Brief performance review

On March 25, 2024, the company announced its annual results for 2023: revenue of 2,809 million yuan, +41.7% YoY, and net profit to mother of 493 million yuan, +19.6% YoY.

Management analysis

Revenue slightly exceeded expectations, and net profit to mother fell short of expectations, mainly due to a decline in gross margin. The company's revenue slightly exceeded expectations in 2023, mainly due to the rapid development of the scale of Youju services in 5S value-added services; while net profit growth to mother fell short of expectations, mainly due to the decline in gross margin. In 2023, the company's gross margin fell 5.1pct year-on-year to 24.8%. Among them, the gross margin of property management services fell 0.8 pct to 18.3%; the gross margin of non-landlord value-added was affected by the real estate industry, and gross margin of 5S value-added services fell 16.0 pct to 32.3% year-on-year due to the structural impact of the rapid increase in revenue share of Youju services with low gross margins.

Actively implement brand outreach, continue to increase the share of third parties, and increase independence. By the end of 2023, the company's contract area was 82 million square meters, +19.0% year-on-year; the management area was 55 million square meters, +30.7% year-on-year, with third parties accounting for a year-on-year increase of 1.5 pct to 56.5%; there was a net increase of 13 million square meters in terms of management and construction throughout the year, of which 61.3% came from third parties. While the share of third parties continues to rise, the company has maintained a high level of property fees. The average property management fee is 4.21 yuan per square meter per month (4.26 yuan per square meter per month in 2022).

Breakthroughs have been made in the hardware business, and 5S value-added services have increased dramatically. The company launched the hardware business in the Youju business in 2022. The successful experience will be replicated and marketed in 2023. The annual Youju business achieved revenue of 532 million yuan, +354.8% over the same period, which in turn led 5S value-added services to achieve overall revenue of 678 million yuan, +172.5% over the same period last year, increasing the revenue share by 11.5 pct to 24.1%.

Special dividends are paid, and both the dividend ratio and dividend rate are high. In 2023, the company paid a final dividend of HK$1.178 per share and a special dividend of HK$0.196 per share for the 5th anniversary of listing. The total annual dividend ratio was about 70%, an increase of 10 pct over 2022. Corresponding to the closing price of HK$17.52 per share on March 25, the company's dividend ratio reached 7.84%, showing outstanding value for money.

Profit Forecasts, Valuations, and Ratings

Considering that the company's hardware business is driving rapid revenue growth while lowering gross profit margin, we raised our revenue forecast and lowered our net profit forecast. We expect net profit to mother of 570 million yuan, 650 million yuan, and 730 million yuan respectively for 2024-2026, with year-on-year growth rates of +15.0%, +14.2%, and +12.4%, respectively. Maintaining a “buy” rating, the closing price of the company's stock on March 25 corresponds to the 2024-26 PE valuation of 7.9x, 6.9x, and 6.2x.

Risk warning

Binjiang Group's sales performance fell short of expectations; external development fell short of expectations; 5S value-added development was not going well.