Annual results achieved a high year-on-year increase, and business diversification was very fruitful. Maintaining the “buy” rating, C&D Property published its 2023 annual report, achieving net profit of 35.7/4.7 billion yuan, up 55.8%/89.0% year on year; gross and net margins were 28.1% and 15.3%, respectively, up 4.6/4.3pct; diluted earnings per share of 0.33 yuan/share. It is proposed to pay a cash dividend of 0.26 HK$26 (including a special dividend of HK$0.1) per share, with a dividend ratio of 71% based on the closing price of the announcement date The rate is about 7.6% (around 1.7% in 2022). Due to uncertainty about the future hardware business, we slightly lowered 2024-2025 and added a profit forecast for 2026. We expect net profit to be 5.4, 6.6, and 790 million yuan (originally 2024-2025 was 550 million yuan and 750 million yuan), corresponding to EPS of 2024-2026 of 0.38, 0.47, and 0.56 yuan, and the current stock price corresponding to PE is 7.4, 5.9, and 5.0 times. The company's diverse businesses are developing collaboratively, and performance growth can be expected, and the “buy” rating is maintained.

Diversified businesses develop collaboratively, and the share of value-added business revenue increases

The revenue from basic property management/community value-added /non-owner/commercial operation and management in 2023 was 14.18, 13.75, 7.07, and 69 million yuan, respectively, +36.8%, 189.0%, -6.3%, and +188.3% year-on-year, respectively. The revenue structure is more diverse and healthy. Among them, the share of community value-added business revenue increased by 17.7 pct to 38.5% year on year, and all business segments achieved a year-on-year high increase in revenue. Among them, the home beautification business increased 984% year on year due to increased hardware settlement.

The basic property management area reached a new high, and related parties provided sufficient support for the company's basic property management contract/scale of management. By the end of 2023, the company had 445 projects under management, covering 46 cities (33 in the first half of 2023). The contract/management area was 101.8 and 61.45 million square meters respectively, up 12.4% and 33.0% year-on-year respectively. The contract management ratio was about 1.7, and the reserve management area was sufficient. In terms of project sources, 11.63 million square meters of the company's new management area came from related parties, an increase of 34.6% over the previous year. Of these, parties involved in the management area accounted for 64%, an increase of 4 percentage points over 2022. According to Kerui data, the controlling shareholder C&D Real Estate ranked 8th in full-caliber sales, which can provide the company with sufficient superior property management resources.

We have plenty of cash on hand, and the financial market remains stable

By the end of 2023, the company's accounts receivable increased 55.4% year over year to 590 million yuan due to the increase in business scale, but the company's financial market remained steady. The balance ratio decreased by 9.7 pcts to 51.8% compared to 2022, and the current ratio was about 1.9 times (1.6 times in 2022). At the same time, the company's cash in hand increased 9.2% year over year to 2.95 billion yuan. The amount of interest-bearing debt was only 0.2 billion yuan, and the pressure to repay debt was small.

Risk warning: Real estate industry recovery falls short of expectations, risk of future acquisitions or expansion.