The company is a leading residential property management and commercial operation enterprise in China. The gross margin of commercial operation business is significantly higher than that of residential property management business. Operating revenue for 2023 was $14.77 billion, up 22.9% year-on-year, and the 2020-2023 CAGR was 29.6%. The residential property management business accounted for about 65% of total revenue in 2023. The gross profit of the main business in 2023 was 4.69 billion yuan, a year-on-year increase of 30.0%, and the 2020-2023 CAGR was 37.0%.
Commercial operations accounted for approximately 64% of overall gross profit in 2023. The company's gross margin in 2023 was 31.8%, of which the gross margin of the residential property management business was 17.5%, and the gross margin of the commercial operation business was 58.4%.
Residential property management: The parent company continues to provide high-quality support, and community value-added services have significantly improved, and space parent company China Resources Land provides long-term support for the steady growth of the company's residential management area. By the end of 2023, the company's residential property management business had a management area of 355 million square meters, of which the managed area from China Resources Land accounted for 38.6%. China Resources Land's steady sales performance and rich high-quality land reserves can provide a long-term guarantee for the steady growth of the company's managed area.
The parent company China Resources Land's residential projects are mainly located in Tier 1 and 2 high-energy cities. The product positioning is biased towards the middle and high-end, which is an important guarantee for the company's residential property management business revenue. The unit price of property management services for the company's managed projects from China Resources Land is much higher than that of third-party projects. This is mainly due to the fact that the layout of the China Resources Land project is mainly in Tier 1 and 2 high-energy cities. The project positioning is biased towards the middle and high-end, and the corresponding property management fee level will also be relatively high.
The company relies on the superior industrial resources of China Resources Group and China Resources Land to expand and strengthen community value-added services and continuously expand the boundaries of value-added services. We believe that China Resources Group and China Resources Land's superior industrial resources and high-end management projects in the fields of big health, big consumption, and decoration supply chain will help the company fully tap customer value and continuously enhance the breadth and depth of value-added services in the community.
The gross margin of the company's community value-added services has a lot of room for improvement. The gross margin of the company's community value-added services in 2023 was 26.7%, which is low compared to leading peers. We believe that the company relies on China Resources Group and China Resources Land's superior industrial resources and high-end managed projects, and that the revenue and gross margin of community value-added services have great potential to increase.
Commercial writing and operation: China Resources Land, an industry leader in luxury brand resources and commercial operation capabilities, continues to strengthen the layout of key cities, providing important support for the company to achieve steady endogenous growth. Judging from China Resources Land's shopping center opening plan, the shopping center project is still in an intensive opening period. It is expected that by the end of 2027, the number of shopping malls in operation will increase from 76 in 2023 to 117. Focusing on the project layout of core cities, it lays an important foundation for the successful operation of shopping centers.
Having access to scarce luxury resources is an important barrier for companies, because heavy luxury resources are scarce and difficult to replicate:
1) The layout of luxury shopping malls has a first-mover advantage. 2) The number of luxury brand stores is scarce. 3) The ability to operate luxury brands is scarce. 4) Luxury shopping malls have large rents and high rental ceilings.
The company's shopping center operation capacity is industry-leading, and operating efficiency continues to improve, achieving a win-win situation for “owners, tenants and operators”. Among the company's active projects in 2023, the retail sales of 40 projects ranked first in the local market, accounting for about 40%; 82 projects ranked in the top three of the local market in retail sales, accounting for about 80%. In 2023, while owners' rental income and operating profit margins increased, the lease-sales ratio (rental income/retail sales) declined slightly, and the owners, tenants, and operators achieved mutual benefit and win-win situation.
The overall rental rate of shopping malls managed by the company is at a high level in the industry, and luxury shopping malls have high rent efficiency. We selected mainstream commercial real estate companies as comparison targets. The average occupancy rate of shopping malls operated by China Resources Vientiane in 2023 was 96.1%, which is at a high level overall; among them, the occupancy rate of shopping malls owned by China Resources Land is 96.5%, second only to the occupancy rate of Taikoo, which is ranked high-end. Judging from the rent efficiency, the rent efficiency of China Resources Land's shopping center in 2023 was lower than that of Hang Lung, which is high-end, and superior to Longhu, which is in the middle. The higher rent level of luxury shopping malls effectively increased the company's rent efficiency.
Company profit forecast and investment rating:
Combining absolute valuation and relative valuation analysis, we believe that the company's reasonable share price range is HK$33.0 to HK$37.7, which has room for 3% to 18% compared to the current share price of HK$31.9. Net profit due to mother in 2024-2026 is estimated to be 34.7/39.2/4.49 billion yuan respectively, with corresponding earnings per share of 1.52/1.72/1.97 yuan, respectively. The PE corresponding to the current stock price is 19.3/17.1/14.9 times, respectively, giving a “recommended” rating for the first time coverage.
Risk warning: risk of economic and market environment, risk of expansion of scale, risk of merger and acquisition integration, risk of rising costs, risk of business termination, risk of impairment of accounts receivable, risk of increased competition, risk of loss of store resources, risk of profit forecasting, risk of overvaluation