Incident: The company announced its 2024 interim results. The company achieved operating income of 7.871 billion yuan, +10.2% year over year; realized net profit to mother of 0.846 billion yuan, +10.8% year over year; and achieved basic earnings per share of 1.54 yuan/share, +11.4% year on year.

Double-digit growth in performance and steady increase in gross margin

On the revenue side, the company achieved 7.871 billion yuan in 24H1, +10.2% year over year; among them, revenue from property management, value added by non-owners, and community value-added services was 5.593, 1.028, and 1.25 billion yuan, respectively, +16.1%, and -1.8%, respectively.

On the profit side, the company 24H1 achieved net profit of 0.846 billion yuan to mother, +10.8% year-on-year. The expansion of management scale supports steady growth in performance. The company's 24H1 overall gross profit margin was 20.46%, down 0.71 pct from the same period in '23; gross margins for property management, non-landlords, and community value-added services were 16.79%, 18.05%, and 38.85%, respectively, -0.24, -1.53, and +0.73 pct compared to the same period in '23. The company's 24H1 net profit margin was 10.86%, down 0.02pct from the same period in '23. In terms of cost control, the company's 24H1 sales management rate decreased by 1.07pct to 6.27% compared to the same period in '23, and lean management continues to consolidate profitability.

Market development injects steady performance impetus and implements “high-quality development”

By the end of 24H1, the company's contract and management area were 0.95 and 0.757 billion square meters respectively, +12.8% and +16.4%, respectively, and the contract management ratio reached 1.26 times. Poly Development, the majority shareholder of 2024H1, achieved a contract area of 9.5425 million square meters. Benefiting from Poly's resource support, the company's potential delivery increase is sufficient. Looking at the project source, as of the end of 24H1, the contract area from Poly Development and a third party accounted for 36.8% and 63.2% of the total contract area, respectively. The third party's share increased by 1.5 pct compared to the same period in 23 years. In 24H1, the company's annual contract amount for newly expanded third-party projects was 1.2 billion yuan, -13.6%; of these, the proportion of new third parties in the four core economic zones reached 77.0%, an increase of 10.5 pct over the previous year; there were 35 new third-party projects with a single-year contract amount exceeding 10 million yuan, accounting for about 64.3%, an increase of about 5.7 pct over the previous year. Looking at the distribution of business formats, as of the end of 24H1, the managed area of the company's residential and non-residential properties was 0.299 and 0.458 billion square meters respectively, accounting for 39.5% and 60.5% respectively. The share of non-residential management area increased by 2.0 pct compared to the same period in 23 years, with commercial and office buildings, public and other property management areas accounting for 4.7% and 55.8% of total management, respectively, and 1.2 and 0.8 pct, respectively; 24H1 newly expanded third-party commercial, public and other single-year contract amounts reached approximately 0.43 and 0.622 billion yuan respectively, +27.0% and -9.8%, respectively. In the first half of the year, the company showed signs of a slowdown in the growth rate of third-party and public service expansion, which may be related to the shift to a “high-quality development” strategy. We believe that the company's profit performance and brand building will benefit in the long run.

Community value-added showed resilience, and the unit price of property management increased steadily

In terms of community value-added services, 24H1 achieved revenue of 1.25 billion yuan, or -1.8%, accounting for about 15.9% of revenue. Facing challenges such as fluctuating consumer intentions and increased competition, the company stabilized its business scale and profit scale, showing a good trend of focusing on optimizing the business structure and accelerating the development of core products. In terms of value-added services for non-landlords, 24H1 achieved revenue of 1.028 billion yuan, or -2.1% year-on-year, accounting for about 13.1% of revenue, mainly due to a decline in the number of projects providing co-marketing services and a slight decline in office rental business revenue due to market fluctuations. Against the backdrop of the contraction of the upstream real estate business, the revenue scale of the company's non-owners has remained at a relatively stable level. Looking at the unit price of property management, as of 24H1 Company's residential property management unit price was 2.33 yuan/square meter/month, the unit price of residential property management from Poly Development and a third party was 2.44 and 1.82 yuan/square meter/month respectively, an increase of 0.04 yuan/square meter/month over the same period in '23, and the unit price of property management increased steadily.

Investment advice: The company relies on Poly Group, a leading central enterprise. It has strong shareholder advantages and strong endogenous growth momentum. At the same time, external expansion is active, and both scale and profit are growing steadily. We expect future performance targets to be achieved steadily under management's focus on lean management strategies. Considering the decline in the company's profit growth rate in the first half of the year, we adjusted the company's net profit to mother for 24-25 to 1.527 and 1.839 billion yuan (original value: 1.636 and 1.933 billion yuan), and forecast net profit to mother of 2.031 billion yuan in '26, maintaining a “buy” rating.

Risk warning: business development falls short of expectations, uncertainty in business operation, uncertainty in policy regulation