Incident: C&D Property's revenue for the first half of 2023 was +38%, net profit was +32%, and C&D Property announced its 2023 interim results announcement. The first half of 2023 achieved revenue of 1.37 billion yuan, up 37.7% year on year; gross profit of 350 million yuan, up 37.6% year on year, gross margin of 25.6%, same as the same period last year; net profit of 170 million yuan, up 31.8% year on year.

Comment: Community value-added services are growing rapidly, the pace of expansion outside the province is accelerating, and diversifying business formats in a balanced manner 1) Community value-added services are growing rapidly, and the revenue structure continues to be optimized. In the first half of 2023, the company achieved revenue of 1,373 billion yuan, an increase of 37.7% over the previous year. Among them, property management service revenue accounted for 48%, which was the largest source of revenue; revenue from community value-added services increased sharply by 94.3% year-on-year, accounting for 26%. Community value-added business segments are developing rapidly. Among them, smart community services, home living services, and home beautification services grew rapidly, with revenue increasing by 110%, 54%, and 692%, respectively, over the same period last year.

The company's overall revenue structure was optimized. 2023H1 non-owner value-added service revenue accounted for 24%, a decrease of about 10 pct from the same period last year; starting in the second half of 2022, the company added business management business and broadened the scope of business. 2023H1 business management business was steadily developed. It provided services to 21 commercial projects, managed a commercial area of 1.01 million square meters, and achieved revenue of 3.188 million yuan.

2) Relevant parties are developing rapidly, laying the foundation for high-quality development. The company is backed by Xiamen C&D Group and has high-quality resource endowments. In the first half of 2023, the company had a total management area of 50.61 million square meters, of which related parties had a total management area of 30.76 million square meters, an increase of 10.1% over the end of 2022; in the first half of the year, C&D International achieved real estate contract sales amount of 74.7 billion yuan, an increase of 55.7% over the previous year. With the subsequent C&D Group's strong sales and land acquisition performance, more high-quality projects will be delivered to C&D property management. It is expected that the company's management scale will continue to expand with high quality.

3) The pace of expansion outside the province is accelerating, and diversified business formats are being promoted in a balanced manner. By the end of June 2023, the company's management area reached 50.61 million square meters, contract area reached 94 million square meters, joint management ratio was about 1.86, project reserves were abundant, and future growth was highly guaranteed. Among them, the Haixi Cluster, East China Cluster, and Southeast Cluster accounted for 62.5%, 18.7%, and 18.7% of the management area, respectively. The company accelerated the pace of expansion outside of the province and actively promoted the nationwide layout. In the first half of the year, it added 426 million yuan in outreach contracts, of which 233 million yuan was outside Fujian Province, surpassing Fujian Province for the first time.

Looking at the business format, the company has the residential business as the core, and at the same time is balanced in developing high-quality diversified business formats such as high-end businesses, office buildings, industrial parks, hospitals, and schools. As of the end of June 2023, the non-residential business had a management area of 4.26 million square meters, accounting for 8.4% of the total management area. In the first half of the year, non-residential property management revenue accounted for 20.5% of property management revenue.

Profit forecasting, valuation and rating: The company's property management projects have a high-density layout in Fujian, with a scale advantage, and the community value-added business is growing rapidly; it has excellent resource endowments, steady management by related parties, and stable delivery of high-quality projects under management. At the same time, C&D Group has a strong brand strength and high product reputation, which is conducive to enhancing the competitiveness of the company's third parties. We maintain the company's net profit forecast for 2023-2025 at 330 million yuan/4.3 million yuan/5.3 million yuan. The current stock price corresponds to the PE of 2023-2025 at 14 times/11 times/8 times, maintaining the “buy” rating.

Risk warning: Expansion outside of Fujian fell short of expectations, and increased expansion competition led to a decline in profit margins.