24H1 revenue grew steadily year over year, maintaining a “buy” rating

The company released its semi-annual report on August 29. 24H1 achieved revenue of 7.84 billion yuan, +12% year over year; net profit to mother of 0.44 billion yuan, +4% year over year; net profit after deducting non-return to mother of 0.41 billion yuan, +8% year over year. Considering factors such as real estate adjustments, cost reduction and efficiency, and tax rate fluctuations, we slightly lowered the company's revenue, gross margin, and period expense ratio, raised the actual tax rate, and adjusted the 2024-2026 EPS to 0.76/0.85/0.95 yuan (previous value: 0.84/0.97/1.13 yuan). Comparable companies' average 2024 PE was 10 times (Wind agreed). Taking into account the company's competitive advantage in the non-residential sector, the A-share liquidity premium, and the slowing performance growth rate, we narrowed the valuation premium. We believe that the company's reasonable 2024PE is 14 times, and the target price is 10.64 yuan (previous value 15.12 yuan, corresponding 18 times 2024PE) to maintain the “buy” rating.

Revenue maintained a double-digit year-on-year growth rate, and the gross margin of basic property management improved year-on-year, and 24H1's revenue achieved steady double-digit year-on-year growth. Among them, the property management/asset management sector was +13%/3% year-on-year, respectively. The company's gross margin was -0.7 pct to 12.6% year on year, mainly because professional value-added services were affected by real estate adjustments, gross margin was -6.9 pct to 11.1% year over year, while gross margin of basic property management was +0.4 pct to 11.0% year over year, driven by cost reduction and efficiency. Residential and non-residential profitability improved. The company's expense ratio for the period was -1.0 pct year over year, driven by cost reduction and efficiency and a drop in interest-bearing debt replacement pressure, hedging the impact of the decline in gross margin. However, due to reduced tax relief and government subsidies, fair value losses caused by the sale of some investment real estate, and fluctuations in actual income tax rates, the year-on-year growth rate of the company's net profit to the mother slowed down.

Property management business: Third-party market expansion is progressing steadily, and the platform's value-added services maintain growth resilience. 24H1 overcame the economic environment and market competition pressure. The annual contract amount was +0.3% to 1.89 billion yuan, of which the third party contract amount was +5% to 1.74 billion yuan. In addition to continuing to gain strength in the traditional non-residential advantage circuit, the company's third party residential contract amount was +76% to 0.17 billion yuan, of which the new contract amount for second-hand housing was over 20 million yuan. As of 24H1, the company had 2,209 projects under management, with a management area of 0.385 billion square meters, compared with +108 units/0.04 billion square meters at the end of 23. In addition, the company's platform's value-added service revenue was +4% to 0.26 billion yuan, forming five major business lines of enterprise services, retail services, home delivery services, public area resources, and home-friendliness, maintaining growth resilience.

Asset management business: The concentration of commercial retail sales, customer traffic, and number of members achieved impressive performance. 24H1 achieved a year-on-year commercial operating revenue of +17% to 0.07 billion yuan, managed 70 commercial projects at the end of the period, and managed an area of 3.97 million square meters. The operating side showed impressive performance exceeding the zero growth rate of the society (according to the National Bureau of Statistics, 24H1 +3.7% YoY): concentrated commercial retail sales +27% YoY, same store +7%; customer traffic +38% YoY, same store +15%; number of active members +63% YoY to 7.53 million. In addition, 24H1 owns a total leasable area of 0.47 million square meters of its own hotels, shopping centers, commercial and office buildings, with a occupancy rate of 94%, down 2 pcts from the end of 23, resulting in rental income of -1% to 0.22 billion yuan compared to the end of '23.

Risk warning: The support of related housing enterprises is weakening, profitability is declining, and the separation of key assets falls short of expectations.