Country Garden Services announced its 2024 interim results; in the first half of 2024, the company achieved main business revenue of 21.046 billion, +1.5% year on year, net profit to mother 1.44 billion, or -38.7% year on year; core net profit to mother was 1.84 billion yuan, or -31.7% year on year.

Revenue has grown, and profitability is under pressure

In the first half of 2024, the company achieved main business revenue of 21.046 billion, mainly the property management service business, which accounted for 60.6% of the Group's total revenue, +4.6% to 12.752 billion; community value-added services accounted for 9.5% of the company's revenue, achieving 6.0% year-on-year positive growth, achieving 1.998 billion in revenue; non-owners' value-added service business was -63.4% to 0.356 billion. The “three supplies one industry” business achieved a year-on-year increase of +30.6% To 2.467 billion; urban service business revenue fell 9.4% year over year to 2.17 billion; commercial operation services fell 37.9% year over year to 0.332 billion. The company's core basic property management services have remained stable, the 'three supplies and one industry' business segment is growing rapidly, and overall revenue is progressing steadily.

In the first half of 2024, the company's comprehensive gross margin fell 3.7 percentage points to 21.2% compared to the same period last year. In terms of segments, the gross margin of property management services fell 3.1 percentage points to 22.9% year on year, gross margin of community value-added services fell 9.7% year on year to 39.0%, gross margin of non-owners' value-added services fell 19.7 percentage points year on year to -6.5%, and the gross margin of the “three supplies and one industry” increased 2.5 percentage points to 9.7% year on year. The gross margin of the urban service business fell 5.1 percentage points to 16.0% year on year, commercial operation services The gross profit margin of the business fell 7.4 percentage points year over year to 31.0%. The gross margin of various property management businesses declined. This is not only related to the company taking the initiative to increase quality service costs and adjust revenue recognition methods, but also the reason for the intense competition in the industry and the decline in profit margins for new projects.

Value-added business restructuring and exploring offline high-frequency service models

In the first half of 2024, the company's community value-added service revenue was +6.0% to 1.998 billion, accounting for 9.5% of the company's overall revenue (9.1% in the same period in 2023); non-owners' value-added service revenue was -63.4% to 0.356 billion, accounting for 1.7% of the company's overall revenue (4.7% in the same period in 2023), further increasing the share of community value-added services. Meanwhile, community charging services are developing rapidly. By the end of June 2024, the “Smart Downstairs Charging” service had covered 230 cities across the country, operating a total of nearly 0.3 million charging sockets, providing charging services for more than 2 million users.

Investment advice: The company's revenue continued to grow in the first half of 2024, but gross margin declined, and operating cash flow and accounts receivable were not as good as in the same period last year. Considering that the real estate industry is still in the adjustment period, competition in the property industry has not abated, and the company's balance sheet and gross margin need to be further optimized and improved, we adjusted the company's 2024-2026 EPS forecast to 0.41, 0.49, and 0.55 yuan/share (previous values 0.58, 0.67, 0.73 yuan/share) and downgraded to an “increase in holdings” rating.

Risk warning: The downturn in the real estate industry exceeds expectations, mergers and acquisitions are expected to further asset depreciation, and the future property fee collection rate is lower than expected.