Incidents:
On March 14, the company announced its 2023 results, achieving full-year revenue of 77.78 billion yuan, up 28.2% year on year; gross margin of 27.9%, up 5.2 pct year on year; realized net profit of 5.88 billion yuan, turning a year-on-year loss into profit; basic earnings per share of 1.67 yuan; and the company plans to pay a cash dividend of 0.83 yuan per share.
The stock housing business grew steadily, and the new housing business bucked the trend
The total transaction volume of the stock housing business reached 2028 billion yuan, an increase of 28.6% over the previous year, and achieved revenue of 28 billion yuan, an increase of 15.9% over the previous year. The total transaction volume of the new housing business was 103 billion yuan, up 6.7% year on year, and achieved revenue of 30.6 billion yuan, up 6.7% year on year. In 2023, the company's new housing business bucked the trend, and the project coverage rate further increased. Stimulated by policies, the second-hand housing market is gradually recovering, and the stock housing business is growing rapidly. As an industry leader, the company is expected to continue to expand its market coverage and enhance its profitability.
The home improvement and rental business is expected to bring new growth
The home improvement and rental housing management and operation business accounted for more than 24% of the revenue (13% in 2022). Among them, the home improvement business achieved revenue of 10.9 billion yuan, an increase of 115.0% year on year; the rental housing management and operation business achieved revenue of 8.4 billion yuan, an increase of 194.8% year on year. The company has driven the rapid launch of the home improvement and home furnishing business through platform advantages, and has achieved profits in 11 cities. In terms of leasing business, the number of affordable rental housing units exceeds 200,000 units (70,000 units in 2022), with an occupancy rate of 95.1%. We believe that through horizontal expansion, the company has successfully opened up the home improvement and rental markets, which is expected to bring a new incremental track.
Scale grows at the same time as profit margins
In terms of contributing profit margin, the contribution margin of the stock housing business and the new housing business in 2023 was 47.2%/26.6%, respectively, an increase of 7.4/3.0 pct over the previous year. By the end of 2023, the company had 42,000 active stores, an increase of 12.2% over the previous year, and 397,000 active agents, an increase of 13.6% over the previous year. In 2023, the average GTV of stores increased by 29%, and the average GTV of agents increased by 25%.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 891.31/998.96/108.739 billion yuan respectively, with year-on-year growth rates of 14.60%/12.08%/8.85%, net profit to mother of 60.57/70.64/7.679 billion yuan, year-on-year growth rates of 2.95%/16.63%/8.7%, EPS 1.63/1.90/2.06 yuan/share respectively, and a 3-year CAGR of 9.29%. As an Internet leader in the domestic real estate industry, the company is expected to maintain the growth of new and second-hand housing businesses in future market restoration with platform and scale advantages. At the same time, the company's home improvement and rental business is becoming more mature, which is expected to bring about new increases by leveraging industry synergies. Given that the company has a core trading platform and horizontal business expansion capabilities, market sales are still under pressure. Referring to comparable company valuations, we gave the company 30 times PE in 2024, with a target price of HK$53.67 (HK$1.1008/RMB), maintaining a “buy” rating.
Risk warning: The announced results have not been audited; industry recovery falls short of expectations; market competition has intensified.