Key points of investment:

Deeply involved in real estate brokerage and building a technology-based national service platform to enhance the company's competitiveness, the company completed restructuring in 2017. It became the first leading real estate service company in China to land on the A-share main board, covering diversified businesses such as second-hand housing brokerage, new home sales, and housing asset management. It owns well-known brands such as I Love My Family, Xiangyi, and Kunbaida. The company actively promoted organizational transformation, accelerated the upgrading of the digital industry research system, and created a series of digital intelligence tools such as the Starry Platform, the Credit System, and Xiaoai Assistant, with “excellent people” as the core, and the transformation into a high-level Internet enterprise.

Market demand continues to rise, and there is plenty of room for improvement in the institutionalization rate of the housing rental and service market. Currently, China's second-hand housing transaction GTV accounts for less than 50% of the total real estate transaction amount, far below the level of more than 70% in developed countries, and the market potential is huge. In the medium to long term, the share of second-hand housing transactions is expected to increase further. In terms of the rental market, the institutionalization rate of housing leasing in China is only 4.5%, and the gap between 30% and 70% in developed countries is significant. In the future, specialized and branded leasing operators will gradually increase their market share and lead industry transformation.

Second-hand housing brokers are linked with new housing sales to help the company enhance the competitiveness of the brokerage business. The company's core business brand, I Love My Family. With years of accumulation, it has a good reputation and a leading position in the market in core cities such as Beijing, Shanghai, and Hangzhou. Through brand upgrades and technological empowerment, the company will continue to increase its market share in advantageous cities while actively expanding its urban layout. In terms of new housing, the company makes effective use of customer resources to provide customers with a variety of options, improve transaction efficiency for developers, and give full play to the synergy of second-hand housing.

The scale of housing asset management continues to expand, and is expected to become a new performance growth point. The company's “Xiang House” brand operates housing asset management services. It is the first company in China to establish a housing asset management business, and has rich management experience. Currently, the number of housing units under management has exceeded 260,000, serving more than 2 million owners and 5 million tenants, and the scale of housing asset management is close to trillion dollars.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2023-2025 to be 119.81/150.69/16.619 billion yuan, with a year-on-year growth rate of 2.63%/25.78%/10.29%, a 3-year CAGR of 12.50%, and net profit of 0.50/2.96/391 billion yuan, with a year-on-year growth rate of 488.23%/32.01%, respectively. EPS is 0.02/0.13/0.17 yuan/share, respectively. Given the unique advantages and business growth of the company's A-share market as the only real estate brokerage company, the overall valuation is expected to improve in the future. Using the segmented valuation method, we gave the company a target price of 3.69 yuan, corresponding to 30 times PE in 2024, covering the first time, and giving it a “buy” rating.

Risk warning: The recovery of the real estate market fell short of expectations; the expansion of stock housing and housing rental business fell short of expectations; and digital transformation fell short of expectations.