The 2023 performance maintained steady growth, maintaining that the “Buy” rating company released its annual report on March 15. In 2023, it achieved revenue of 15.63 billion yuan, +20% year over year; net profit to mother of 740 million yuan, +24% year over year; net profit after deducting non-return to mother of 660 million yuan, +32% year over year. Considering the contraction of the real estate market and the intensity of competition for market expansion, we lowered our revenue and gross profit margin. We expect the company's EPS for 2024-2026 to be 0.84, 0.97, and 1.13 yuan, respectively (0.88 and 1.05 yuan before 2024-2025). Comparable companies' average 2024 PE was 11 times (Wind agreed). Considering the company's competitive advantage in the non-residential sector and the A-share liquidity premium, the company was given 18 times 2024 PE, with a target price of 15.12 yuan (previous value of 16.79 yuan), maintaining a “buy” rating.

The profit margin of basic property management was under pressure, and net profit not returned to mother achieved a high growth rate. The company's revenue in 2023 achieved the target at the beginning of the year. The revenue of the property management sector was +18% year-on-year to 14.76 billion yuan, of which non-residential property management was +26%, confirming the company's competitive advantage in the non-residential sector; the gross margin of residential/non-residential infrastructure management was -1.23/0.98pct year over year to 7.89%/9.10%. Fierce market development competition and the pursuit of service quality led to continued pressure on property management profitability. The asset management sector's revenue was +50% to 70 million yuan, and gross margin was +9.17pct to 50.74% year over year, mainly due to the expansion of commercial operation and management area and the end of rent reduction. Despite a year-on-year decline in the company's gross margin and operating profit margin, the reduction in the actual income tax rate drove net profit to the mother to grow at a higher year-on-year rate than revenue. After further excluding disturbances caused by the sale of heavy assets and government subsidies, net profit excluding non-return to mother grew 32% year over year.

Overcoming competitive pressure, non-residential market expansion achieved outstanding results

In 2023, the company signed a new annual contract amount +22% year over year to 4.04 billion yuan, of which related housing enterprises/third parties were -6%/+27%, respectively, and residential/non-residential were -7%/+29%. Affected by adjustments in the real estate market, the company's newly acquired residential projects have declined, but it has overcome competitive pressure and achieved impressive results. The financial office business and university business have signed new annual contract amounts +67%/31% compared to the same period, expanding large-scale urban service projects such as Shenzhen's Zhaoshang Street City Manager. In addition to traditional market expansion, the company has also broadened resource acquisition channels through general management and joint ventures. At the same time, mergers and acquisitions have also contributed 190 million yuan to market expansion.

Value-added services are progressing steadily, increasing dividend payments and enhancing shareholder returns

In 2023, the company's platform value-added service revenue was +1% to 580 million yuan, and gross margin was +2.46pct to 8.49% year over year, mainly because the company voluntarily abandoned some low margin business; professional value-added service revenue was +10% to 2.06 billion yuan, and gross margin was +1.51 pct to 8.49% year over year, making it the core IFM service provider for many leading enterprises such as Huawei. In addition, the company's proposed cash dividend amount in 2023 accounted for 24.5% of net profit attributable to mother, +3.1 pct compared to the previous year. It is planned that 2024-2026 cash dividends will account for no less than 25%, further strengthening shareholder returns.

Risk warning: The support of related housing enterprises is weakening, profitability is declining, and the separation of key assets falls short of expectations.