Unrelated business continued to grow, with net profit attributable to profit: 2023H1 achieved revenue of 3.4 billion yuan, a year-on-year decrease of about 14.9%; gross profit of 850 million yuan, a year-on-year decrease of about 24.8%; net profit reached 3.4 billion yuan, turning a loss into a profit, with a corresponding net interest rate of 10.0%. Looking at the company's unrelated business, 2023H1's unrelated business revenue was 3.2 billion yuan, up 13.1% year on year, accounting for 94% of total revenue; core net profit corresponding to unrelated business was 4.3 million, up 43.3% year on year; core net interest rate corresponding to unrelated business was 14.3%, up 3.1 percentage points year on year.
The impact of related parties has weakened, and operating cash flow has been corrected: As of 2023H1, the original value of receivables from related parties has been reduced to 3.24 billion yuan, and impairment provisions accrued from related parties' accounts receivable have been returned 56 million yuan compared to the end of 2022. As a result, as of 2023H1, the company's net operating cash flow was 6.61 million yuan, a correction from last year; available capital was 4.22 billion yuan, with sufficient cash. Considering the large-scale contraction of value-added services for non-owners and the company's adherence to market-based principles for related parties' businesses, operating cash flow is expected to maintain a net inflow throughout 2023.
Market development focuses on core cities, with high standards and high-quality development: 2023H1's management area and contract area are 263 million square meters and 396 million square meters respectively, and the scale is growing steadily. Since the first half of the year was in a transition period where the company raised market development standards, 2023H1 achieved market expansion with a single year's saturated revenue of 200 million yuan, and progress was slightly slow; however, judging from the quality of the projects, all of the new projects were located in 45 core cities, with the top 5 cities with new contracts accounting for 65%.
“Focus on cities, focus on products”, deepening the lifestyle service sector: 2023H1's community life services achieved revenue of 246 million yuan, a year-on-year decrease of 16.3%, mainly due to the company's active contraction of marginal products and services, focusing on advantageous categories and core cities. In 2023H1, the penetration rate of the company's community convenience services in core cities increased by 1.1 percentage points; through in-depth exploration and planning of community resources, the total value of core goods increased by 124% year-on-year; the share of main linked recommended customers in the rental and sales business increased to 23%; and the Meiju inventory housing business increased to 48%.
Adjusted to the “increase in holdings” rating, the target price is HK$2.9: As the revenue contribution of related businesses fell to single digits, the company resumed profit growth with its core business expansion and operating capacity. We expect the company's net profit to be 68/780 million yuan respectively in 2023/2024, a year-on-year increase of 240.4%/15.7%, respectively. Based on the decline in industry valuations, the rating was downgraded to “increase holdings”, and the target price was lowered to HK$2.9, corresponding to 12/10 times PE 2023/2024.
Risk Reminder: Related party risk spillover; business expansion falls short of expectations; collection rate falls short of expectations; community value-added business development falls short of expectations.