Wanwuyun's 2023 results are in line with market expectations
The company announced its 2023 results: revenue also increased 10% to 33.18 billion yuan, net profit to mother increased 29% to 1.95 billion yuan, and core net profit (excluding amortization of intangible assets, one-time profit and loss, government subsidies, impairment, etc.) also increased 30% to 2.34 billion yuan, in line with our and market expectations. The company announced a total annual dividend payout of 1.092 yuan/share, equivalent to 66%/55% of the mother/core EPS, exceeding market expectations; the current stock price implied a dividend payout ratio of 6.0%.
The renovation of Diecheng has significantly increased the gross margin of residential property management. The gross margin of residential property management increased by 3.5ppt to 13.3% year-on-year in 2023. We believe this impressive increase was mainly due to the results of the renovation of Butterfly City:
The company disclosed that it had completed the transformation of 150 butterfly cities by the end of 2023, and gross margin increased by an average of 4.5 ppt after the renovation. In addition, the actual impact or control of the capital investment promised in the company's project development was possible. The company disclosed that it added 319 new residential projects in Diecheng in 2023, of which 104 projects promised a total of 171 million yuan and investment over 3 years. Looking ahead, the company plans to continue to complete the transformation of 100 butterfly city projects in 2024.
Revenue from the property management business grew steadily. In terms of residential property management, revenue in 2023 increased 14.8% year-on-year to 17.00 billion yuan, and the annualized saturated revenue of newly signed contracts reached 2.62 billion yuan (620 million yuan before deducting exit projects); in terms of commercial enterprise property management, revenue in 2023 increased 10.0% year-on-year to 8.30 billion yuan, and the annualized saturated revenue of newly signed contracts was 2.54 billion yuan (125 million yuan without deducting exit projects), and the expansion of the five core tracks was a structural highlight (additional saturated revenue of 1.06 billion yuan, up 52% year on year).
Various diversified businesses continue their strategic development direction. In 2023, community asset-based value-added services were affected by macroeconomics and declining commercial housing sales, etc., and revenue remained flat at 1.36 billion yuan year on year, but structural highlights also existed, such as a significant year-on-year increase in the amount of residential housing renovation business pilot contracts in 40 Diecheng cities, and an overall increase of about 25% in GMV for second-hand housing transactions. In terms of AIoT and BPaaS business, the company continues to reduce the share of developer-related businesses and vigorously develop circular businesses. Overall revenue increased 17% in 2023.
Development trends
The property management business has built a solid foundation, and diversified services expand imagination. The company's performance conference indicated that it plans to grow revenue in 2024 no less than in 2023, and that the growth rate of core net profit will be higher than revenue. We believe this reflects that the company may use active project expansion to consolidate the revenue growth rate of the property management business under a high base, while Diecheng's impact on profit margins may accumulate as the share of renovated projects increases, thus supporting the steady progress of the gross margin of residential property management. On the diversified service side, the company continues to explore new volumes based on its high-density, high-quality project chassis. We recommend focusing on the business progress of community commercial operation management.
Profit forecasting and valuation
We reduced net profit due to mother by 6% and 7% in 2024 and 2025 to $2.30 billion (+18%) and $2.70 billion (+17%) to reflect the macroeconomic impact on commercial enterprise property management business expansion and profit margins.
Maintain an outperforming industry rating and target price of HK$28.2 (corresponding to 13/11 times the 2024 return/core P/E and 42% upside). The company traded 9/8 times to the mother/core P/E in 2024.
risks
The expansion of the residential and commercial management business fell short of expectations; the improvement in profit margins due to improved management efficiency fell short of expectations.