1Q24 results slightly lower than market expectations
The company announced its results for the first quarter of 2024: revenue increased 13% year on year to 3.72 billion yuan, net profit to mother increased 3% year on year to 190 million yuan, net profit after deduction increased 10% year on year to 180 million yuan, slightly lower than market expectations, mainly due to factors such as a slight year-on-year decline in gross margin and an increase in R&D expenses.
The scale of management has been steadily expanding, and newly signed projects have remained stable. By the end of the first quarter of 2024, the company's management area increased 19% year-on-year to 374 million square meters (an increase of 29.11 million square meters compared to the end of 2023). We expect the delivery contribution of some larger urban services, public construction and other business projects; in the first quarter, the company's property management business achieved a new annual contract amount of 790 million yuan, which is basically the same as the same period last year. Among them, the office, park, and government segments continued to perform well.
The overall gross margin is under slight pressure, and cost reduction and efficiency are driving the cost ratio to continue to decline. 1Q24's comprehensive gross margin fell 0.6 percentage points year on year to 11.7%. We expect the main influencing factors to be as follows: 1) the gross margin of the residential sector at the end of the infrastructure management sector may be flat; 2) the gross margin of the non-residential sector may have declined year-on-year, mainly due to increased competition in the non-residential market, renewal of some projects at low prices, and an increase in labor costs; 3) the gross margin of professional value-added services has declined year-on-year or declined. The company's sales management expenses rate fell 0.8 percentage points to 3.4% year on year in the first quarter, mainly due to factors such as the company's continued promotion of lean project management, cost reduction and efficiency.
Development trends
Core business revenue is expected to maintain steady growth in 2024. The company's target revenue growth rate for 2024 is not less than double digits. We expect the company's annual revenue scale to continue to grow steadily, driven by the continuous transformation of third-party outreach projects, smooth delivery of related party projects, and steady development of value-added services; on the net profit side, we expect sales management expenses to trend downward, driven by the company's continued cost reduction and efficiency. We recommend continuing to monitor changes in gross margin trends and the progress of mergers and acquisitions in the non-residential sector of infrastructure management.
Profit forecasting and valuation
We keep our profit forecast unchanged. We expect the company's net profit for 2024 and 2025 to be 8.4 billion yuan and 950 million yuan, respectively, up 15% and 13% year over year. Maintaining an outperforming industry rating and a target price of 15.0 yuan (corresponding to 19 times the 2024 price-earnings ratio, implying 49% upside), the company is currently trading 13 times the 2024 price-earnings ratio.
risks
The progress of the heavy asset divestment fell short of expectations, the expansion of new projects and profit margins fell short of expectations, and the risk that gross margin would continue to decline in the context of increased competition in the non-residential sector.