The performance of 2023Q3 was impressive: the company's total transaction volume in the third quarter was 655.2 billion yuan, a year-on-year decrease of 11.1%. During the period, the company recorded net revenue of 17.8 billion yuan, +1.2% year-on-year and -8.6%, respectively.

The gross margin for the period was 27.4%, up 0.4% year on year, and was basically the same month on month. The year-on-year increase was mainly due to the decrease in 23Q3 store costs as a proportion of total revenue compared to the same period last year, while the contribution margin remained relatively flat. The company's operating expenses during the period were 4 billion yuan, an increase of 12% over the same period last year. The main reason is that sales expenses increased significantly due to the increase in the revenue scale of the home improvement business. The operating margin for the third quarter was 5.1%. The adjusted net profit was $2.16 billion, up 14.4% year on year.

The first track business moved forward steadily: stock housing transactions in the third quarter were 439 billion yuan, a decrease of 2.2% over the previous year, and achieved net revenue of 6.3 billion yuan, a decrease of 11.1% over the previous year. The decrease in commission revenue was mainly partly offset by revenue growth in platform services, franchise services and other value-added services. Stock housing contributed an excellent profit margin of 48.7%, up 2.6% and 3.1% year-on-year and month-on-month, respectively. The transaction volume of new housing was 192.1 billion yuan, a decrease of 26.5% over the previous year, and a net income of 5.9 billion yuan, a decrease of 24.3% over the previous year. The share of commission revenue from developers of central enterprises in the third quarter remained at 46%, and the share of quick commission programs with prepaid commissions from developers remained high at 54%. The transaction rate for the new housing business rose from 2.95% in the second quarter to 3.07% in the third quarter, showing impressive performance. The new housing business contributed 25.1% to profit margin, up 0.2% year on year and down 2.1% month on month.

The new business entered the fast track of development: the home improvement business transaction volume during the period reached 3.3 billion yuan, an increase of 65.6% over the previous year. Achieved revenue of 3.2 billion yuan, an increase of 72.1% over the previous year, and the proportion of contract value contributed by the diversion of the integrated real estate transaction business further increased to 45%. Shanghai became the third city after Beijing and Hangzhou to exceed 100 million dollars in a single month. Among the top ten cities with contract value, the seven cities that achieved positive net profit brought greater strategic certainty to the company's development. In addition, the company signed an equity acquisition agreement with iSpace in October this year, which is expected to bring greater synergy to the home improvement business. The total volume of new business and other transactions was 20.7 billion yuan, a year-on-year decrease of 16%, achieving a year-on-year increase in revenue of 202.7% to 2.4 billion yuan, mainly due to an increase in revenue from rental housing operation and management services. The number of housing units managed by Seashell Rental increased from 50,000 units in the same period last year to 160,000 units in the third quarter of this year.

The target price is HK$73.2 /$28.8, maintaining the buying rating: the company has solid cash reserves and sound financial management, and has carried out many stock repurchases. It also achieved its first dividend during the year, actively giving back to shareholders and achieving efficient capital allocation. We are optimistic about the steady development of the company's “integrated” business and the increase in industry penetration as a leader in housing services, and the ability of the “three wings” business to consolidate the company's resilience after crossing the real estate cycle. The company's adjusted net profit for the next three years is estimated to be 9.1 billion yuan, 9.6 billion yuan and 10.5 billion yuan respectively, giving 18 times PE in 2024. Plus, after holding broad cash, the company obtained a target price of HK$73.2 /$28.8, maintaining the buying rating.