The company's operating profitability remains stable, internal and external efforts to expand to increase the basic market size, value-added services continue to make efforts to create a competitive advantage, rich cash on hand and potential willingness to receive mergers and acquisitions provide the possible driving force for the size growth of the company in the future. The company's current valuation quantile is absolutely low, the dividend ratio is also increasing, and the dividend yield investment return is better. We give the company a 2023 PE forecast of 12x, corresponding to a target price of HK $4.40 per share, maintaining a "buy" investment rating.

The performance is in line with expectations, and the proportion of dividends has increased. In the first half of 2023, the company realized operating income of 1.512 billion yuan, year-on-year + 38.7%, gross profit of 425 million yuan, year-on-year + 23.1%, corresponding to gross profit of 28.1%. In the first half of 2023, the company realized net profit of 248 million yuan, + 17.5% of the same period last year, and 16.4% of the corresponding net profit. Profitability is in line with expectations, still at the top level of the industry. The company paid an interim dividend of HK $0.089 per share for the first time since the company announced its listing, with a dividend distribution ratio of 50%, significantly higher than the 36% for the whole of 2022, and actively rewarding investors to share the operating development dividend. We calculate that the current annualized dividend yield of the company is about 6.3% (at the closing price on August 22, 2023, the dividend for the whole year is calculated at twice the interim dividend). We believe that the property management industry is an industry that can continue to generate cash flow, but the average dividend payout rate of this industry is low in history. The gradual increase in the dividend payment rate of the company will help to continuously strengthen investors' understanding of the "cash cow" company and promote the reasonable return of valuation.

The extension has been carried out smoothly and the scale has expanded steadily. By the end of June 2023, the company had a contract management area of 77.49 million square meters and a management area of 58.76 million square meters, an increase of 9.8% and 13.7% respectively over the end of 2022. In the first half of 2023, the company signed 44 new projects, with an additional contract management area of 8.26 million square meters, an increase of 65% over the same period last year. The expansion of the company's contract area management scale not only depends on the continuous and stable delivery support of the parent company's affiliated developers and Yuexiu Group, but also benefits from the continuous improvement and strengthening of the market-oriented independent extension ability. in the first half of 2023, the company's third-party market-oriented extension area is 3.91 million square meters, accounting for 47% of the new contract area. the market-oriented extension is mainly distributed in the field of urban service public construction, accounting for 63% of the contribution area. Relying on the credit of the company's related parties and the company's professional ability advantages, the company's contract management area will continue to increase steadily. Of course, the urban service public construction business may have the problem of increasing receivables in stages. The scale of accounts receivable in the first half of the year increased by 190 million yuan, or 32%, compared with the end of 2022.

The basic property management operation is stable, the value-added service is obvious, and the commercial transportation management is of high quality. In the first half of 2023, the company's non-commercial basic property management business income was 458 million yuan, + 16% compared with the same period last year, and the gross profit margin of basic property management services was 16%, down 4 percentage points from the same period last year. The decline in the gross profit margin of non-commercial basic property management may be related to the increase in operating costs and the increase in the scale of low-margin projects such as urban service and public construction. The company continues to make efforts in the field of value-added services. in the first half of the year, the income of community value-added services reached 401 million yuan, + 64% compared with the same period last year, and the gross profit margin was 35.5%. Focus on mature business to pursue economic benefits, continue to improve the service level, and actively tap service demand. The business segment of the company has a business income of 301 million yuan in the first half of 2023, which is + 8% compared with the same period last year. The gross profit margin of the segment is 31.5%, a slight drop of 2.2% over the same period last year. The segment consolidates and extends the company's advantages in the operation and management of business management properties, and insists on doing a good job in the quality operation of the project under management.

With plenty of cash on hand, the enterprise has great potential for development. The company announced the equity incentive program at the end of 2022, and the exercise right at the profit level requires that the growth rate of non-homed net profit deducted by 2023 CAGR 2024 in 2025 is not less than 32%, 52% and 75% respectively, which is higher than the average level of the same industry (that is, the performance CAGR of 2023-2025 at least achieves the target of about 15%). Good corporate governance and clear incentive plan to promote the company's management to be positive and promising. The company is rich in cash on hand, and the company holds 4.62 billion yuan in cash by the end of June 2023, which is higher than the company's market capital. it also has the ability to invest in the relatively light M & A market to accelerate the development of the company.

Risk factors: the risk of market extension, especially the risk that the scale expansion is lower than expected caused by the continuous intensification of competition in the housing sector; the risk that the merger and acquisition process is not as expected; the risk of further increase in the scale of accounts receivable and further extension of the account period caused by the continuous expansion of the scale of urban service public construction projects Part of the company's value-added service business is still in the process of exploration and practice, the profit model is not yet mature and clear, and the scale growth and profit margin level of related business may fluctuate to a certain extent.

Earnings forecast, valuation and rating: the company's operating profitability is stable, internal and external efforts to expand to increase the basic market size, value-added services continue to make efforts to create a competitive advantage, rich cash on hand and potential willingness to receive mergers and acquisitions provide the possible driving force for the size growth of the company in the future. Since the company went public, the PE quartile is only 3.6% (based on the closing price on August 22, 2023). The current valuation is at the absolute bottom level, the dividend return is good, and the continuity of business development is strong. The company is not currently on the Hong Kong Stock Connect list, and if the trading activity and the total market value increase in the future, it is expected to enter the Hong Kong Stock Connect in 2024. We maintain the forecast of the company's net profit from 2023 to 2025 of 486 million / 586 million / 711 million yuan respectively, corresponding to the EPS forecast of 0.32 pounds 0.38 pounds 0.47 yuan per share. With reference to the PE multiple 9x-18x predicted by CITIC Research Department of comparable property management companies in Hong Kong (Wayoyun, China Shipping property, Binjiang Services, etc.), we are optimistic about the potential of the company's future management expansion and market competitiveness, and give the company a 2023 PE forecast of 12x, corresponding to the target price of HK $4.40 per share, maintaining the "buy" investment rating.