1H22 performance is in line with our expectations
The company announced 1H22 results: revenue was 11.31 billion yuan, down 17.3% from the same period last year, and net profit from home was 860 million yuan, down 19.3% from the same period last year, deducting 610 million yuan from non-home net profit, down 41.4% from the same period last year. 2Q22 realized 5.46 billion yuan in income, 31.7% less than the same period last year, 370 million yuan in net profit, 38.8% lower than the same period last year, and 260 million yuan in non-return net profit, a decrease of 56.1% over the same period last year. The performance is in line with our expectations.
In the first half of the year, the company's gross profit margin decreased by 1.2ppt to 16.0% compared with the same period last year; the expense rate for the four periods increased by 0.3ppt to 7.5% compared with the same period last year, of which the sales / management / R & D / financial expense rate was + 0.6ppt / R & D / financial expense rate + 0.6ppt / "0.7pptmob" 0.3ppt / 0.1ppt respectively; the total asset and credit impairment loss returned to 88.65 million yuan (compared with 55.21 million yuan in the same period last year), mainly because the impairment of receivables tested separately was prepared to return. The homed net interest rate fell 0.2ppt to 7.6 per cent compared with the same period last year. In the first half of the year, the company had a net operating cash outflow of 380 million yuan, a 12% decrease over the same period last year; and a net investment cash inflow of 170 million yuan, down from 1.52 billion yuan in the same period last year, mainly due to a decrease in the number of maturing redemptions of wealth management products.
Trend of development
Residential business orders continue to fall, waiting for demand repair. In the first half of the year, the company signed new orders of 11.58 billion yuan, down 29.8% from the same period last year, of which residential orders decreased by 68.3% from the same period last year, continuing the year-on-year downward trend since 2020. In the first half of the year, under the background of tightening financing in the real estate industry, the demand for private real estate projects continued to contract, restricting the demand for the company's residential business and the construction progress of existing projects: in the first half of the year, the company's decoration business revenue decreased by 21.1% compared with the same period last year (19.5% in 2021). Looking to the future, we believe that considering that the company has industry leading advantages in brand, technology and management for many years, the company's residential business indicators are expected to be repaired after the industry demand picks up.
Actively expand the public clothing business, the promotion of EPC model helps to increase the market share. In the first half of the year, the company's newly signed orders for public clothing business fell 16.9% compared with the same period last year, a relatively controllable decline. Under the background of the weak demand for residential decoration, the company is actively looking for business opportunities in the field of public clothing to expand health care, old-age care, urban renewal, sports, transportation and other livelihood projects. We believe that the promotion of the current EPC model in the public wear industry is expected to raise the threshold of competition in the industry, help the company accelerate its market share, and be optimistic about the sustained and steady growth of the medium-and long-term public wear business.
Adequate cash on hand and healthy cash flow to reserve momentum for medium-and long-term development. In the first half of the year, the bad debts of the company's notes receivable were washed back to 1.48 billion yuan, a substantial increase over the same period last year (41.53 million yuan). We believe that the provision for impairment in the previous period is more sufficient. At present, the company has sufficient funds on hand, and its cash flow continues to be healthy, so we continue to be optimistic about the company's medium-and long-term development opportunities.
Profit forecast and valuation
Keep the profit forecast unchanged. The current price corresponds to 7.5x/7.0x 2022e/2023e Pamp E. Maintain an outperform industry rating and a target price of 7.0yuan, corresponding to 10.4x/9.7 x 2022e/2023e Pack E and 38% upside space.
Risk
Housing business indicators continued to decline sharply; impairment provision exceeded expectations.
