China's largest real estate transaction and service platform: Shell is the largest real estate transaction and service platform in China. The ACN network infrastructure built by the company efficiently provides consumers with real estate transaction services such as second-hand housing transactions, new housing transactions, housing leasing, and home improvement. Shell was formerly known as Chainjia Real Estate Brokerage Company established in 2001. “Chainjia Online” was launched in 2009 and an internet-based experiment began. In 2015, Chainjia merged several real estate agencies to begin a nationwide layout. The “Shell Real Estate Search” platform was officially launched in 2018. In 2020 and 2022, the company was listed on the NYSE and Hong Kong Stock Exchange, further consolidating its leading position in the industry.
The scale of the housing market continues to expand, and the penetration rate of brokerage services is steadily increasing: China's housing industry covers a wide range of areas. The market size rapidly grew from 25.4 trillion yuan in 2016 to 39.6 trillion yuan in 2021, with a compound annual growth rate of 9.3%, and due to factors such as the trend towards miniaturization of households, increasing urbanization, accelerated population movements, and the improvement of residents' living standards, the market size of the housing industry will continue to expand in the long run. At the same time, in recent years, with the increase in the supply of existing housing, the increase in the housing turnover rate, the increase in the floating population, the release of demand for improvement, and the year-by-year increase in the penetration rate of real estate brokerage services, the company, as an industry leader, is expected to fully benefit from the expansion of the housing industry market. The penetration rate of brokerage services in the industry increased from 43.2% in 2016 to 49.8% in 2021, and the penetration rate is expected to further increase to 61.6% by 2026.
The brokerage business is recovering steadily, and the home improvement and rental business is rapidly expanding: the second-hand housing and new housing transaction business is the cornerstone of the company's development. Revenue from both businesses resumed growth in 2023. As the overall housing stock in the market increased, the revenue from the Shell second-hand housing business continued to rise, with a year-on-year increase of 15.9% in 2023. The scale of commercial housing contracted in the country in 2023, but thanks to the company's strategy of active cooperation with developers, Shell's new housing transaction volume bucked the trend and rebounded 6.7% year-on-year. In addition, the company's new businesses, such as home improvement and rental management, achieved rapid growth, and their share of the company's revenue continued to rise, from 8.3% and 4.6% in 2022 to 14.0% and 10.8% in 2023, respectively, becoming the main driving force for the company's revenue growth.
Revenue rebounded steadily, and store size reached a new high: in 2023, the company's total transaction volume reached 3142.9 billion yuan, up 20.4% year on year; operating income of 77.78 billion yuan, up 28.2% year on year; net profit after deduction of 5.12 billion yuan, up 349.2% year on year; gross profit margin 27.9%, up 5.2 percentage points from the same period last year; net profit margin 7.6%, up 9.9 percentage points from the same period last year. The company's overall trading scale continued to expand, profitability increased simultaneously, net profit turned loss into profit, and operating capacity continued to improve. Furthermore, at the end of 2023, the number of active stores reached 42,021, and the number of active brokers reached 397,135, maintaining the trend of expansion.
Investment advice: As a leading enterprise in the industry, Shell will fully benefit from the continuous expansion of the scale of the industry with the support of deepening its national layout strategy and platform advantages. We expect the company's net profit from 2024-2026 to be 7.81 billion, 9.9 billion, and 11.28 billion, respectively. The PE corresponding to the current stock price is 14.8 times, 11.7 times, and 10.2 times, respectively. First coverage, giving a “buy” rating.
Risk warning: The downturn in the real estate industry exceeds expectations, commission revenue falls short of expectations, and the citation data is lagging or untimely.