Incident: The company's revenue in 2023 was -1.6% year-on-year, and net profit loss to mother was 440 million yuan, a year-on-year decrease.
Sunac Services announced its 2023 results announcement, achieving revenue of 7.01 billion yuan, a year-on-year decrease of 1.6%, gross profit of 1.67 billion yuan, a year-on-year increase of 4%, net profit to mother of 404 million yuan, a year-on-year reduction of losses; core net profit to mother of 790 million yuan (excluding depreciation of trade receivables, etc.), an increase of 3% over the previous year. The company declared a final dividend of RMB 0.143 per share, totaling RMB 4.4 billion, accounting for 55% of the core net profit to mother.
Comment: Focus on the core business, operating cash flow has improved, and related businesses have basically been controlled.
1) The core business grew steadily, and real estate-related businesses were basically controlled. In 2023, the company's revenue from basic property management/community life/value-added services for non-owners was 61.6/4.7/380 million yuan, +11.7%/-15.5%/-64.2%. As of the end of 2023, the management area was 270 million square meters (an increase of 29.42 million square meters over the end of 2022), of which housing accounted for 87%, 1,713 projects under management, covering 1.58 million owners, and the basic market was steadily expanding; the company adjusted its business for value-added services for non-owners based on the principle of marketization, and the share of revenue in 2023 was reduced to 5.4%. By the end of 2023, the total amount of trade receivables from related parties was about $3.42 billion, and the net amount after deducting impairment provisions was about $1.44 billion. Total trade receivables from related parties increased by 49 million yuan during the year. The increase in related transactions and related receivables has basically been brought under control. In the next phase, we still need to focus on the resolution of existing receivables.
2) Focus on long-term development and improve project quality. The company chose to focus on 45 core cities (core cities accounted for 84% of basic property revenue in 2023). In 2023, the number of cities the company expanded significantly compared to 2022, and the management density of core cities increased. At the same time, the company took the initiative to withdraw some undermanaged projects to control basic market quality. The unit price of property fees in core cities reached 3.1 yuan/month/flat; the community lifestyle business streamlined organizational structure and service categories, focusing on core cities, focusing on advantageous businesses and pursuing long-term sustainable development.
3) Short-term gross margin stabilized, and operating cash flow improved markedly. In 2023, the company's overall gross profit margin was 23.8%, up 1.3 pct year on year; the value-added gross margin for property management/community life/non-owners was 23.8%/31.7%/13.0%, and the gross profit structure was 88%/9%/3%, and the profit structure was more reasonable; on the basis of controlling the spread of real estate-related business risks, the company increased its collection and repayment efforts to achieve a net operating cash flow of 860 million yuan (compared to 400 million yuan in 2022). As of the end of 2023, the company's available capital balance was 4.44 billion yuan, and the cash flow situation improved markedly, and the company was generous Dividends give back to shareholders. Based on the closing price on April 18, 2024, the company's dividend ratio reached 9.2%, which is attractive.
Profit forecast, valuation and rating: As related party Sunac China was affected by the downturn in real estate, the company's related business revenue and profit were greatly adjusted; in 2023, due to the slowdown in overall industry growth, the company's goodwill impairment exceeded our expectations; as of the end of 2023, the company still had some related party trade receivables awaiting recovery. We adjusted the company's 2024-2025 net profit forecast to 40/53 billion yuan, adding a 2026 forecast of 710,000 yuan, corresponding to the 2024-2026 EPS of 0.13 (original forecast 0.23) /0.17 (original forecast 0.25) /0.23 yuan. The current stock price is 7 times PE on 12/9/7. The company's operating conditions have improved, and the “gain” rating has been maintained.
Risk warning: Outreach falls short of expectations, and there is uncertainty about the operating income and impairment of related businesses.