The company announced its 2024 interim results. In the first half of the year, it achieved revenue of 4.03 billion yuan, -1.6% YoY, and realized net profit to mother of 0.18 billion yuan, +18.9% YoY.

Basic services are developing steadily, and market expansion capabilities are improving. 24H1's basic property service revenue reached 2.76 billion yuan, an increase of 5.7% over the previous year, mainly due to the Group's active market expansion and third party bidding to increase the construction area managed by external development. The company actively carried out market expansion. In the first half of the year, the company added 17.7 million square meters of construction area for external development contracts. Third-party bidding for the new external development contract amount was 0.62 billion yuan per year, and the average property management fee for bidding for new external development projects was 2.3 yuan/square meter/month, the same as the same period last year. At the end of the period, the company's contract floor area was -3.9% to 0.333 billion square meters, and the management area was -5.3% to 0.247 billion square meters. In terms of composition, the contract area from third parties accounted for 77%, and the business independence was strong. However, due to the impact of increased investment in equipment renewal to improve project quality and the increase in the share of third-party projects and public construction projects on the gross margin of basic services, the company's gross margin for basic services in the first half of the year was 20.0%, -0.7 pcts year on year.

Community value-added services have yet to be repaired, and gross margins continue to be under pressure. The company's community value-added services achieved revenue of 0.59 billion yuan in the first half of the year, a year-on-year decrease of 17.3%, mainly due to 1) the decline in the scale of some businesses highly related to the real estate industry, such as parking space asset operation services and the Mercure business; (2) consumption intentions are still cautious, and community asset management services are facing challenges. The decline in revenue share of some higher margin businesses put pressure on the gross margin of community value-added services. The gross margin of community value-added services in the first half of the year was 27%, -2.1 pcts year on year, further dragging down the company's overall profitability.

Expense control has been effective; accounts receivable management will be strengthened in the future. The company's cost control effect was obvious. The sales expense ratio in the first half of the year was 1.5%, the same as the same period in 2023; the management expense ratio was 10.4%, a year-on-year decrease of 0.5 pct.

By the end of the period, the company's trade accounts receivable and notes reached $4.76 billion, an increase of about 15.9% over the end of the previous year, of which the proportion from third parties was about 84%. Based on account age analysis, the proportion of accounts receivable within 1 year is about 63%, 16% for 1-2 years, 14% for 2-3 years, and about 7% for 3 years or more. The company actively takes measures, including in-depth analysis of payment card points and difficulties, and hierarchical classification to formulate targeted measures to deal with repayment problems.

Maintain the increase rating and adjust the target price to HK$0.81. According to the company's mid-term business situation, the forecast for revenue growth and gross margin for each business, as well as the forecast for sales and management expenses, the adjusted EPS forecast value for 24-26 is 0.09/0.09/0.10 yuan (the original forecast was 0.22/0.26 yuan for 24-25). The comparable company's 2024 PE valuation is 8x, corresponding to a target price of HK$0.81. (1 HKD = 0.913 RMB).

Risk warning: Risk of declining gross margin. Third-party expansion risk. Impairment losses on accounts receivable.