We reaffirmed our “buy” rating and maintained our target price of HK$4.20. We anticipate that the rapid growth of the company's value-added services business and potential mergers and acquisitions will bring more room for growth. We maintain the company's earnings forecasts for 2023-2025 at RMB 0.324, RMB 0.380 and RMB 0.433, respectively, corresponding to a compound annual growth rate of 16.5% between 2022-2025. By using the 2023 price-earnings ratio valuation of 12.0 times, we maintained our target price at HK$4.20. We reaffirm the company's “buy” rating.
The results for the first half of 2023 were solid, and growth has only just begun. Unlike the weak interim results of most property companies, Yuexiu Service's overall performance for the first half of 2023 was steady (profit increased 17.5% year over year). We believe that the growth of Yuexiu services has only just begun, and more potential for growth comes from: 1) the rapid development of value-added service business; 2) the increase in the management area of industrial parks and public properties; and 3) potential acceleration of mergers and acquisitions. The bigger surprise came when the company paid an interim dividend for the first time. The company announced a dividend of HK$0.089 per share for the first half of 2023, with a dividend rate of 50%. We expect payout rates to stabilize at 50% or more over the next few years.
Achieve sustainable high-quality growth by developing value-added businesses. We are pleased to see that the company is realizing value for its high-quality customer base through better value-added business development. In the first half of 2023, the company's value-added service business revenue (including non-owner value-added business and community value-added business) rose sharply by 81.1% year-on-year. If we measure the monetization rate of the value-added service business of the Yuexiu service community, which is equal to the ratio of community value-added service business revenue to basic management service revenue, the monetization rate for the first half of 2023 was 0.87 times, which is at the leading level in the industry. We believe the company's advantage in terms of a high-quality customer base will be even more significant, and its rapidly growing value-added services business will also verify this.
Catalysts: 1) strong growth in management area due to parent company support; 2) rapid development of value-added services business; 3) potential mergers and acquisitions to expand scale.
Risk warning: 1) contract sales from the parent company fell short of expectations; 2) area expansion from third parties fell short of expectations; 3) risk of impairment of accounts receivable.