Key points of investment
Incident: The company released its 2022 annual report. Revenue reached 5.18 billion yuan in 2022, an increase of 19.1% over the previous year; Guimu's net profit was 4.2 billion yuan, a decrease of 19.4% over the previous year, and the performance fell short of our expectations.
Core business revenue grew steadily, and profit margins declined due to multiple factors. In 2022, the company's revenue increased 19.1% year on year. Among them, the two core businesses of property management services and community value-added services achieved revenue of 3.02 billion yuan and 1.28 billion yuan respectively, up 44.0% and 40.3% year-on-year respectively. In terms of profit margin: The company's gross margin in 2022 was 25.8%, a year-on-year decrease of 5.0 pct. Among them, the gross margin of property management services in 2022 was 24.5%, a year-on-year decrease of 5.6 pct. The main reasons were: (1) the increase in service expenses due to the pandemic; (2) the reduction in the positive impact of newly delivered residential projects on gross margin; and (3) the increase in the proportion of non-residential projects with low gross margins. The gross margin of community value-added services in 2022 was 32.2%, down 10.2 pct from the previous year. The main reasons were: (1) Group catering and facility management businesses had lower gross margins but higher revenue growth; (2) some businesses were affected by the pandemic, but personnel and equipment were fixed costs. The company paid a dividend of RMB 0.16 per share in 2022, with a dividend rate of 33%.
The scale of property management continues to grow, and the proportion of customers who have not been optimized has increased. By the end of 2022, the company's property management contract area reached 310 million square meters, an increase of 12.2% over the previous year; the area under management reached 200 million square meters, an increase of 29.1% over the previous year; among these, third parties accounted for 51.9% of the area under management and 46.7% of the contract area respectively. With the advancement of the company's “big community+big logistics” strategy, the scale of non-residential management increased rapidly. The share of non-residential projects in the area under management increased from 18.9% in 2021 to 25.8% in 2022. However, since the gross margin of the non-residential business is relatively low, the increase in the scale of the non-residential business also has an impact on the overall gross margin of the property management business.
Gradually getting rid of its dependence on real estate, the “big logistics” business developed rapidly. In 2022, the two businesses related to real estate development (value-added services for developers and smart park services) accounted for 16.8% of overall revenue from 30.7% in '21; their share of overall gross profit fell to 13.7% from 24.0% in 2021. We believe that future fluctuations in the real estate industry will gradually reduce the impact of fluctuations in the real estate industry on the company's performance. In value-added community services, the two subdivisions of group meals and facility management have developed rapidly. Among them, the group meal business achieved revenue of 360 million yuan in 2022, an increase of 334.2% over the previous year. The company acquired Suzhou Haios Restaurant and Tianjin Jinyu in 2022, and won consecutive bids for group meal services in various industries such as universities, hospitals, and enterprises. The annual contract amount has already exceeded 500 million yuan. The facility management business generated revenue of 240 million yuan in 2022, an increase of 54.2% over the previous year. Currently, the maintenance business is managing 33,000 elevators. We believe that with the post-pandemic recovery and the expansion of the company's management scale, the company's “big logistics” business will usher in qualitative growth.
Profit forecasting and investment ratings: Xincheng Yue's core service business is growing steadily, gradually getting rid of its dependence on real estate. Considering the decline in the parent company's delivery area and the increase in the share of non-residential businesses with low gross profit. We lowered its net profit attributable to the mother in 2023/2024 to 48/540 million yuan (previous value was 82/1.08 billion yuan). The forecast for 2025 was 6.0 million yuan. The corresponding EPS was 0.56 yuan/0.62 yuan/0.69 yuan respectively, and the corresponding PE was 10.0X/8.9X/8.1X respectively, maintaining the “buy” rating.
Risk warning: Market-based expansion fell short of expectations; group meal business expansion fell short of expectations; repeated effects of the epidemic exceeded expectations.