Incident: The company recently released its 2023 annual report, achieving annual revenue of 15.63 billion yuan, +20.0% year over year; net profit to mother of 740 million yuan, +24.0% year over year; net profit after deducting non-return to mother of 660 million yuan, +32.1% year over year.
The scale of the property management business has steadily increased, and the asset management business has been significantly restored. The company's revenue increased 20% year over year, and net profit to mother increased 24% year over year. The profit side growth rate was higher than the revenue side. The main reason may be the decline in actual income tax in '23 and the impact of the low base effect of rent relief in '22. By business segment, property management and asset management revenue were 14.76 billion yuan (+18%) and 70 billion yuan (+50%) respectively. Property management business, basic property management/platform/professional value-added revenue increased by 20.4%/1.4%/10.2%, respectively. The scale of basic services increased steadily, and the company's management area increased 10.8% year-on-year to 345 million square meters at the end of the period. The gross margin of the residential/non-residential sector decreased by 1.2 pct/1.0 pct respectively, but the gross margin of platform/professional value-added increased by 2.5 pct/1.5 pct, and there is still room for improvement in the profitability of the property management business in the future. In the asset management business, revenue from commercial operations/owned properties increased by 139%/25% year on year, and gross margin increased by 14.5 pct/9.4 pct, thanks to the expansion of commercial operation area, the recovery in revenue from owned properties after the pandemic, and the end of 22 years of rent reduction.
The advantages of the non-residential sector have been consolidated. Looking at the distribution of business formats, the ratio of the non-residential sector's managed area/revenue to basic property management was 61.9%/71.9%, respectively. The annual contract amount signed increased 28.7% year-on-year to 3.46 billion yuan, accounting for 85.6% (81.1% in '22). In addition, the amount of new contracts signed by the company in the financial and university industries increased 67%/31% year-on-year. At the same time, it is deeply involved in urban services, further consolidating its advantages in the non-residential sector.
Stakeholders continue to support them, while increasing their efforts in market expansion. At the end of 23, about 35% of the company's 345 million square meters of management area came from the controlling shareholder, China Merchants Shekou. Stable business support from related parties is the company's advantage over peers, and it is expected that it will continue to provide the company with high-quality property project resources in the future. Furthermore, the company is stepping up its efforts in market expansion. Third-party projects signed a new annual contract amount of 3.54 billion yuan (+27.4%) in '23. The company ranked in the top five for revenue in Shenzhen, Guangdong, Jiangsu, Shanghai and Sichuan, effectively increasing project density in advantageous regions; deepening “total to total” development, deepening strategic layout collaboration with valuable customers such as Ali; and landing in 7 joint ventures.
Maintain the buy rating and adjust the target price to $11.31. Based on the operating situation in the annual report, we adjusted the company's management area and revenue and gross margin forecasts for various businesses, and raised the company's expense ratio forecast. The adjusted 24-26 EPS was 0.87/1.16/1.56 yuan (the original forecast was 1.07/1.30 yuan for 24-25). Comparable companies have a 24-year PE of 12x. The company's related parties have stable support and strong outreach capabilities. The expected 25-year performance growth rate is higher than that of comparable companies, giving a 10% valuation premium, corresponding to 13 times the 24-year valuation, corresponding to a target price of 11.31 yuan.
The risk suggests that the company's profit margin repair was lower than expected. There is uncertainty about outreach.
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