occurrences

On July 12, 2024, the company announced the 2024 semi-annual results forecast.

Key points of investment

Profit turned loss into profit, highlighting management resilience

2024H1 expects to achieve net profit of about 24 million yuan to 35 million yuan, turning a loss into a profit compared to a loss of 48.81 million yuan in the same period last year. The main reason for the change in performance: 1) The volume and volume of the company's second-hand housing trading business increased year-on-year in May-June. Second-hand housing turnover in core cities such as Beijing, Shanghai, and Hangzhou showed a recovery trend as some cities further lifted purchase restrictions since the second quarter, and implemented policies such as lower down payment ratios and interest rates on home purchase loans; 2) Strict control of expenses. Operating costs such as store rent, renovation costs, and sales expenses have declined. 3) The assets related to the New Era Hotel in Kunming, Yunnan were sold in the first quarter. It is expected to generate non-recurring profit and loss of approximately 80 million yuan on the company's 2024 H1 net profit. 4) Stock payment fees will gradually be reduced. The second phase of the employee stock ownership plan was implemented in 2021. The share payment fee was reduced from 22.13 million yuan in the first half of 2023 to 8.85 million in the first half of 2024. As of June 30, 2024, all share payment fees had been amortized. Looking back at the operating situation in 2023, the company's net profit loss of 0.85 billion yuan was mainly affected by non-operating and one-time factors (about 0.7 billion yuan). Looking at gross margin, the company's gross profit margin was 9.47% in 2023, +0.8 pct. Among them, the gross margins of brokerage business, new housing business, and asset management business were 20.2%, 12.6%, and 13.3% (considering asset disposal income), and +3.4 pct, +0.1 pct, and +2.0pct, respectively. The company's operating situation was relatively steady. The 2024H1 company turned losses into profits, further demonstrating the resilience of the company's steady operation during the bottoming out of the industry.

The scale of second-hand housing transactions remains high. I am optimistic that the company will benefit from key cities taking the lead in repairing the 517 New Deal, and the new and second-hand housing market performed well in June. Overall sales of 13.35 million square meters in the 30 key cities of June were 13.35 million square meters, up 17% month-on-month, down 19% year on year, and 52% compared to the average for the first quarter. Second-hand housing transaction area in 22 key cities is expected to be 14.28 million square meters, up 7% from month to month, changing from negative to positive, up 24% year over year. We believe that after the 517 New Deal, the warming of market sentiment led to a month-on-month increase in new and second-hand housing sales, indicating that the market has begun to show signs of marginal improvement. Although the pre-transaction indicator, the iceberg activity index declined in June, the central government continues to emphasize the pace and effects of policy implementation. Until market sales volume and prices stabilize, it is expected that there will still be room for policy increases on both sides of the real estate supply and demand in the second half of the year. We are optimistic that 1) maintaining a high level of the second-hand housing market since 2023 has provided good support for the company's economic business, and the second-hand housing market is expected to continue to support the company's performance in the future; 2) the company's business continues to focus on domestic first-tier and new-tier core cities, including 15 key cities such as Beijing, Shanghai, Hangzhou, Nanjing, and Suzhou. We believe that key cities can guarantee the resilience of the real estate market over a long period of time with a good economic base and strong population appeal. As policies on both the supply and demand sides of the real estate market continue to gain strength, the company, as a leading domestic intermediary, continues to emphasize deep urban cultivation, and is expected to take the lead in benefiting from market restoration in key cities in the future.

Investment advice

We believe that this round of recovery in the real estate market, especially the recovery of the new housing market, needs to be driven by the second-hand housing market. The core reason for this is that the release of some demand in the new housing market requires a smooth second-hand housing replacement chain. At the beginning of the restoration of fundamentals in the real estate industry, we believe we should focus on improving the business performance of leading intermediaries. We expect the company to turn a loss into a profit in 2024, with net profit attributable to mother of 0.127 billion yuan, corresponding EPS of 0.05 yuan per share, giving it a “buy” rating.

Risk warning

Second-hand housing repairs fell short of expectations; demand repair efforts weakened.