Brief performance review
On November 8, 2023, the company announced its third quarter results: 3Q23 achieved revenue of 17.8 billion yuan, +1.2% year-on-year; realized net profit of 1.17 billion yuan, +63%; and achieved adjusted net profit of 2.16 billion yuan, an increase of 14% over the previous year.
Management analysis
Revenue and profit both exceeded guidelines. Revenue for the third quarter of this year exceeded the previous guideline limit (16 billion yuan) by 11%, mainly because: ① Total GTV exceeded previous expectations. In 3Q23, the company's stock housing transaction volume was 439 billion yuan, -2% year-on-year, which was significantly better than the -20% year-on-year guideline; the new housing transaction volume was 192.1 billion yuan, -26% year-on-year, slightly better than the -30% year-on-year guideline. ② Increased monetization rate. The comprehensive monetization rate of 3Q23 stock housing increased 0.03ppt to 1.44% month-on-month, mainly due to the increase in the share of transaction volume of chain companies with higher monetization rates; the monetization rate of new housing increased by 0.12ppt to 3.07% month-on-month due to the company's strong comprehensive strength. Net profit for 3Q23 also exceeded previous guidelines, mainly due to higher revenue than expected, higher contribution margins, and lower cost ratios due to cost reduction and efficiency.
Home improvement continues to develop rapidly, and many cities have achieved profitable operating profits. Q3 Home Furnishing added a contract amount of 3.3 billion yuan, +66% year-on-year, revenue of 3.2 billion yuan, +72% year-on-year. The rapid development of home improvement has benefited from the collaboration of the company's track real estate transaction business. Currently, 45% of the contract amount for home improvement and home furnishing comes from the diversion of real estate transaction services. Track 1 and 2 continues to play a synergistic role to help business development. Furthermore, 10 cities, including Beijing, Shanghai, and Hangzhou, have now achieved two consecutive quarters of single-city operating profit profit, and the overall performance continues to improve.
The cash flow is healthy and steady, and the repurchase plan is actively implemented. From January to September this year, the company's net operating cash flow was 9.39 billion yuan, +61% year-on-year. A healthy and steady cash flow helps the company have sufficient cash on its books. As of the end of September this year, the company's cash and equivalents, restricted capital, and short-term investments totaled RMB 60.4 billion. Furthermore, the company has actively implemented the previous repurchase plan. From September 2022 to September 2023, it has repurchased a total of US$7365 million (up to US$2 billion as of August 31, 2024).
Profit Forecasts, Valuations, and Ratings
Considering that the company's profit performance has greatly exceeded expectations, we have raised our profit forecast. It is estimated that the company's non-GAAP net profit for 2023-25 will be 9.5 billion yuan/10.9 billion yuan/12.5 billion yuan respectively (up 22.4%/11.2%/13.4% from previous forecasts), with a year-on-year growth rate of +234%/+14.3%/+15.5%. The current stock price of the company corresponds to the 2023-25 PE valuation (corresponding to non-GAAP net profit) of 14.5x/12.7x/11.0x, maintaining the “buy” rating.
Risk warning
The recovery in real estate sales fell short of expectations; the risk of negative public opinion broke out; and rates continued to be lowered.