Performance review
Jinke Service's 1H23 performance is in line with market expectations
Jinke Services announced 1H23 results: revenue fell 4% year over year to 2.47 billion yuan, net profit to parent fell 47% year on year to 188 million yuan. Additionally, the company disclosed 1H23's recyclable net profit (excluding effects such as related party business, non-recurring profit and loss) of 224 million yuan, which is in line with market expectations.
Continued business adjustments are carried out with management quality and efficiency as the core. We believe that the company's series of actions in the first half of the year reflected its strategic direction around operating quality and efficiency and refining its core business: in terms of basic property management, the withdrawal area in the first half of the year was 13.94 million square meters, an annualized loss of 15.94 million yuan, and helped to improve cash flow; the “scale” assessment of “scale” was assessed to assess “contract value,” and won the bid for expansion in the first half of the year for an annualized amount of 375 million yuan (of which about 210 million yuan has already been signed). In terms of local lifestyle services, considering the long repayment cycle and low profit margin, the company reduced catering supply chain services while continuing to expand catering services and hotel management services (revenue from local lifestyle services increased 11% year on year in the first half of the year, of which revenue from catering services and hotel management increased 121% year on year). In terms of value-added services for the community, the company shrunk its business line and shifted part of its business from self-operated to a platform model. As a result, sector revenue fell 44% year-on-year to 160 million yuan.
Related parties' related business delays continue to be cleared up. In the first half of the year, the company's gross profit from value-added services for non-owners fell to about 14.5 million yuan, and its share of gross profit fell to 3%; the company disclosed that all related parties' related business (including value-added services for non-owners, vacancy fees, office building property management fees, etc.) had a profit of about 28 million yuan in the first half of the year, and exposure was already limited. Furthermore, in the first half of the year, corporate trade receivables, loans receivable from related parties, etc. recorded a total impairment loss of 147 million yuan in financial assets (2.15 billion yuan in 2022).
Development trends
Make a decision and move back to establish a firm foundation for the business. We believe that the company's main line of business in 2023 is still expected to be a profit- and cashflow-oriented restructuring and quality efficiency improvement. Under actions such as withdrawing cash repayment standards on the basic property management side and shrinking low-profit businesses on the value-added server side, it may be difficult to return to a rapid growth channel this year's revenue and profit, but based on progress in the first half of the year, we believe that the annual results are expected to reach the company's target (450 million yuan of recyclable net profit). Looking ahead, we suggest continuing to focus on the company's independent development capacity building, cash flow performance (the company guides that annual operating cash flow is higher than net recyclable return profit), and cash management actions (since the beginning of 2023, several small and medium-sized property companies and group catering companies have been acquired; a total of about 7.07 million company shares have been repurchased in June-July, etc.).
Profit forecasting and valuation
We lowered the company's net profit for 2023 and 2024 by 10% and 15% to 423 million yuan (reverse losses year on year) and 482 million yuan (+14% year on year), mainly considering the company's strategic contraction and some diversified value-added services. Maintaining an outperforming industry rating and target price of HK$13, corresponding to 11 times the price-earnings ratio after deducting cash in 2023 (in terms of cash on hand at the end of 1H23) and 23% upward space, mainly considering recent improvements in market bias. The company traded 8 times the current price-earnings ratio in 2023.
risks
The development of local lifestyle services such as group meals fell short of expectations; annual cash repayments fell short of expectations.