Incident: Jinmao Service's revenue for the first half of 2023 +23.4%, net profit for the first half of 2023 Jin Mao Services announced the 2023 interim results announcement. The company's realized revenue was approximately RMB 1,353 million, an increase of 23.4% over the previous year. Achieved gross profit of approximately RMB 357 million, an increase of about 0.4% year on year, and net profit of RMB 146 million, a year-on-year decrease of 13.8%.

Comment: Community value added is growing steadily, outreach capacity is increasing, project quality is high 1) Community value added is steadily increasing, and the share of related business is declining. In the first half of 2023, the company's basic property management/community value-added revenue was 750 million/380 million, up 38.7%/54.5% year on year respectively. The community value-added business formed four major business lines: community space operation, community life, Mercure platform services, and real estate brokerage services. Among them, the Meiju/real estate broker/community space operation business achieved rapid growth in the first half of the year, with revenue increasing 113.7%/82.1%/37.5%, respectively. On the profit side, the gross margin of the 2023H1 community value-added business was 38.8%, and the gross profit share reached 41.2%, an increase of 8.9 pct over the previous year. The quality of the housing projects managed by the company is high, and it is expected that the owners' consumption potential for value-added services will continue to be explored in the future. Community value-added will still be an important driving force for the company's profit growth.

The share of real estate-related business declined. 2023H1 non-owners' value-added service revenue was 220 million, a year-on-year decrease of 28%, and a gross profit margin of 38%, down 9.8 pct from the previous year. The reason was that revenue from pre-planning and design services and post-delivery services decreased; the share of gross profit was 23.8%, a decrease of 17.9 pct over the previous year, and the revenue structure was optimized.

2) Outreach projects are of high quality and the Group is rich in resources. As of June 30, 2023, the company's contract area/management area was 94.5/71 million square meters, an increase of 13.70/14.1 million square meters respectively over the end of 2022. During the period, the company achieved the expansion of projects in various business formats such as high-quality housing, commercial, office buildings, industrial parks, and museums, including high-rise office buildings such as Shanghai Taiping Financial Tower, Shandong Qingzhou Museum, and Nacha Auto Headquarters. At the same time, related parties, China's Jinmao, delivered high-quality projects in core cities such as Beijing Yihe Jinmaofu, Wuhan Donghu Jinmaofu, and Wenzhou Jiushan Jinmaofu in the first half of the year, further consolidating the company's high-end property management brand positioning and strength.

3) Deeply cultivate core cities, enhance outreach capabilities, and improve independent development capabilities. As of June 30, 2023, the company is managing 443 projects, including 276 residential communities and 167 non-residential properties, spread across 75 cities in China. Tier 1 and 2 cities account for about 90% of the management area, and core cities continue to cultivate; after listing, the company increased its expansion efforts and independent development capabilities continued to improve. As of June 30, 2023, the third party's management area was 33.91 million square meters, an increase of 89.5% over the previous year, accounting for 47.8% of the total managed area, an increase of 8.5 pct over the previous year.

Profit forecasting, valuation and rating: The company is based on rapidly growing high-end property management. Relevant project resources are high, its own outreach capabilities have improved, and community value-added and urban services have great potential; the share of real estate-related business has decreased and the revenue structure is optimized. We have reduced the revenue and profit forecast of non-owners' value-added business, and predicted that 2023-2025 net profit will be 3.5 (18% reduction) /4.2 billion yuan (16% reduction) /4.9 billion yuan (14% reduction), corresponding to EPS of 0.38/0.46/0.54 yuan, respectively. PE in 2025 was 5/4/4 times. The company has a central enterprise background. The quality of the projects under management is high, the valuation is attractive, and the “buy” rating is maintained.

Risk warning: The development of value-added services fell short of expectations, and increased competition for outreach led to project expansion falling short of expectations.