Event: On August 12, 2024, the company announced 2024 semi-annual results.

Key points of investment

The “two wings” business went hand in hand, and Q2 revenue and profit improved

Looking at the first half of the year, 2024H1's total transaction volume was 1.47 trillion yuan, or -16.2%; of these, the company's total stock transaction volume was 1.02 trillion yuan, -8.7% YoY, accounting for 69.7% of the company's total transaction volume; the total transaction volume of new housing was 0.39 trillion yuan, -32.4% YoY, accounting for 26.4% of the company's total transaction volume. 2024H1's net revenue was 39.7 billion yuan, which is basically the same as 39.8 billion yuan in 2023. Adjusted net profit was 4.09 billion yuan, or -31% year over year; gross profit was 10.6 billion yuan, -9.0% year on year; and gross margin was 26.8%, -2.6 pct year on year. Looking at a single quarter, 2024Q2's total transaction volume was 839 billion yuan, +7.5% year over year; net revenue was 23.4 billion yuan, +19.9% year over year; adjusted net profit was 2.69 billion yuan, +13.9% year over year. By business, revenue from the stock housing business was 7.3 billion yuan, +14.3% year on year, profit margin +3.0 pct; revenue from the new housing business was 7.9 billion yuan, -8.8% year on year, profit margin 25%, +2.7 pct year on year; home improvement business revenue was 4 billion yuan, +53.9% year on year, profit margin 31.3%, +0.7 pct year on year; housing rental business revenue was 3.2 billion yuan, +167.1% year on year, profit margin 5.8% year on year + 0.3 pct 2024Q2 performed well in various indicators, and the excellent performance of the home improvement and leasing business in the “two wings” led to a year-on-year improvement in the company's overall revenue and profit.

Rates remain optimized, and the number of stores and agents has increased

2024H1's operating expenses were 8.6 billion yuan, and the rate was 21.7%, down 0.1 pct from the end of 2023, and the company's rate maintained an optimized pace. By the end of June 2024, the number of company stores was 45,948, +6.9% YoY, of which 44,423 active stores were active, +8.1% YoY; 0.459 million agents, +5.2% YoY, of which the number of active agents was 0.411 million, +0.6% YoY. The number of monthly active users on the 2024Q2 moving average was 49.7 million, +3.5% year-on-year.

Increase the scale of share repurchases and boost market investment confidence

As of August 12, the amount of shares repurchased by the company in 2024 was $0.48 billion, and the number of shares repurchased accounted for 2.75% of the total issued share capital in 2023. Since September 2022, the company's cumulative repurchase amount has reached 1.39 billion US dollars, and the cumulative number of repurchased shares accounts for 7.51% of the total shares before repurchase. On August 12, 2024, the company raised the authorized repurchase amount from $2 billion to $3 billion, and extended the repurchase period until August 31, 2025. We believe this move will help protect shareholders' rights and boost market investment confidence.

The non-housing business accounted for 35% of revenue, becoming a new engine for performance growth. In terms of the home improvement business, the total transaction volume of 2024H1's home improvement business was 7.6 billion yuan, +24% year over year, net revenue 6.4 billion yuan, +59.9% year over year, and profit margin increased to 31%, +0.7 pct year on year. The Home SaaS system, which is the framework of the company's home improvement business model, has been implemented in some cities, and the absolute construction period for the installation of containers and main materials has been reduced to 100 days, and business operations have gradually matured. In terms of emerging business, 2024H1's total emerging business transaction volume was 50.3 billion yuan, -3.9% YoY, and net revenue was 5.8 billion yuan, +176.7% YoY. By the end of June 2024, the company's “Shell Smart Rent” business managed more than 0.3 million units, an increase of 0.12 million units over the same period in 2023, and achieved a break-even balance in Beijing in the first half of the year. Overall, 2024H1's non-housing business revenue reached 34.8%, a sharp increase of 17 percentage points over the previous year. The home improvement business and leasing business have grown into new engines for the company's performance growth. We are optimistic about the company's “second curve” performance growth potential, which is expected to drive the company's performance to improve again in the future.

Profit forecasting and valuation

We believe that the Q2 revenue growth rate of the company's stock housing and new housing business is superior to the industry average, operating resilience still exists, and 2024 is a critical period for the “reversal” of the industry. Q3 and Q4 policies still have room to be released. Considering the long-term existence of the “sell one buy one” replacement logic in the market, we are optimistic about the company's potential to benefit as a leading intermediary. Furthermore, the company's “second curve” home improvement and leasing business model is gradually maturing, and we are optimistic about the company's potential for continued growth in performance after entering a new stage of development. Based on comparable company valuations and Shell's leading position, we expect the company's 2024 EPS to be 2.99 yuan/share, maintaining a “buy” rating (all prices are in RMB, close to the December average exchange rate, 1 HKD = 0.912 yuan) in 2024.

Risk warning

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