Key points of investment
The scale of the stock housing business was stable. The adjusted net profit improved year on year by 2023Q3, the company's total transaction volume of 655.2 billion yuan, -11.1%; of which the company's total stock housing transaction volume was 439 billion yuan, -2.2%, accounting for 67.0% of the company's total transaction volume; total new housing transaction volume was 192.1 billion yuan, -26.5%, accounting for 29.3% of the company's total transaction volume; combined with the company's total new housing transaction volume of 572.9 billion yuan in the first half of 2023, and the total transaction volume of 2023Q1-3's new housing business was 76.5 billion yuan, with a market share ratio of 76.5 billion yuan 8.6%, an increase of 1.5 pct over the market share in 2022. The net revenue of 2023Q3 was 17.8 billion yuan, +1.2% year on year; adjusted net profit was 2.16 billion yuan, +13.7%; gross profit was 4.9 billion yuan, +2.6%; and gross margin was 27.4%, up 0.4 pct from the same period in 2022. We believe that although the decline in the total transaction volume of the company's new housing business in 2023Q3 was affected by the pressure on commercial housing restoration across the country, the company's market share of new housing transactions in the first three quarters bucked the trend, and the stock housing business remained basically stable as the company's basic market size, and the company's overall operation was still relatively stable.
The number of stores and agents increased, and the number of monthly active mobile users increased 2023Q1-3. The company's operating expenses were 11.6 billion yuan. The fee rate was 20.2%, down 3.9 pct from the end of 2022.
As of September 2023, the number of company stores was 4,3013, and the number of active stores was 40,903, an increase of 2,497 and 3,457, respectively, compared to the end of 2022; the number of brokers was 429,000, and the number of active agents was 399,000, an increase of 35,000 and 49,000, respectively, over the end of 2022. The average number of 2023Q3 mobile monthly active users was 49.2 million, +16% over the same period last year. We believe that although the total transaction volume of the company declined year on year in 2023Q3, the number of monthly active mobile users and personnel of the company increased year over year, indicating that although the wait-and-see sentiment among homebuyers still exists, their attention to the home buying market has increased.
Actively promoting the “all-in-one three-wing” growth strategy. Home improvement and emerging businesses performed well in the home improvement business. In terms of the home improvement business, the home improvement business revenue of 2023Q3 company was 3.2 billion yuan, an increase of 72.1% over the 1.8 billion yuan in 2022/3. The rapid increase in 2023Q3 performance was mainly due to the increase in the completed real estate area across the country (2023Q1-3 increased 19.8% year over year), which led to an increase in the home improvement business. In terms of emerging business, 2023Q3's emerging business revenue was 2.4 billion yuan, up 202.7% from the 800 million yuan in 2023Q3, and the company's rental housing management business grew rapidly.
Profit forecasting and valuation
The performance of the stock housing business as the company's basic market has remained stable, the market share of the new housing business bucked the trend, and the home improvement and emerging business performed brilliantly under the “all-in-one three-wing” growth strategy. We continue to be optimistic about the performance of Shell as a leading intermediary in the new housing and second-hand housing business in this round of the real estate industry restoration cycle. According to the company's 2023Q3 results and Q4 performance guidelines, we believe there is room for improvement in the company's annual performance. Referring to comparable company valuations and seashell's leading position, we maintain the company's 2023 30xPE valuation with a corresponding target price of HK$67.97, maintaining a “buy” rating (all prices are in RMB, close to the December average exchange rate, 1 HKD = 0.8988 RMB).
Risk warning
Second-hand housing rehabilitation fell short of expectations; demand restoration efforts weakened.