Remain “neutral” and lower the target to HK$1.20. Jianye New Life (the “Company”) announced 2023 results broadly in line with expectations. We lowered our 2024 and 2025 earnings forecasts per share to RMB 0.326 (-19.5%) and RMB 0.360 (-22.1%), and introduced a 2026 earnings per share forecast of RMB 0.397. We used 3.5 times the 2024 price-earnings ratio to arrive at the company's target price of HK$1.20. We maintain its investment rating as “neutral.”
The 2023 results were largely in line with the negative profit warning. The company postponed the board meeting and announced the 2023 results on the evening of April 23, 2024. Basically consistent with the previous profit warning, the company eventually recorded a shareholder loss of RMB 574.4 million in 2023. Total revenue declined 9.6% year over year in 2023 to RMB 2,844.7 billion. Gross margin fell 6.5 percentage points year-on-year to 26.6% in 2023, but the industry is still at a reasonable level. Affected by significant impairment losses, the company recorded a net loss in 2023. The net loss ratio was 20.3%.
Significant impairment losses continued to be recorded in the second half of 2023. As we predicted in mid-2023, the company's risk from relevant developers continued for a longer period of time. After accruing significant impairment losses in the first half of 2023 (RMB 641.2 million), the company further calculated impairment provisions in the second half of 2023 (full year: RMB 1,222.4 billion). Considering the weakness of the real estate market in Henan Province and the liquidity pressure faced by Jianye Real Estate (00832 HK), we believe that market concerns about the risk of the company's impairment losses still exist.
The basic property management business grew steadily, and profit margins increased. The positive news comes from steady growth in basic property management businesses. By the end of 2023, the company's managed construction area and contract floor area increased by 16.0% and 6.2% year-on-year respectively to 181.8 million square meters and 288.3 million square meters. Supported by the increase in the construction area under management, the company's property management service revenue increased 16.0% year over year to RMB 1,992.2 billion. The gross margin of property management services also increased 3.1 percentage points year-on-year to 24.9% in 2023.
Upside risks: 1) Profitability increased faster than expected: 2) Accelerated property delivery in Henan; 3) Obtaining more floor space under management from third parties or through mergers and acquisitions. Downside risks: 1) The growth rate of basic property management business is lower than expected; 2) the liquidity situation of Jianye Real Estate deteriorates; 3) Labor costs have risen above expectations.