On March 28, 2024, Xincheng Yue Service announced the 2023 results; the company achieved main business revenue of 5.42 billion yuan in 2023, +4.7% year-on-year, and profit attributable to shareholders of 450 million yuan, +5.1% year-on-year.

Revenue continues to grow and profitability is stable. The company achieved main business revenue of 5.42 billion yuan in 2023, +4.7% year-on-year, mainly due to the growth of property management services and community value-added service businesses. Profitability remained stable. The overall gross profit margin of 26.52% during the reporting period was roughly the same as 25.84% in the same period last year. In terms of business segments, the gross margin during the property management business period fell from 24.5% in 2022 to 24.0% in 2023, mainly due to the increase in the cost of service personnel and the reduction in the positive impact of newly delivered residential projects; the gross margin of community value-added services increased to 35.7% (2022:32.2%), mainly due to the increase in revenue from high-margin public resource management services and the decline in revenue from low-gross margin portable check-in services The changes have had an impact on the sector's gross margin; the gross margin of developers' value-added services fell from 21.2% in 2022 to 20.8% in 2023, mainly affected by the decline in demand brought about by the downturn in the real estate industry.

The cornerstone business is developing steadily, and the management area is growing steadily. In 2023, the company's property management revenue was 3.555 billion yuan, accounting for 65.5% of total revenue. The property management business maintained a relatively rapid growth rate as the company's core business; as of the end of the reporting period, the company's managed area was 223.69 million square meters, a net increase of about 12.8% over the end of last year. The share of the area from third parties fell from 51.9% in 2022 to 48.9% in 2023, while the share of the area from the new urban system increased to 51.1% (48.1% in 2022).

The value-added service structure was optimized, and the sustainable business achieved double-digit growth. The company's value-added service business structure was optimized, cyclical business contracted, and sustainable business growth: In 2023, the company's community value-added services achieved revenue of 1.31 billion yuan, +2.3% year-on-year, accounting for about 24.2% of total revenue. Looking at the internal structure, sustainable community value-added service revenue was +12 year-on-year.

8%, accounting for about 79.8% of value-added community services. Among them, revenue from group meal services was +26.4%, revenue from public resource management services was +44.7%, and revenue from one-time services (home decoration, asset management services, etc.) was -25.2%, mainly due to the high correlation with the real estate cycle. During the period, the company's developers achieved revenue of 550 million yuan from value-added services, or -36.2% over the same period. Also, due to the high correlation with the development business, it was hampered by the downturn in the real estate industry.

Investment advice: Xincheng Yue Service started with Xincheng shareholders. In recent years, business development has become market-based. At the same time, the share of revenue from real estate-related businesses continues to decline, and the community value-added service business is growing rapidly in many segments. We expect the company to maintain a certain growth rate in scale and performance in the future. Considering the impact of the downturn in the real estate industry on related businesses, we adjusted the company's 2024-2025 EPS forecast to 0.57 and 0.61 yuan/share (previous values 0.67, 0.74 yuan/share) and introduced the 2026 EPS forecast of 0.64 yuan/share to maintain the “buy” rating.

Risk warning: The downturn in the real estate industry exceeds expectations, the progress of marketization of property fees falls short of expectations, and the citation data is lagging or untimely.