Event: The company announced its 2023 results. In 2023, we achieved revenue of 3.57 billion yuan, an increase of 55.8% year on year; net profit to mother was 467 million yuan, an increase of 89.0% year on year. The results exceeded market expectations.

High performance increased dividends, and hardware business delivery led to an increase in gross margin. In 2023, the company's revenue increased 55.8% year over year. By business: revenue from property management services was 1.42 billion yuan, up 36.8% year on year; revenue from community value-added services was 1.37 billion yuan, up 189.0% year on year; revenue from value-added services for non-owners was 710 million yuan, down 6.3% year on year; revenue from commercial management services was 0.7 billion yuan, up 188.3% year on year. Profit margin: The company's gross margin increased 4.7pct to 28.1% from 23.4% in 2022. The sharp increase in revenue from community value-added services and the increase in gross margin is mainly due to the delivery of the company's housing hardware business in 2023. The scale of the business depends on factors such as market demand and policy environment. Excluding the impact of this business, the company's gross margin remained basically the same year on year in 2023.

The scale of basic property management business continues to increase, and property management fees and collection rates have increased healthily. As of the end of 2023, the company's contract area and management area were 101.8 million square meters and 61.4 million square meters respectively, up 12.4% and 33.0% respectively from the end of 2022; the contract management ratio reached 1.66 times, and the performance was strong.

In terms of project sources: As of the end of 2023, the company's contract area from C&D Group and a third party was 61.6 million square meters and 40.2 million square meters respectively; revenue from third parties accounted for 39.5%, a year-on-year decrease of 3.8 pcts. The company adheres to the strategy of deep regional cultivation. By the end of 2023, the company had a layout of 63 cities, of which 19 had a contract area exceeding one million square meters, an increase of 2 over the previous year. The company's residential property management fee in 2023 was 2.51 yuan/square meter, an increase of 0.05 yuan/square meter over the previous year; the comprehensive collection rate was 94.1%, an increase of 0.1 pct over the previous year.

Community value-added services are growing rapidly, and the scale of commercial management is increasing in an orderly manner. In 2023, the company's community value-added services continued to grow rapidly, becoming the company's second-largest business segment, accounting for 38.5% of revenue, an increase of 17.7 pcts over the previous year. The home beautification business, which includes the hardware business, achieved revenue of 750 million yuan in 2023, an increase of 984% over the previous year, becoming the biggest growth point; smart community services, home delivery services, and retail businesses also achieved a year-on-year revenue increase of more than 40%. The company launched commercial property management services in September 2022, and added 2 asset-light projects in 2023. By the end of 2023, 21 commercial projects were under management, with a commercial area of 1.047 million square meters under management.

Actively give back dividends to shareholders. In 2023, the company's dividend per share was HK$0.26 (including a special dividend of HK$0.1), with a dividend rate of 71%. Corresponding to the closing price on March 22, 2024, the dividend rate was 8.2%.

Profit forecast and investment rating: The supply of the company's majority shareholders' projects is stable, the management area is growing steadily, various community value-added services go hand in hand, and the overall gross margin remains stable. According to the company's latest annual report, we raised our 2024-2025 net profit forecast to 59/72 million yuan (original value was 43/550 million yuan), and the estimated net profit for 2026 is 870 million yuan. The corresponding EPS is 0.42/0.51/0.62 yuan, and the corresponding PE is 6.9X/5.6X/4.6X, maintaining a “buy” rating.

Risk warning: The scale of projects delivered by major shareholders/related parties falls short of expectations; market-based expansion falls short of expectations; total social demand recovery is slow.