Results for the first half of 2023 gradually stabilized: total revenue increased 1.0% year on year to RMB 7.70 billion (same below). Among them, property management, owner value-added, and urban service revenue increased by about 5-8%, but revenue from extrapolated value-added services fell 40% year on year. Gross margin fell 6.5 percentage points to 20.4% year on year, mainly because owners and extended value-added services recorded large declines (down 20.7/16.2 percentage points from the previous year to 27.6%/19.7%, respectively). Affected by the decline in gross margin, net profit decreased 20.7% year on year to 839 million yuan, but increased 7.3% from 782 million yuan in the second half of 2022. The company has seen a recovery in operating cash flow and is recommended to pay an interim dividend of $0.025 per share (no dividend was set last year).
Non-cyclical business revenue grew steadily, up 7.2% year on year: with the steady expansion of property management scale (management/contract area increased 5.4%/4.2% in half a year to 575 million/762 million square meters), basic property management revenue increased 7.4% year on year to 5.27 billion yuan, owners' value-added service revenue increased 7.7% year on year to 1.17 billion yuan, while urban service revenue increased 5.0% year on year to 674 million yuan. Non-cyclical business grew steadily in the first half of the year, and its share of revenue increased by ~5 percentage points to ~ 92% over the same period last year. The company still plans to continue to further develop residential property management and value-added services for owners. As more contract space is converted into managed area, we expect basic property management revenue to maintain a growth rate of about 10% in 2023-25, while value-added services for cities and owners will increase by 10-20% each year.
Dependence on the real estate market and related parties is low: In the first half of 2023, the revenue/gross profit share of extrapolated value-added services closely related to the real estate cycle continued to decline to 8%/7% (11%/12% in 2022 and 20%/29% in 2021). Furthermore, in the first half of 2023, the company maintained strong third-party outreach, increasing the contract area by about 30 million square meters, and the management/contract area of the third party was about 479/614 million square meters, accounting for about 83%/81%.
Buying was maintained, and the target price was lowered to HK$8.22. We believe that under the uncertainty of the real estate market, the company's gross margin will continue to be pressured, and the company's core profit forecast for 2023/24/25 was lowered by 15% to 18.1/20.5/2.29 billion yuan. However, we believe that the company's dependence on real estate and related parties is low. With operating cash flow and profit growth recovering from month to month, there is limited room for stock prices to decline. We expect the company to grow more flexibly when the real estate industry recovers in the future, so we will maintain our buying rating for Ya Life. Based on the adjusted earnings per share forecast for 2023 and a price-earnings ratio of 6 times (unchanged), we lowered our target price from HK$10.68 to HK$8.22.