Invest in Easyhome to start in-depth cooperation

Jinyu Group announced that it has signed an agreement with Easyhome's majority shareholders to acquire 10% of Easyhome's shares held by the majority shareholders for 2.33 billion yuan (3.55 yuan/share). The price is 0.3% lower than Easyhome's closing price on November 17, implying 12.5x 1Y P/E, and 35.7% lower than EasyHome's average 1Y P/E since its launch. Jinyu Group and Easyhome signed a strategic cooperation agreement to cooperate in retail business, real estate development, asset revitalization and utilization, assembly business and property management, and digital transformation. We believe that investing in Easyhome and deepening strategic cooperation will help achieve strong alliances and nurture new momentum for the company's development.

We maintain the 2023/2024/2025 EPS forecast of $0.06/0.17/0.21, and the target price of Jinyu Group A/H at HK$3.62 /HK$2.62 unchanged, based on the 0.6x and 0.4x2023-2024 average P/B (2023/2024 BPS: 5.96/6.11 yuan), respectively, in line with the historical average of Jinyu Group A/H since 2016. Maintain “buying.”

The reach of decorative building materials and home improvement services is expected to be extended

Jinyu Group's energy-saving wall materials, complete furniture, decorative cement and other decorative building materials have a strong influence in the Beijing-Tianjin-Hebei region, with annual sales of 2C terminals exceeding 7 billion yuan. Although Tiantan's assembly business is small in scale, it is developing at a good pace, achieving sales revenue of 300 million yuan in 2022. There is already a good product base in the fields of decorative building materials and home improvement services. By the end of 2022, Easyhome operated 428 home furnishing stores in 29 provinces, regions and cities in China. The “Dongwo” platform had registered a total of 12.94 million users and a cumulative transaction volume of 35.7 billion yuan. Compared with Jinyu Group, it has a wider retail layout and greater influence. We believe that through deeper strategic cooperation, Jinyu's reach in decorative building materials and home improvement services is expected to be better extended. The layout of the 2C channel will have strategic significance for future development after the center of newly built housing scale falls back.

Integrated development has had successful experience. Looking forward to exploring more synergies and integrated development is an important element in Jinyu Group's growth history. Previously, through integrating and enabling management of intersecting markets such as Taihang Cement and Jidong Cement, the company reshaped the competitive pattern of core regional markets and achieved market share growth. Considering that Jinyu Group and Easyhome have both business commonalities (they are involved in the vertical field of decorative building materials) and strong complementarity (Easyhome has stronger brand influence, stronger ability to reach terminals, and Jinyu Group has stronger product control and stronger factor resources), we believe that this strong alliance has more synergies worth exploring.

The competitiveness of the main business is stable, new channels and new momentum are nurtured, and maintaining “buying”. Although the main cement and real estate industries still face challenges in the short term, with the “steady growth” trend clear, we expect the conditions for stabilizing demand in 2024 to be more mature. The cement business has a leading regional market position and has multi-dimensional advantages such as production capacity scale, market layout, mining resources and green environmental protection; land reserves in the real estate business focus more on Tier 1 and 2 cities, and are highly resilient in the face of market challenges. Combined with the opportunities brought by the cooperation with Easyhome, new momentum is being nurtured. It is expected to be a catalyst for valuation restoration.

Risk warning: The competitive ecology in the cement industry is weaker than expected, and real estate sales have stabilized slower than expected.