a year-on-year decline of 14.1 percentage points, with a gross margin of about 25% in the residential sector and 35% in the non-residential sector. We believe that the significant decline in profit margin is mainly due to the consolidation of the subject matter of M & A, considering that the profit margin of the residential form of M & An is lower than that of the company's own projects, and that low gross profit items such as public construction and urban services account for a relatively high level of profit margin in non-residential formats, which is a drag on the overall profit margin of the company; in addition, the slow development of high gross profit value-added services such as parking space sales, property brokerage and case management in the first half of the year and the decline in revenue share also led to a year-on-year decline in comprehensive gross profit margin.
Trend of development
The growth rate is expected to slow down in 2022 and beyond. We believe that the growth rate of corporate earnings may slow to 10-15% year-on-year in 2022-2023, mainly considering: 1) after the active M & An expansion in 2021, the company size base has been significantly enlarged, but the current market environment may be difficult to support the company to maintain growth through mergers and acquisitions; 2) under the cooling real estate environment and repeated epidemic situation, the flexibility of business growth such as pre-sale management and community value-added may be limited. 3) considering the adjustment of the overall profit structure and the format structure of property management, the company may still need to absorb the downward pressure of profit margin.
Profit forecast and valuation
We cut 2022 and 2023 revenue by 5% and 12% to 4.58 billion yuan (up 41%) and 5.34 billion yuan (up 17%), and reduced 2022 and 2023 net profit by 11% and 17% to 750 million yuan (up 11%) and 832 million yuan (up 12%), mainly considering that the company's management scale and business development may face a significant slowdown. Maintain the neutral rating and lower the target price by 51% to HK $1.7 (corresponding to 4 times 2022 price-to-earnings ratio, which has 18% upside compared to the current share price), mainly reflecting the adjustment of earnings forecasts and the decline in the company's medium-and long-term growth momentum. The company currently trades at 3.4 times and 3.0 times 2022 and 2023.
Risk.
The effect of M & A project integration is not as good as expected; the result of bidding is not as good as expected; the profit margin is lower than expected.