Core views

In the third quarter of 2023, the company achieved a total of 655.2 billion yuan in GTV, a year-on-year decrease of 11.1%, and revenue of 17.81 billion yuan, an increase of 1.2% over the previous year. The scale of brokerage business followed a decline in the industry, with rates rising steadily from month to month. The monetization rates for stock housing and the new housing business in the third quarter were 1.44% and 3.07%, respectively, up 0.05 and 0.09 percentage points from the first half of the year.

Benefiting from increased revenue, increased profit margins and reduced cost and efficiency, and reduced expenses, the company achieved adjusted non-GAAP net profit of 2.15 billion yuan in the third quarter, an increase of 13.3% over the previous year. In the third quarter, the home improvement business achieved revenue of 3.18 billion yuan, an increase of 72.1% over the previous year; the emerging business represented by rental housing transportation management services achieved revenue of 2.42 billion yuan, an increase of 202.7% over the previous year, and the new circuit business other than brokerage business achieved rapid growth.

occurrences

In the first three quarters of 2023, the company achieved a total revenue of 57.57 billion yuan, an increase of 31.1% over the previous year; it achieved a total of adjusted non-GAAP net profit of 8.08 billion yuan, an increase of 520.4% over the previous year. In the third quarter, the company achieved revenue of 17.81 billion yuan, an increase of 1.2% over the previous year; adjusted non-GAAP net profit of 2.15 billion yuan, an increase of 13.3% over the previous year.

Brief review

The brokerage business showed resilience in the third quarter, and rates bucked the trend and increased. In the third quarter, the company achieved a total GTV of 655.2 billion yuan, a year-on-year decrease of 11.1%. Among them, GTV for housing stock in the third quarter was 439 billion yuan, a year-on-year decrease of 2.2%, similar to the 1.5% year-on-year growth rate of second-hand transaction area in 17 cities across the country during the same period; GTV for new homes in the third quarter was 192.1 billion yuan, down 26.5% year on year, better than the 34.7% decline in sales volume of Kerri's top 100 housing enterprises during the same period. The company's revenue for the third quarter was 17.81 billion yuan, up 1.2% year on year. Among them, the year-on-year revenue growth rates for stock housing, new homes, home furnishings, and emerging businesses were -11.9%, -24.3%, +72.1%, and +202.7%, respectively. The scale of brokerage business followed a decline in the industry, with rates rising steadily from month to month. The monetization rates for stock housing and new housing business in the third quarter were 1.44% and 3.07%, respectively, up 0.05 and 0.09 percentage points from the first half of the year. The company's gross margin for the third quarter was 27.4%, up 0.4 percentage points from the same period last year. Benefiting from increased revenue, increased profit margins and reduced cost and efficiency, and reduced expenses, the company achieved adjusted non-GAAP net profit of 2.15 billion yuan in the third quarter, an increase of 13.3% over the previous year.

The number of stores is stable, and customer appeal is increasing. As of the end of the third quarter of 2023, the company had 43,000 stores, including 410,000 active stores; 429,000 brokers and 399,000 active agents, all of which were basically the same as in mid-2023. The average number of mobile monthly active users in the third quarter was 49.2 million, a further increase from the average of 48 million monthly active users in the second quarter.

The growth of the new track is accelerating. In the third quarter, the company's home improvement business achieved revenue of 3.18 billion yuan, an increase of 72.1% over the previous year; the emerging business represented by rental housing transportation management services achieved revenue of 2.42 billion yuan, an increase of 202.7% over the previous year. The new circuit business other than brokerage business achieved rapid growth, and the revenue contributed in the third quarter reached 31.4% of the company's total revenue.

In October, the company announced the acquisition of iSpace Home Furnishing Company at a price of no more than 1.55 billion yuan. The acquisition is expected to be completed in the first half of 2024. The scope of iSpace's services covers 14 Tier 1 and 2 cities. Revenue in the first half of 2023 accounts for about 25% of the company's home improvement business revenue. If the acquisition is completed, the company's home improvement business is expected to expand further.

Raise profit forecasts and maintain buying ratings. Considering the company's continued excellent performance in the first three quarters, we forecast the company's EPS for 2023-2025 to be 1.64/2.08/2.54 yuan (the original forecast for 2023-2025 EPS was 1.40/1.87/2.48 yuan), and the company's non-GAAP net profit for 2023-2025 is 93.6/98.2/11.0 billion yuan, respectively. We are optimistic about the company's ability to withstand cyclical growth and the development potential of the new track business, and maintain the buying rating.

Risk warning: 1) The restoration of second-hand housing and new housing transactions may fall short of expectations. Subsequent market trends for new and second-hand housing are still affected by the macroeconomic environment and residents' income expectations. If housing transactions fall short of expectations, it may cause the company's GTV and brokerage business revenue growth to fall short of expectations and performance pressure; 2) The development of emerging businesses may fall short of expectations. The company also approved Shengdu Home Furnishing in the second quarter of 2022, and plans to complete the acquisition of iSpace Home Furnishing in the first half of 2024. In the future, it will rely on the home improvement business to open up a second growth curve. However, there is a risk that the integration results of Shengdu Home Furnishing will fall short of expectations, and there is a risk that the acquisition of iSpace Home Furnishing will fail; the home improvement business is not a completely standardized business, and there is also a risk that the results of replication in many places will fall short of expectations.