The increase in revenue did not increase in profit in '23, maintaining the “gain” rating
The company released its annual report on April 11, achieving revenue of 3.13 billion yuan, +20% year on year; net profit to mother of 160 million yuan, -14% year on year; dividend ratio of 40.1%, +3.3 pct year on year. Considering market development competitive pressure, we lowered our revenue and gross profit margin. The company's EPS for 24-26 is 0.80/0.93/1.09 yuan (the value was 0.96/1.24 yuan 24/25 years ago). Comparable, the company's average of 24PE was 10 times (Wind agreed). Although the company's net profit from 23 years was under pressure, considering the company's outstanding market expansion capability and A-share liquidity premium in the past, we believe that the company's reasonable 24PE is 13.5 times, and the target price is 10.80 yuan (previous value of 14.63 yuan, based on 19 times 23PE), maintaining an “gain” rating.
Mergers and acquisitions have driven the rapid growth of urban services, and profitability continued to weigh on the company's revenue and maintained steady growth in 23 years. Among them, basic property management/innovative business/urban services were +14%/184% year-on-year. Urban services achieved rapid growth with the help of Hexiang Environmental Protection series mergers and acquisitions in 22-23. However, the company's net profit declined year-on-year, mainly due to factors such as: 1. Due to factors such as intense market expansion competition, customer reduction costs and new projects, gross margin was -3.4 pct to 12.8% year over year, with gross margin of basic property management -3.4 pct to 11.8% year on year; 2. Affected by changes in accounting estimates, credit impairment losses were +19 million yuan year on year; 3. City partner plans led to minority shareholders' profit and loss accounting for 5.2%. Thanks to the reduction in equity incentive costs and improved management efficiency, the management fee ratio was -1.8pct to 5.5% year-on-year, which hedged the impact of these factors to a certain extent.
The growth rate of market development has slowed down, strengthening the core capabilities of the aviation industry
Affected by increasingly fierce market development competition, the amount of new contracts signed by the company in '23 was -2% to 1.88 billion yuan, and the amount of new annualized contracts signed was -4% to 970 million yuan. The aviation business format of the company's strategic layout has been greatly affected by the external environment in recent years. The company has strengthened the core aviation ground service industry chain (aviation ground cleaning, aircraft cabin cleaning, and automobile maintenance) through three mergers and acquisitions. In the future, as the aviation market recovers, we expect the growth rate to recover. In addition, the medical care business that the company focuses on incubating has made major breakthroughs, and Hexiang Environmental Protection's series of mergers and acquisitions have laid the foundation for the new “municipal sanitation+public building industry” business transformation. Since it is difficult for the military business to meet established profit standards, the company plans to gradually reduce related expansion investment.
Operating cash flow has improved dramatically. More measures have been taken to protect shareholders' interests. In '23, the company strengthened accounts receivable and payable management. Net operating cash flow was +152% to 230 million yuan compared to the same period last year. Faced with market adjustments, the company has taken a number of measures to protect shareholders' interests: 1. The dividend rate was +3.3 pct to 40.1%; 2. In October 23, a repurchase plan of 15 to 20 million yuan was proposed, and 12.47 million yuan had been repurchased by the end of March '24; 3. In December '23, some directors and executives proposed plans to increase their holdings of 10.7 million yuan, which had increased their holdings by 9.89 million yuan as of the end of January.
Risk warning: Scale expansion does not meet expectations, risk of declining profitability, risk of asset impairment.