Incident Overview
The company released its 2023 annual report. For the full year of 2023, the company achieved revenue of 11.515 billion yuan, a year-on-year decrease of 18.55%; net profit to mother of 22.16 billion yuan, from profit to loss (749 million yuan in 2022); net profit after deduction of -1,228 million yuan (616 million yuan in 2022). In terms of cash flow, net cash flow from operating activities was 2,364 billion yuan, a decrease of 39.07% over the same period last year. It was mainly affected by fluctuations in the overall economic environment, the phased decline in shopping mall occupancy rates, and increased concessions to stabilize businesses, and the decline in operating cash inflows from various business sectors. Looking at a single quarter, the company achieved revenue of 26.17/30.43/30.15/2840 billion yuan in Q1/Q2/Q3/Q4 in 2023, respectively, -22.47%/-15.03%/-14.51%/-22.30%; net profit to mother of 1.46/0.05/-7.11/-16.56 billion yuan, respectively, a year-on-year decline of 79.10%/98.53%/342.85%/118.05%.
Analytical judgment:
Revenue side: Pressure on the real estate side dragged down the company's core business. Continuing to expand the integrated consumption of multiple business formats, the company achieved revenue of 11,515 billion yuan in 2023, -18.55%. The sales area of commercial housing nationwide was -8.5% year-on-year during the reporting period. Terminal demand is still under heavy pressure, which greatly dragged down the company's revenue growth. By business: The leasing and related revenue of the company's own shopping malls was 6.781 billion yuan, down 13.8% from the previous year. The changes were mainly affected by fluctuations in the overall economic environment, the phased decline in shopping mall occupancy rates, and the increase in the company's business stabilization and business promotion. Revenue from the commissioned management business was $2,031 billion, down 14.5% from the same period last year. This was mainly due to a decrease in early project brand consulting contract management, annual brand consulting management service revenue, and business consulting fees and investment commission project revenue. The company's construction and design revenue was 1,212 billion yuan, a decrease of 121 million yuan compared with the same period last year, mainly due to a decrease in the number of projects and gross profit of the project this year. Sales revenue from home improvement-related services and products was $313 million, a decrease of $328 million compared with the same period; this was mainly due to overall economic fluctuations, a decrease in the number of new home furnishing-related projects and a slowdown in the progress of ongoing projects. In addition, in March 2023, the company announced the M+ High-end Design Center; in July 2023, the company reached a strategic cooperation with Shanghai Carnage Auto Service Co., Ltd. and other parties to combine the automobile category with the household category. The company vigorously promotes the collaborative development of multiple business formats, which is conducive to improving the quality of operation and expanding performance growth, and it is worth looking forward to subsequent performance.
Profit side: In terms of short-term impact on the company's profitability and profitability, the company achieved a gross profit margin of 56.74% in 2023 (2023Q4 was 52.74%, -0.41pct year over year); net margin was -20.59% (2023Q4 -61.09%), credit impairment losses were 841 million yuan, asset impairment losses were 1,036 million yuan, and net profit and loss from fair value changes was 887 million yuan (mainly investment real estate), which had a significant impact on the company's profitability in the short term. In terms of expenses, the company's fee rate in 2023 was 46.6%, an increase of 8.86pct year-on-year. Among them, the sales expense ratio was 12.88%, an increase of 1.88pct; the management expense ratio was 11.31%, an increase of 1.33ct; the financial expense ratio was 22.24%, an increase of 5.81 pct; and the R&D expense ratio decreased by 0.16 pct to 0.17% year over year.
Investment advice
The company has now formed a “10+1" three-dimensional home ecosystem with full online and offline layout, full coverage of home, home improvement, high-end appliances, and full links to brand and designer resources; while adhering to the “light assets, reducing leverage, and heavy operation” strategy to continuously optimize its financial structure; in addition, the company introduced new shareholders C&D Shares and MediaTek Group in June 2023 to continue to optimize the shareholder structure. We look forward to the collaborative development and mutual empowerment of the subsequent company and C&D in the supply chain, real estate business, etc. Considering that current terminal demand is still under high pressure and that it will still take some time to collaborate and integrate with the C&D business, we lowered the company's profit forecast for 2024-2025. Revenue was lowered from 165.82/17.587 billion yuan to 116.81/119.98 billion yuan, respectively, and EPS was lowered from 0.50/0.58 yuan to 0.11/0.14 yuan, respectively. The company is expected to achieve revenue of 12.395 billion yuan and EPS of 0.20 yuan in 2026. Corresponding to the closing price of 3.39 yuan/share on April 1, 2024, the 24-26 PE was 32/25/17X, respectively. The company's “buy” rating was adjusted to “increase holdings.”
Risk warning
1) Real estate sales fell short of expectations. 2) The new business is not progressing smoothly. 3) The results of cooperation with new shareholders fell short of expectations. 4) The company received a regulatory letter from the Shanghai Stock Exchange on matters relating to the company's financial support in October 2022. 5) In December 2023, the company received an information disclosure regulatory letter from the Shanghai Stock Exchange regarding the report for the third quarter of 2023.