Key points of investment

Performance Overview: H1 revenue/profit -28%/-36% YoY, dividend ratio continues to increase

24H1: Revenue of 1.1 billion yuan, -28% year over year, net profit of 0.299 billion yuan to mother, -36% year over year. Performance was under pressure mainly due to: 1) the recovery trend for the same period last year was obvious and the overall base was high; 2) customer consumption was cautious under macroeconomic pressure. If you look at it from a month-on-month perspective, 24H1 revenue/profit is flat compared to 23H2/-8%.

In addition, the company declared a mid-term dividend of 6.38 HK cents per share, corresponding to an interim dividend payout rate of about 45%, which is an increase from 40% in the same period last year.

Revenue splitting: service volume declines, customer unit prices are strong, and many regions are generally under pressure

By business: Under high base, service volume is under pressure, but customer unit prices remain stable.

1) Cemeteries: Revenue 0.91 billion yuan (-30% YoY), accounting for 82%. The H1 operational graveyard sold 6,704 units, with an overall average price of 0.121 million yuan (the average price for the full year of 2023 was 0.12 million yuan); under comparable caliber, sales/average price remained flat at -32% /year over year. Service volume pressure was under pressure while benefiting from the optimization of the park's product structure, and the overall customer unit price remained strong.

2) Funeral: Revenue 0.18 billion yuan (-18%), accounting for 17%. H1 served 3,4891 households with an average price of 5,276 yuan; service volume/average price ratio under comparable caliber -20%/+1%. Among them, the decline in service volume was mainly due to the high base+ company's withdrawal from some low-profit projects during the same period.

3) Other income of 15.06 million yuan, mainly including funeral design service revenue of 13.3 million yuan.

By region (only part listed): Shanghai's revenue was the same as 23H2 month-on-month, and the pressure on performance in the North was relatively greater. Shanghai 0.53 billion yuan (-28% YoY), accounting for 48%; Anhui 0.09 billion yuan (-14%), accounting for 8%; Liaoning 0.07 billion yuan (-38%), accounting for 6%; Henan 0.07 billion yuan (-27%), accounting for 6%.

Profitability: H1 Company's cemetery service operating profit margin was 54.4% (-7.9pp), funeral service operating profit margin was 14.0% (-6.9pp). The company continued to reduce costs and increase efficiency, but the profit margin declined somewhat due to declining service volume and fixed costs.

Outlook: Focus on core strengths and focus on the future

We believe that in the context of performance pressure in the first half of the year, the high and stable customer unit price is a reflection of the company's strong bargaining power. Following the optimization of the product structure, there is still room for improvement in customer unit prices; on the demand side, baby boomers gradually entered old age in the early days of the founding of the nation, and the company also actively promoted the vertical extension of the industrial chain. 24H1 signed 0.012 million birth contracts, +29% over the same period, which is conducive to building user reservoirs and optimizing customer acquisition costs.

On the policy side, the Ministry of Civil Affairs has incorporated the “Funeral Administration Regulations” into the legislative plan, and the revision process is underway. Recently, some local regulations were introduced first, generally stipulating that operating cemeteries implement market price adjustments, and once again emphasized strict approval. Against the backdrop of moderate regional policies, the company's operating policy risks are also expected to be mitigated.

Profit Forecast and Valuation:

The company has abundant resources and refined operations, and it is expected that it will continue to benefit the general context of aging. Considering the high base background and demand pressure, the profit forecast was moderately lowered. The net profit for 24-26 is estimated to be 0.71/0.81/0.93 billion yuan, -11%/+14%/+15% compared to the same period last year. The PE corresponding to the current market value is 12/11/9X, maintaining the “buy” rating.

Risk warning:

Risk of changes in industry policies; risk of management iteration; integration of mergers and acquisitions projects falling short of expectations; intensifying industry competition