Incident: The company recently released its 2023 annual report. It achieved annual revenue of 635 million yuan, an increase of 13.0% over the previous year, and a net profit of 171 million yuan to mother, an increase of 10.9% over the previous year.
Insist on starting quality projects, and steady growth in performance. In '23, we achieved revenue of 635 million yuan, an increase of 13.0% year on year, and net profit of 171 million yuan to mother, an increase of 10.9% year on year. By business, the company's 23-year management/brand and management output/leasing model achieved revenue of 4.06/145/84 million yuan respectively, +6%/+5%/+98% compared to the same period last year. Thanks to the company's completion of six high-quality projects in '23, service revenue during the preparation period for the new opening and operation management service revenue after opening increased the company's management revenue by 6.5% year-on-year to 406 million yuan, accounting for 64% of total revenue. Net profit returned to the mother in '23 was 171 million yuan, up 10.9% year on year. The comprehensive gross margin decreased by 3.2 pct to 52.5% year on year, mainly due to a 7.6 pct drop in gross margin of the entire rental model (affected by rent relief and leasing standards for new businesses), while the gross margin of management remained stable, and the gross margin of brand and management export services increased 2.5 pct.
Ongoing project operations have continued to grow. As a leading commercial operation service provider in the Greater Bay Area, it has taken root in the Greater Bay Area with CocoPark, COCO City, COCO Garden, and iCO product lines, and has a nationwide presence. In '23, the company has opened 27 retail commercial properties with an operating area of about 1.65 million square meters. In addition, 20 projects are in preparation, providing certainty for future development. The operating performance of active projects continued to improve. In '23, same-store sales increased 18%, same-store traffic increased 39%, and occupancy rate increased 0.3% to 92.8% year over year. Benefiting from the Hong Kong consumer boom, Futian Galaxy COCO Park passenger traffic increased 60% year on year, and merchant sales increased 40% year on year.
The parent company, Galaxy Holdings, operates steadily and focuses on deepening high-quality regional expansion. 23 At the end of the day, the company had 27/55 opened/contracted projects, with an opening/contract area of 165/2.84 million square meters, of which the Greater Bay Area contract area was about 1.59 million square meters, accounting for 56%, and the Yangtze River Delta contract area was 420,000 square meters, accounting for 15%. As consumer infrastructure REITs advance, as a high-quality commercial management company deeply involved in the Greater Bay Area, I am optimistic that the company will get more opportunities for high-quality projects in the future. The parent company, Galaxy Holdings, has stable finances and sufficient land storage in the Greater Bay Area. Relying on long-term stable cooperation with Galaxy Holdings, Xingsheng has sufficient commercial reserve projects and high potential for future performance growth.
The buy rating is maintained, and the target price is HK$2.05. According to the company's annual report, we lowered the company's revenue growth rate and gross profit margin, adjusted the company's 2024-2025 EPS forecast to 0.17/0.19 yuan (the original forecast was 0.22/0.27 yuan for 24-25), and introduced the 26-year EPS forecast to 0.22 yuan. The comparable company's 2024 valuation is 11X, corresponding to a target price of HK$2.05. (Exchange rate: 1 HKD = 0.910 RMB).
Risk warning: Parent company's delivery fell short of expectations. The impact outside of the Bay Area is insufficient. Third-party project expansion fell short of expectations.