Results for the second quarter of 2024 are in line with market expectations
Huaxia Fund China Resources Youchao REIT announced its results for the second quarter of 2024: the fund level achieved revenue of 19.7 million yuan, profit before interest, tax, depreciation and amortization of 12.34 million yuan, and an allocable amount of 12.21 million yuan, in line with market expectations.
The overall operation of assets is stable, and the occupancy rate is relatively solid. According to the quarterly report, during the reporting period, the fund achieved income and profit before interest, tax, depreciation and amortization of 19.7 million yuan and 12.34 million yuan, which was basically the same; net operating cash flow during the reporting period reached 8.82 million yuan, a decrease of 29% over the previous month (mainly due to payment of management fees).
The rental rate of underlying assets was quite solid. As of the end of June 2024, the occupancy rates for the Youchao Sijing and Youchao East Economic Development projects reached 94.07% and 94.36% respectively, a slight decrease of 0.3 ppt and a slight increase of 0.1 ppt over the previous month. Stock contract lease structure and new contract volume health: Stock contracts expire in the third quarter of 2024 (accounting for 40.5% of total stock contracts); a total of 1,215 new contracts (accounting for 49.4% of total stock contracts).
The amount available for distribution is in line with market expectations. In the second quarter of 2024, Youchao REIT achieved an allocable amount of 12.21 million yuan, which was basically the same from month to month. From the beginning of 2024 to the end of the second quarter, it achieved a cumulative allotment amount of 24.41 million yuan, which is in line with market expectations.
Development trends
Project operations are expected to remain steady, and pay attention to medium- to long-term rent trends. At the end of 2023, Shanghai's resident population increased by 0.1156 million year-on-year, and the number of undergraduate and graduate graduates in Shanghai in the same year was about 0.2141 million1. We believe that Shanghai's demand for guaranteed housing still has some support, and short-term project management is expected to remain stable. Furthermore, according to the Shanghai Municipal People's Government, during the “14th Five-Year Plan” period, Shanghai actively promoted the supply of guaranteed housing, and plans to raise 0.47 million additional guaranteed housing units (rooms) 2. From a medium- to long-term perspective, we recommend focusing on the impact of supply entering the market on medium- to long-term rent growth.
Profit forecasting and valuation
Considering the reduction in cash supplements at the beginning of the 2024 project period, and the manager smoothed out subsequent distributable amount fluctuations through cash adjustments, we lowered the 2024-2025 allotable amount by 10% and 9% to 49.63 million yuan and 51.17 million yuan (-18.3% and +3.1% year-on-year), respectively, to maintain the holding rating. The target total return for 12 months is expected to be about 5%. The current price of 2.69 yuan is trading at 1.3 times the 2024 year-end NAV, corresponding to a 3.7% 2024 dividend distribution rate.
risks
Rental unit prices or occupancy rates fell more than expected, and competition in the industry intensified.