1H23 performance is in line with market expectations
The company announced its results for the first half of 2023: revenue increased 1% year on year to 7.70 billion yuan, and net profit to parent fell 21% year on year to 84 billion yuan, in line with market expectations. The company proposed an interim dividend of 0.025 yuan per share, corresponding to a dividend ratio of 4.2%.
The scale of basic property management is steadily expanding, and market expansion is under pressure. At the end of the first half of 2023, the company's management area increased 9% year on year to 575 million square meters, an increase of about 29.6 million square meters over the end of last year. Corresponding basic property management revenue increased 7% year on year to 5.27 billion yuan. In the first half of the year, the company's third party expansion contract area was more than 30 million square meters, corresponding to an annual contract amount of about 800 million yuan, a year-on-year decrease of 33%. This was mainly due to factors such as shrinking supply in the new housing market and increased competition in the market.
The value-added service structure of owners is fragmented, and the share of epitaxial value-added services continues to decline. In the first half of the year, owners' value-added service revenue increased 8% year on year to 1.17 billion yuan. Among them, revenue from lifestyle and comprehensive services increased 37% year on year due to the restoration of businesses such as housekeeping and retail and new business development such as energy-saving transformation. Revenue from home improvement and home furnishings decreased 49% year-on-year due to the decline in delivery of new homes. Revenue from developer-related extended value-added services fell 40% year on year to 590 million yuan, and the share of total revenue fell 5.3 percentage points year over year to 7.7% year on year.
There was a year-on-year decline in gross margin, and there was a certain improvement in cash flow and additional receivables from related parties. The gross margin of basic property management fell 2.4 percentage points year-on-year to 18.9% in the first half of 2023 (19.1% in 2022), mainly due to factors such as an increase in the share of third-party projects and the company's continued investment to improve project quality; gross margin for owners' value-added services and extended value-added services both declined significantly, mainly due to factors such as some business development being affected by the downturn in the real estate industry and adjustments in some business models. Trade receivables from related parties at the end of the first half of the year were 3.47 billion yuan, which is basically the same as at the end of last year. In the first half of the year, the company also controlled the size of accounts receivable through means such as mortgaging property assets from developers, and achieved a correction in operating cash flow (1H22 operating cash flow of 1.43 billion yuan).
Development trends
Future development will focus on operating efficiency and cash flow, and it is recommended that continued attention be paid to related business and receivables repayment. The company's past business scale has developed rapidly. In the future, it will focus on the qualitative development of the core business, continue to make efforts to segment the value-added service track, and improve quality and efficiency on the management side. The business orientation will shift to pursuing operating efficiency and cash flow. We expect that the core business is expected to achieve steady growth in quality in the future; in terms of extended value-added services, we believe we need to continue to pay attention to the business situation of related party Agile. We also suggest continuing to pay attention to trade receivables and repayment of related party receivables.
Profit forecasting and valuation
We keep our profit forecast unchanged. We expect net profit to be 1.65 billion yuan and 1.56 billion yuan for 2023 and 2024, respectively, down 10% and 5% from the previous year. Maintaining a neutral rating and a target price of HK$6.0, corresponds to a target price-earnings ratio of 4.6 times in 2023 and 18% upside. The company is currently trading 3.9 times the 2023 price-earnings ratio.
risks
Accounts receivable repayment progress falls short of anticipated risks, and third-party project expansion falls short of anticipated risks