Revenue in '23 was +20% YoY, and net profit to mother was +23% YoY, lower than market expectations. In 2023, the company achieved operating income of 13.05 billion yuan, +19.7% year on year; gross profit of 2.07 billion yuan, +19.3% year on year; net profit to mother of 1.34 billion yuan, +22.8% year on year, lower than market expectations; basic earnings per share of 0.41 yuan, +22.8% year on year; gross margin and net profit margin to mother were 15.9% and 10.4%, flat at +0.3 pct year on year, respectively; ROE was 36.8%, year over year. The company's steady growth in performance is mainly due to: 1) steady growth in the company's managed projects and area; 2) stable gross margin; 3) continuous growth in value-added services for non-residents and residents. In addition, the company plans to pay a final dividend of 8.5 HK cents per share, for a total of 14 HK cents for the whole year, corresponding to a dividend ratio of 31%.
In 23 years, the area under management was +25%, and the expansion was added +33% year-on-year. At the end of 2023, the company's management area reached 402 million square meters, +25.4%; in 2023, the company added 81.2 million square meters of management area, with related parties and third parties accounting for 29.4% and 70.6% respectively; residential and non-residential accounts for 47.8% and 52.2% respectively; additional contract amounts of 7.02 billion yuan, +35% year-on-year, with related parties and third parties accounting for 43% and 57% respectively. By the end of '23, the company's management area: 1) related parties and third parties accounted for 59.5% and 40.5% respectively; third parties accounted for an increase of 7.7pct compared to the end of '23; 2) the package system and the remuneration system accounted for 83.3% and 16.7% respectively; 3) residential and non-residential housing accounted for 69.9% and 30.1% respectively. In 2023, 109 million square meters of external development contract area were added, +32.8%, of which 1) residential/industrial parks/commercial/other accounted for 38.8%/40.6%/8.4%/12.2%; 2) of the winning project sources, enterprises, public construction businesses, small and medium developers/industry committees/government enterprise joint ventures and platform companies accounted for 42.7%/19.3%/15.1%/11.8%/8.5%/2.6%, respectively.
The gross margin of property management services continues to rise, and there has been a high increase in value-added services for households. In 2023, the company's property management services, value-added services for non-residents, value-added services for residents, and parking space trading services achieved revenue of 94.15, 21.45, 12.9 billion yuan, respectively, +16.0%, +18.3%, +70.9%, and -6.6%, respectively, accounting for 74.5%, 16.6%, 6.9%, 2.0%, respectively. The gross margins of property management services, non-residential value-added services, and value-added services for residents were 15.0%, 13.1%, and 26.1%, respectively. 12.3 pct; in property management services, the gross margin of the package was 12.7%, +2.1 pct compared to the previous year. The increase in gross margin of property services stems from the company increasing its subcontracting efforts and optimizing the human structure to improve per capita efficiency. The decline in gross margin of household value-added services is mainly due to the increase in the share of businesses such as retail and community group purchases with low gross margins, and the increase in additional costs involved in improving the community service system. In value-added services for non-residents, revenue from engineering services, pre-delivery services, sales inspection, and consulting was +48.3%, -9.0%, +8.8%, and -12.6%, respectively; in value-added household services, operating income from community asset management services, home living services and commercial services was +37.1% and +110.8%, respectively. In addition, the company is actively expanding rich business formats such as urban services, office buildings, hospitals, commercial centers, and government agencies, and is actively expanding all business formats.
Investment analysis: Performance growth has slowed slightly, but expansion remains positive, maintaining a “buy” rating. CNOOC Property is backed by Zhonghai Real Estate. By the end of '23, the company had a management area of 40 million square meters, +25% over the same period, and the management scale was steadily increasing. Furthermore, the CNOOC project lays out three major metropolitan areas and Tier 1 and 2 core cities. The ability to raise property fees is relatively strong, medium- to long-term profit margins are more stable, and there is great potential for value-added services. Considering the downturn in the industry, we lowered the company's 2024-25 net profit forecast to $16.7 billion and 2.06 billion (the original forecast value was HK$2.15 billion and the company's 23-year report was adjusted from HKD to RMB), and introduced a net profit forecast of $2.54 billion for 26 years. The current price corresponds to a 24-year PE of 8.0X (comparable to the company's 24-year PE average value of 11.1X), maintaining a “buy” rating.
Risk warning: The expansion of value-added services fell short of expectations, labor costs rose beyond expectations, and profit margins declined, and third-party outreach fell short of expectations.