1H24 results are in line with market expectations

The company announced results for the first half of 2024. Revenue increased 10% year over year to 7.87 billion yuan, net profit to mother increased 11% to 0.85 billion yuan, and unplanned interim dividends were distributed according to practice, which is in line with market expectations.

The basic property management sector mainly drives revenue growth, and the drop in administrative expenses supports a flat net profit margin. By the end of the first half of the year, the company's management area had increased 16% year on year to 0.76 billion square meters, driving revenue in the basic property management sector to increase 16%; revenue from the two types of value-added services remained roughly the same year on year. The comprehensive gross margin decreased slightly by 0.7 ppt, mainly dragged down by the value-added sector of non-owners; the company continued to reduce middle and back-office expenses, total administrative expenses fell 5% year on year, and sales management expenses fell by 1.1 ppt, supporting the net profit margin to flatten.

The expansion of the project focused on high quality, and the collection rate was under pressure due to environmental influences. The company continues to consolidate and expand its quality. The total amount of new contracts won was 1.2 billion yuan, a year-on-year decrease of 14%. Among them, the proportion of contracts worth 10 million yuan or more in a single year increased by 6ppt to 64%. In terms of property fee collection, the company's comprehensive collection rate declined in the first half of the year due to the economic environment; trade receivables and bills receivable increased 21% year over year, slightly faster than revenue growth. Of these, accounts accounted for 94% within a year, and the account age remained relatively healthy.

Development trends

The management maintains the guidelines at the beginning of the year and advises investors to pay attention to the progress of new development and seizure in the second half of the year. The management maintained the 10% year-on-year increase in revenue, profit, and expansion mentioned at the beginning of the year, and insisted on the goal of annual operating cash flow covering 1 times net profit. The dividend policy was not updated. We believe that the sluggish real estate and economic environment, as well as the fierce competition in the property management industry, may bring continued challenges to the company's operations in the second half of the year, but the transformation of reserve contracts and the competitive scale of new development in the current period will support steady growth in the company's overall revenue, while continuous deepening measures to improve quality and efficiency will support steady profitability, thereby supporting the company to achieve its annual profit target. We recommend investors pay attention to marginal changes in the company's expansion and takeover in the second half of the year, as well as their impact on the company's growth and trajectory rate.

Profit forecasting and valuation

Taking into account the pace of various business developments, we lowered net profit of 2% and 6% to mother in 2024 and 2025 to 1.52 billion yuan and 1.64 billion yuan, corresponding to 10% and 8% year-on-year increases, respectively; maintaining the outperforming industry rating and lowering the target price by 17% to HK$30.4, corresponding to 10 times the target price-earnings ratio for 2024, with an implied 20% upward space. The company's stock is currently trading at 8.3 times the 2024 price-earnings ratio, which corresponds to a dividend yield of 4.8% for the year based on a 40% dividend rate assumption. We believe that as the growth rate of the industry and companies changes, dividend yield may gradually become a core anchoring factor in valuation and pricing. Investors are advised to make trading decisions based on their own “agreed dividend yield” during stock price fluctuations.

risks

Third-party outreach progress fell short of expectations, property fee collection rates fell short of expectations, and the layout and development of value-added service products fell short of expectations.