2023 results are in line with market expectations
The company announced its 2023 results: revenue increased 4% year on year to 6.54 billion yuan, and net profit to mother fell 10% year on year to 430 million yuan, in line with market expectations, mainly due to the drag on value-added services from non-owners and other year-on-year declines in revenue. The Board recommended a year-end dividend of HK$0.09 per share (HK$0.14 for the year), with a total dividend payout ratio of 50%, corresponding to the current dividend rate of 10.6%.
Under the influence of the environment, business operations have gone through a stage of adjustment. Affected by the market environment and the company's focus on operational quality and efficiency, there were major adjustments in the company's segmented business operations in 2023:1) the infrastructure end, withdrawing from about 31 million square meters of low-efficiency projects, and the project operation placed more emphasis on project quality and repayment; 2) In terms of community value-added services, the company focused on other segments such as home life. Businesses related to the real estate cycle faced some pressure. Revenue fell 13% to 890 million yuan; 3) Non-landlord value-added services were affected by related parties, and gross profit declined by 7.8 percentage points to 8.1% .
Core competencies remain stable, and emphasis is placed on improving shareholder returns. Although the company has been in the process of clearing risks in the past two years, it has maintained a certain strategic strength and resilient core competency performance; on the one hand, the amount of third-party external development contracts stabilized at 1.16 billion yuan in 2023 (stable performance for three consecutive years), and marketability continued to be at the forefront of the industry; on the other hand, the company's core management team also remained stable (the executive team increased its total shareholding of 8.35 million shares in 2023), while the equity incentive plan continued to advance. The company's net operating cash flow in 2023 exceeded 900 million yuan, the dividend ratio increased from 30% in 2022 to 50%, and a cumulative total of 9.89 million shares were repurchased from November 2023 to January 2024, reflecting the importance the company attaches to shareholder returns.
Development trends
It is expected to get back on track after transformation and adjustment. It is recommended to continue to pay attention to changes in cash flow and receivables. The company aims to maintain the compound double-digit growth rate of revenue and profit and net profit covering more than 1 times the net operating cash flow during the “25 period”, control the growth rate of accounts receivable scale, and achieve high-quality growth in net operating cash flow growth rate > profit growth rate > revenue growth rate. We believe that with the basic completion of the company's transformation and adjustment at the level of risk management, business model, and business independence, core business-side companies are expected to continue to develop steadily. Considering that the scale of company-related receivables and third party receivables is still at a high level, we believe it is still necessary to pay attention to cash flow disbursement and changes in total related party accounts and depreciation.
Profit forecasting and valuation
We basically kept our 2024 profit forecast of 480 million yuan unchanged (up 11% year on year) and raised the 2025 net profit forecast of 5% to 530 million yuan (up 10% year over year), mainly taking into account hypothetical adjustments to the gross margin of the company's core business. Maintaining an outperforming industry rating, the target price was raised by 18% to HK$1.65 (5 times the target price-earnings ratio in 2024, implying 28% upward space), mainly considering that the dividend ratio of the company is attractive after increasing its dividend ratio. The company currently trades at 4.2 times the 2024 price-earnings ratio and 3.6 times the 2025 price-earnings ratio.
risks
Third-party outsourcing falls short of the expected risk, and the risk of accounts receivable repayment and impairment exceeding expectations.