Key points of investment:
Company Overview: Focus on asset-light platforms and actively reform to reduce costs and increase efficiency. China Merchants Savings is an asset-light management platform for property services and asset management under the China Merchants Group. The company, formerly known as “China Airlines Shanda”, was founded in 1985, listed on the Shenzhen Stock Exchange in 1994, and strategically focused on property management business in 2016. Its subsidiary China Aviation Property was one of the first national-level qualified enterprises in the Chinese property management industry, the vice president unit of the China Property Management Association, and a leading Chinese institutional property enterprise and the coordinator of industry standardization. In 2019, China Merchants Shekou acquired China Airlines Shanda and achieved a strong alliance between China Merchants Property and China Airlines Property. China Merchants Shekou became the company's largest shareholder (currently holding 51% of total shares), and then the company changed its name to “China Investment Savings”. Since 2020, on the one hand, the company has clarified its development goals and core business, with the goal of building “China's leading property asset management operator” to develop the two core businesses of property management and asset management; on the other hand, the company has actively reformed and promoted cost reduction and efficiency, continuously adjusted and optimized the organizational structure to build an intensive, flat, and operational headquarters organization, while focusing on promoting a more refined, specialized and standardized business structure, with an emphasis on improving both quality and efficiency.
Property management: cultivate fertile ground for steady development, and deepen Yunlin's quality and efficiency. By the end of 2023, the company had entered 156 cities across the country, with a management area of 345 million square meters, +11%; in 2023, the company's basic property management revenue was 12.11 billion yuan, +20.4% year-on-year; the annual contract amount for new orders was 4.04 billion yuan, +22.0% year-on-year. In 2018-23, the CAGR of the management area reached 23.1%; the CAGR of basic property management revenue reached 27.5%; and the CAGR of the new annual contract amount reached 20.3%. In 2023, corporate residences and non-residences accounted for 38% and 62% of the management area, respectively; controlling shareholders and third parties accounted for 35% and 65% respectively. In 2020-2023, the CAGR of professional value-added services and platform value-added services reached 11% and 136% respectively, accounting for 17% of total revenue, and there is still plenty of room for improvement. As a leading enterprise and long-distance runner in the domestic property management industry, the company's subsequent scale expansion mainly comes from: 1) market-based expansion, where the company has always had leading market-based expansion capabilities and reputation; 2) relying on endogenous growth brought by China Merchants Shekou and focusing on core lines 1 and 2; 3) further acceleration at multiple levels such as mergers and acquisitions, and the penetration rate of value-added services is expected to further increase, bringing about high-quality development with equal emphasis on scale and efficiency.
Asset management: The quantity and quality of commercial operations have increased, and subsequent growth is worth looking forward to. As one of the company's core businesses, the asset management business achieved revenue of 70 billion yuan in 2023, +50.1% over the same period last year. Asset management revenue CAGR reached 17.2% in 2020-23. In 2023, the gross profit margin of the asset management business was 50.7%, +9.2pct compared with the previous year. By business structure, commercial operations reached 240 million yuan, an increase of 138.7% year on year; leasing and operation of owned properties reached 450 million yuan, an increase of 25.1% year on year. At the end of 2023, the company managed 70 commercial projects (including preparatory projects), with a management area of 3.97 million square meters, +35% over the same period; of these, 3 were self-owned, 58 were managed by China Merchants Shekou projects, and 9 third-party brand export projects. As China Merchants Shekou's commercial real estate layout expands, the company's asset operation business is expected to receive greater support.
Finance & Valuation: Multiple measures to reduce costs and improve quality and efficiency, and steady growth in performance. In 2019-2023, the company's revenue CAGR reached 26.6%, and net profit CAGR to mother reached 26.6%. In 2023, the company's gross margin was 11.6%, and the industry average and the gross margin of first-tier companies were 22.3% and 20.6%, respectively. The company's gross margin is significantly lower than the industry level, and there is still plenty of room for improvement. We believe that subsequent companies will reduce costs and improve quality and efficiency through multiple measures: 1) continuous adjustment and optimization of the organizational structure, digital upgrades, etc.; 2) optimize and exit inefficient projects to increase the unit price of property fees and gross profit margin; 3) focus on high-energy cities to improve management efficiency; 4) increase the share of value-added services and commercial management business to promote a gradual increase in comprehensive gross margin; 5) the pressure on interest-bearing liabilities will gradually decrease, and the financial expense ratio will be further optimized. We forecast that the company's net profit for 2024-26 will be 8.5/9.7/1.11 billion yuan, respectively, +16.0%/+14.2%/+13.3% year over year. Refer to the comparable company's target PE16X for 24, which corresponds to a total market value of 13.7 billion yuan and 28% of the current price space.
Investment analysis: Covered for the first time and given a “buy” rating. The investment balance is backed by the China Merchants Group, which strategically focuses on property management and asset management. The company has strong resource endowments and outstanding market-based expansion capabilities, and is expected to continue to lead the property management industry in the future; since 2020, the company has continued to optimize its organizational structure, reduce costs and improve quality and efficiency, and subsequent profit margins are expected to be gradually restored, promoting high-quality development with equal emphasis on the company's scale and efficiency. We expect the company's 24-26 earnings per share forecast to be 0.80/0.92/1.04 respectively, corresponding to 24/25PE of 12.5/10.9X, and a 24-year target PE16X, corresponding to a total market value of 13.7 billion yuan and a target price of 12.87 yuan/share, covering for the first time and giving a “buy” rating.
Risk warning: Real estate declined beyond expectations, labor costs rose beyond expectations, and exploration of value-added services fell short of expectations.
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