Incident: Xuhui Yongsheng Service continues to repurchase shares.

Since the beginning of 2024, Xuhui Yongsheng Service has continued to repurchase shares. From January 2 to January 23, the total number of shares repurchased by the company was 4.248,000 shares, accounting for 0.24% of the company's issued shares (as of January 2, 2024); the total repurchase amount was about 4.757 million yuan.

Comment: Adhere to high-quality development, and the share of real estate-related businesses has declined markedly. Focus on accounts receivable collection 1) Optimize the property management project portfolio and insist on high-quality development. As of June 30, 2023, the company's contract area is about 300 million square meters. In terms of management area of 210 million square meters (third party accounts for 77.1%, housing accounts for 67.6%), the 2023H1 company added 22.11 million square meters of contract area. In terms of market expansion, the company has obtained high-quality first-hand projects such as Suzhou Shanlan Jingting, Changzhou Binjiang Haoyuan, and Jingzhou Yinguan Famous City. Through participating in tenders conducted by the Owners' Committee to replace the original property management service providers, it has obtained high-quality second-hand projects such as Shanghai Jinsha Yayuan Future District and Wenzhou Dafa Triumphal Arch. Tall ; On the other hand, the company terminated the project contract area of 21.3 million square meters in 2023H1, including property management projects with poor profitability that the company voluntarily did not renew. Withdrawing from such projects in a timely manner will help the company optimize its portfolio of managed projects and improve overall operating efficiency.

2) Non-cyclical businesses are developing steadily, and the share of real estate-related businesses has declined markedly. 2023H1 achieved revenue of 3.18 billion yuan, +0.7%; gross profit margin of 20.2%, a year-on-year decrease of 5.5 pct; net profit to mother of 240 million yuan, or -36.3%; structurally, property management/community value-added/non-owner value-added value/urban service revenue accounted for 68.8%/12.9%/11.7%/6.6%, with gross profit accounting for 63.7%/27.7%/6.0%/2.5%, respectively. The property management business remains the cornerstone of the company's growth and remains steady; 2023H1's real estate-related business The share of gross profit decreased significantly (15% compared to the same period in 2022), and the subsequent impact of the real estate market was limited.

3) Focus on the collection of trade receivables and the restoration of profitability. As of June 30, 2023, the total amount of the company's trade receivables was 2.49 billion yuan. Judging from the age of trade receivables, 85.1% of trade receivables were within one year, and the term structure was reasonable. In terms of source, related party receivables were 1.01 billion yuan (an increase of about 230 million yuan over the end of 2022), accounting for 40.6%. The company has performed well in the third-party outreach market and has the ability to develop independently in the future. The impact of real estate-related businesses and related parties' receivables needs to be gradually resolved. After business structure and operation adjustments, the company's gross margin is also expected to stabilize, and the company is expected to return to a normal growth trajectory.

Profit forecast, valuation and rating: The company's management scale has improved steadily, and the company's development speed has been affected in the short term due to the downturn in the real estate industry and fluctuations in related parties' business conditions. We adjusted the company's net profit forecast for 2023-2024 to 29/370 million yuan (the original forecast was 1,06/1.36 billion yuan), and the net profit forecast for 2025 was 460 million yuan, corresponding to the 2023-2025 EPS of 0.17/0.21/0.26 yuan. The company's ability to develop independently has increased markedly recently The company actively buybacks in the capital market to enhance investor confidence; however, due to the continuing impact of related businesses, related parties' receivables also need to be further tracked and the company's rating downgraded to “increase holdings.”

Risk warning: Continued impact on real estate-related businesses; impairment of receivables is uncertain; expansion falls short of expectations.