Core views

In the third quarter of 2024, the company achieved revenue of 22.58 billion yuan, an increase of 26.8% year on year, and achieved non-GAAP net profit of 1.78 billion yuan, a year-on-year decrease of 17.5%. The new housing, home improvement, and leasing business mainly contributed to revenue growth. The increase in revenue was mainly due to a 4.7 percentage point drop in comprehensive gross margin to 22.7% compared to the same period last year. This is because the share of the stock housing business with higher profit margins fell to 27.5% from 35.4% in the same period last year.

The number of active stores and agents on the Shell platform continued to grow in the third quarter, driving a continuous increase in the total number of housing transactions. The effects of real estate support policies since the end of September will be reflected in the fourth quarter results; the second-track home improvement and rental business revenue increased by 32.6% and 118.4%, respectively, year-on-year, maintaining a good momentum of development.

occurrences

On November 21, the company announced its results for the third quarter of 2024. The third quarter achieved revenue of 22.58 billion yuan, a year-on-year increase of 26.8%; non-GAAP net profit of 1.78 billion yuan, a year-on-year decrease of 17.5%. In the first three quarters, revenue was 62.33 billion yuan, up 8.3% year on year; non-GAAP net profit to mother was 5.86 billion yuan, down 27.4% year on year.

Brief review

The new housing, home improvement, and leasing business led to revenue growth, while the revenue contribution of the stock housing business declined, putting pressure on profits. In the third quarter, the company achieved revenue of 22.58 billion yuan, a year-on-year increase of 26.8%; non-GAAP net profit to mother was 1.78 billion yuan, a year-on-year decrease of 17.5%.

Among the company's four main businesses, the new housing, home improvement, and rental business mainly contributed to revenue growth. The stock housing/ new home/ home improvement/ rental business achieved revenue of 62.2/7.73/4.21/3.94 billion yuan in the third quarter, respectively, with year-on-year changes.

-1.4%/+30.9%/+32.6%/+118.4% There was no increase in revenue and profit in the third quarter, mainly due to the company's comprehensive gross margin falling 4.7 percentage points to 22.7% compared to the same period last year. This is because the share of the high-margin stock housing business in revenue fell to 27.5% from 35.4% in the same period last year; the contributing profit margins of the four major businesses mentioned above in the third quarter were 41.0%/24.8%/31.2%/4.4%, respectively, changes of -7.7pct/-0.4pct/+2.1pct/+1.3pct, respectively.

The number of stores and agents is growing steadily, and the effects of the policy will be reflected in the fourth quarter results.

By the end of the third quarter, the number of active stores on the Shell platform was nearly 0.047 million, up 4.6% year on year; the number of active agents was nearly 0.423 million, up 6.1% year on year. The increase in the number of connected stores and brokers led to a continuous increase in the company's business volume on the first track. The total transaction volume of the stock housing business in the third quarter was 477.8 billion yuan, up 8.8% year on year; the total transaction volume of the new housing business was 227.6 billion yuan, up 18.4% year on year. Since the end of September, real estate support policies have been introduced frequently, and transactions in the second-hand and new housing markets have increased markedly. Against the backdrop of growth in stores and agents, the effects of the policy will be reflected in the fourth quarter results.

The second track business is developing well. In the third quarter, the company's home improvement business achieved a total transaction volume of 4.1 billion yuan, a year-on-year increase of 24.6%, and achieved revenue of 4.2 billion yuan, an increase of 32.6% year-on-year, mainly due to increased collaboration between home improvement and real estate transactions, increased contributions from new retail (custom furniture, soft appliances, etc.), and a shortened decoration delivery cycle. The leasing business achieved revenue of 3.9 billion yuan in the third quarter, a sharp increase of 118.4% over the previous year, mainly due to the increase in the number of rental properties under the worry-free rental model.

Maintain profit forecasts and buy ratings. We forecast the company's EPS of 1.78/1.99/2.18 yuan for 2024-2026, and the company's non-GAAP net profit for 2024-2026 is 10.75/11.68/12.62 billion yuan, respectively. We are optimistic about the development space of the company's track 1 and 2 business. The effects of the policy will be reflected in the fourth quarter results to maintain the purchase rating.

Risk warning: 1) The repair of second-hand housing and new housing transactions may fall short of expectations. Subsequent new and second-hand housing market trends are still affected by the macroeconomic environment and residents' income expectations. If housing transactions fall short of expectations, it may cause the company's GTV and trading business revenue growth to fall short of expectations and put pressure on performance; 2) Emerging business development may fall short of expectations. The company joined Shengdu Home Furnishing in the second quarter of 2022, and announced the acquisition of iSpace in the fourth quarter of 2023. In the future, it will rely on the home improvement business to open up a second growth curve. However, there is a risk that the integration results will fall short of expectations. iSpace Home Furnishing has a risk that the acquisition will fail; the home improvement business is not a completely standardized business, and there is also a risk that the results of replication in many places will fall short of expectations