Core net profit achieved rapid growth in '23, maintaining the annual report released by the “Buy” rating company on March 26, achieving revenue of 17.39 billion yuan, +17% year over year; net profit to mother of 610 million yuan, +11% year over year; core operating profit of 1.30 billion yuan, +32% year over year; dividend ratio +19 pct year over year to 73%. Considering the real estate and external environment, as well as competition in the property management market, we lowered our revenue for 24-25, and estimated the company's EPS for 24-26 to be 0.22/0.26/0.30 yuan (the value was 0.29/0.35 yuan before 24/25). Comparatively, the average 2024PE of the company is 9 times (Wind agreed). Considering that the advantages of the company's brand and service capabilities are more prominent in the competitive inventory environment, we believe that the company's reasonable 2024PE is 16 times, with a target price of HK$3.81 (previous value of HK$5.44, based on 23 times 2023PE), maintaining a “buy” rating.
Significant results have been achieved in improving quality and efficiency. Financial asset impairment and litigation provisions affected net profit to the company's steady increase in revenue in 23 years. Among them, basic property management revenue was +18% year-on-year to 11.10 billion yuan, mainly due to +17% to 448 million square meters of management area. Core operating profit (gross profit - sales management expenses) was +32% year over year, significantly exceeding the revenue growth rate, mainly due to overall improvement in organizational efficiency and employee efficiency: 1. Gross margin of basic property management/park services/consulting services +0.9/0.7/0.7 pct year on year, driving overall gross margin +0.6 pct to 16.8% year over year; 2. Management expense ratio -0.5 pct to 7.3% year over year. We expect the results of improving quality and efficiency to continue in 24 years. The growth rate of net profit attributable to mother fell short of revenue, mainly due to the one-off impact of the company's preparation for impairment of CVS-related equity and convertible debt, and preparation for litigation.
Dividends+repurchases actively give back to shareholders, and park services flourish
In '23, the company strengthened repayment control, increased the scale of advance payments, and promoted net operating cash flow +107% year-on-year to 1.44 billion yuan, reaching 1.1 times the core operating profit. The year-on-year growth rate of accounts receivable was lower than revenue. Supported by abundant cash flow, the company's dividend payout ratio was +19pct to 73% year-on-year, and a total of HK$140 million of the company's shares were repurchased over 23 years, further strengthening shareholder returns. In addition, the company's park service sector overcame the impact of the external environment, with revenue of +25% to 3.57 billion yuan. Except for home living services, which were affected by equity cooperation with Greentown Housing Repair and revenue of +113% year-on-year, the rest of the business revenue under the park service sector achieved a year-on-year growth rate of more than 10%.
Market Development maintains a large volume. The advantages of brand image and service quality under inventory competition further highlight the company's market development contract amount of 4.32 billion yuan in 23, which still maintains a large volume. Of these, residential/non-residential, were 22.9/2.02 billion yuan respectively. Real estate market adjustments have reduced the expansion space for new real estate management projects, and the market has generally turned to competition for existing projects. This has made the company's advantages in terms of brand image and service quality more prominent. The number of the company's price increase projects in '23 was +84 to 224, the acceptance rate was +1.9 pct to 95.2% year over year, and the winning bid rate for residential projects was +1.1 pct to 68.9% year over year, all confirming the company's excellent service capabilities. By the end of '23, the company's management/contract area was 448/820 million square meters respectively. The contract area was nearly twice the area under management, laying a solid foundation for the company's future performance growth.
Risk warning: Related to the operating risks of housing enterprises, the risk of declining profitability, and park services falling short of expectations.