Sunac Services's 1H23 performance meets market expectations.
Sunac Services announced 1H23 results: revenue was 3.4 billion yuan, down 15% from the same period last year, up 8% from the previous year; gross profit was 850 million yuan, down 25% from the same period last year, up 77% from the previous year; and the net profit from home was a year-on-year turnaround of 340 million yuan, in line with the company's previous profit forecast and market expectations.
The related party influence shows certain signs of clearing, and the balance sheet and cash flow continue to improve. In the first half of the year, on the basis of cash recoverability, the company continued to reduce related party business and carefully recognized revenue. Related party revenue fell 83% to 190 million yuan compared with the same period last year, accounting for 5.7% of total revenue. The gross profit of non-owner value-added services and business operation management services fell to 4.2%. The total receivables of related parties continued the downward trend since 2H22, falling by 130 million yuan to 3.24 billion yuan compared with the end of 2022, and the impairment of related party receivables was reversed to about 55.9 million yuan. Under strict recovery, the net inflow of operating cash flow in the first half of the year was 6.61 million yuan (1H22 was outflow of 1.01 billion yuan). Considering that the volume of the company's related party transactions has shrunk significantly and the impairment provision for the stock related party receivables is relatively sufficient, we believe that the company's related party drag has initially shown clear signs.
The growth of non-related party business has slowed down as a whole. In the first half of the year, the company's basic property management business income increased by 8% to 2.92 billion yuan compared with the same period last year (of which the related party vacancy fee of 150 million yuan was not confirmed, which was a drag on revenue growth of 5.7%). Compared with the end of 2022, the management area increased by about 1900 square meters to 263 million square meters. The company's new extension third-party annualized saturated income is about 200 million yuan, which is lower than the same period last year. Revenue from community value-added services fell 16% to 246 million yuan in the first half of the year compared with the same period last year, mainly due to the company's adjustment of strategy and the contraction of non-core products in some non-core cities. in addition, real estate brokerage business was also dragged down by sluggish real estate sales.
Trend of development
Pay attention to the stability of cash flow and dividend in the short term, and focus on the growth of core business in the medium and long term. In the performance conference, the company stressed that it will be safety-oriented, pay close attention to money, to ensure the safety and health of operating cash flow. We believe that the short-term dimension company is in the stage of preliminary settlement of related party business and gradual repair of its own operation. efforts should be made to observe the operating cash flow (the company expects the operating cash flow to cover most of the net profit for the whole year) and the dividend situation under the protection of healthy cash flow (the company expects the annual dividend amount to be at least the same as in 2022). The medium-and long-term dimensions may gradually focus on the endogenous growth momentum of the company's core business, including the external expansion ability of high-value projects in high-level cities, community value-added services in the United States, household services and other key business construction.
Profit forecast and valuation
We raise our 2023 and 2024 homing net profit forecasts by 10% and 4% to 678 million yuan (year-on-year turnround) and 722 million yuan (year-on-year + 6.4%), mainly considering the reduction of impairment pressure on related party receivables. Maintain the neutral rating and target price of HK $2.70, corresponding to 10 times the 2023 PPease E and 23% upside space.
The company traded at 8.3 times 2023 PCME.
Risk
The impairment of trade receivables is higher than expected; the repair of cash flow is not as expected; the extension of basic property management projects or the development of community value-added services is not as expected.