Event: Binjiang Service released its annual report in 2020, with revenue of 960 million yuan in 2020, an increase of 36.8% over the same period last year, and a net profit of 220 million yuan, an increase of 91.4% over the same period last year.

The performance has grown rapidly, and the gross profit margins of the three businesses have all been improved. The company achieved a core net profit of 220 million yuan in 2021, an increase of 75.1% over the same period last year, and its performance achieved rapid growth. According to the company's performance guidelines, operating income growth in 2020-2023 will be maintained at more than 50% year on year, and future performance growth will accelerate. The increase of 2.9pct to 31.0% in 2020 compared with 2019 is mainly due to the increase in gross profit margin of three businesses. 1) the gross profit margin of high-priced real estate delivery in the region has increased, while the management system has been optimized, and the gross profit margin of basic property management has increased from 16.1% in 2019 to 18.8%. 2) thanks to the improvement in management efficiency, the gross profit margin of non-owner value-added services has increased by 2.1pct to 45.3% compared with the same period last year. 3) the proportion of sales of parking spaces and storerooms with higher gross profit margin increased, and the gross profit margin of owner value-added services increased to 55% from 51% in 2019. The company's sales fee rate dropped from 6.2% in 2019 to 4.4% in 2020, and the net interest rate increased by 5pct to 22.9% compared with the same period last year. In 2020, the income of property management services, non-owner value-added services and owner value-added services accounted for 57.7%, 32.5% and 9.8% respectively, and the gross profit accounted for 35.1%, 47.5% and 17.4%, respectively.

The expansion force is strong and the scale is increasing rapidly, positioning high-end and adhering to the strategy of regional concentration. The area under management of the company reached 1966 million square meters in 2021, an increase of 38.9% over the same period last year, of which the proportion of third parties increased to 34.7% from 33.2% in 2019, and that of non-residential form increased to 15.3% from 14.1% in 2019. According to the company's performance guidelines, the growth rate of managed area between 2019 and 2023 is not less than 50% year on year, maintaining the same frequency as income growth. In 2020, the company's contract area was 3549 million square meters, an increase of 32.4% over the same period last year, and the joint management ratio reached 1.78, maintaining the top level of the industry, with strong certainty of scale growth in the future. the company has reached a strategic cooperation with 10 small developers. 27% of the new contract area in 2020 comes from direct market extension, 18% from strategic partners, and strong external expansion ability. The company locates the high end, adheres to the regional concentration strategy, the average property management fee reaches 4.26 yuan / square meter / month, maintains the industry leading level, accounts for 60.6% of the tube area located in Hangzhou, and the project is of high quality and high density.

The concentration of value-added services delivered by related parties is increased, and the potential space in the future needs to be tapped. The company has great growth potential in the future, mainly due to 1) according to the Carey list, the related party Binjiang Group ranks first in the amount of flow sales and land expansion in Hangzhou in 2020. There is a guarantee for the delivery of high-density projects in the future; 2) the company is positioned as a high-end, the owner has strong consumption power, and the owner's value-added service income accounts for 9.8%. Relying on the strong ability to pay, the concentration of value-added services is expected to increase significantly.

Investment suggestion: we predict that the company's return net profit from 2021 to 2023 will be RMB 526,799 million, with a year-on-year growth rate of + 55.9%, 53.8% and 51.7%, corresponding to an EPS of RMB 1.24, 1.90 and 2.89 respectively. The current share price corresponds to 2021-2023PE at 14.65, 9.53 and 6.28 times, maintaining the buy rating and raising the target price to HK $31.37.

Risk hint: it is more difficult to raise the property management fee; the extension is not as expected.