Key points of investment:
24H1's net profit to mother was +4% year-on-year, in line with expectations, and the three expense ratios continued to improve. With 2024H1, the company achieved revenue of 7.84 billion yuan, +12.3%; net profit to mother of 0.44 billion yuan, +3.8% year over year, in line with market expectations; net profit of 0.41 billion yuan after deduction, +7.7% year on year; basic earnings per share of 0.41 yuan, +3.8% year on year; gross profit margin of 12.6%, -0.7 pct year on year; net profit margin of 5.6% year on year, -0.5 pct year on year. The three cost rates were 3.7%, -0.8 pct year on year, and continued to improve since 2019; among them, the management fee ratio was 3.0%, -0.5 pct year on year; financial expenses ratio was 0.2%, -0.3 pct year on year.
24H1, property management revenue was 7.54 billion yuan, +12.7% year over year; gross margin of property management was 10.9%, -0.7 pct year on year. Asset management revenue was 0.29 billion yuan, +2.6% year on year; gross profit margin of asset management was 52.7%, -0.2 pct year over year. The company's performance growth rate was lower than the revenue growth rate, mainly due to: 1) a decline in gross margin; 2) income tax expenses were +26%, faster than the revenue growth rate, which increased 0.034 billion yuan year over year; 3) fair value change profit and loss from the sale of investment real estate - 10.27 million yuan, no such item for the same period last year; 4) government subsidies of 9.67 million yuan included in current profit and loss, compared to 15.25 million yuan in the same period last year.
24H1 basic property management revenue was +16% year over year, and the amount of new contracts signed by third parties was +6% year over year. 2024H1, of property management revenue, revenue from basic property management, platform value-added services, and professional value-added services was +16%, +4%, and -3%, respectively, accounting for 84.35%, 3.4%, and 12.25%, respectively. The gross margins of basic properties, platform value-added services, and professional value-added services were 11.0%, 9.9%, and 11.1%, respectively, +0.4, +0.1, and -6.9pct compared to the same period. By the end of 24H1, the company's management area reached 0.385 billion square meters, +17% year-on-year. Among them, 1) residential and non-residential accounts for 34% and 66% respectively; 2) the management area from China Merchants Shekou accounts for 33%. 2024H1, the company's property management business achieved a new annual contract amount of 1.89 billion yuan, +0.3% year over year, of which new annual contract amount of 1.74 billion yuan was signed for third-party projects, +5.5% over the same period, and new projects with an annual contract amount exceeding 10 million yuan accounted for more than 50%.
At the end of 24H1, the commercial management area was 3.97 million square meters, +15% compared with the same period, and the quality of commercial operations increased. 2024H1, of asset management revenue, commercial operating income was 0.07 billion yuan, +17.3% year over year, gross profit margin 37.9%, +5.3 pct year on year; rental and operating income from holding property was 0.22 billion yuan, -1.4% year on year, gross profit margin of 57.5%, -0.9 pct year on year. At the end of 2024H1, the company managed 70 commercial projects (including preparatory projects), with a management area of 3.97 million square meters, +15% over the same period; of these, 3 were self-owned, 58 were managed by China Merchants Shekou projects, and 9 third-party brand export projects. As China Merchants Shekou's commercial real estate layout expands, the company's asset operation business is expected to receive greater support.
Investment analysis opinions: Steady increase in performance, improvement in expenses, active expansion by third parties, and maintenance of the “buy” rating. The investment balance is backed by the China Merchants Group, which strategically focuses on property management and asset management. The company has strong resource endowments and outstanding market-based expansion capabilities, and is expected to continue to lead the property management industry in the future; the company continues to optimize its organizational structure, reduce costs and improve quality and efficiency, and subsequent profit margins are expected to gradually recover, promoting high-quality development with equal emphasis on the company's scale and efficiency. Considering the downturn in the industry, we slightly lowered the company's 24-26 earnings per share forecast to 0.78/0.88/0.98 yuan (originally 0.80/0.92/1.04 yuan), respectively. The current price corresponding to 24PE is 11X, maintaining the “buy” rating.
Risk warning: Real estate declined beyond expectations, labor costs rose beyond expectations, and exploration of value-added services fell short of expectations.
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