Key points of investment:

24H1 revenue +10% YoY, net profit to mother +11% YoY, in line with market expectations, and administrative expenses improved. 2024H1, the company achieved revenue of 7.87 billion yuan, +10.2%; gross profit of 1.61 billion yuan, +6.5% year over year; net profit to mother 0.85 billion yuan, +10.8% year over year, in line with market expectations; basic earnings per share of 1.54 yuan, +11.4% year over year; gross margin and net profit margin were 20.5% and 10.9%, the same as -0.7 pct year on year; administrative expenses accounted for -5.1% year over year; administrative expenses accounted for revenue 6.2%, -1.0pct year on year. At the end of 24H1, the company's trade receivables and notes receivable were $3.58 billion, +53% compared to the end of '23, due to: 1) an increase in the scale of management; 2) an increase in the share of public service projects. The balance of trade receivables increased due to the impact of loan periods.

The 24H1 management area was +16% compared to the same period. Third-party expansion was active, and the unit price of property management fees increased steadily. 2024H1, the company's management area reached 0.76 billion square meters, +16.3% year over year; contract area reached 0.95 billion square meters, +12.8% year over year; contract/management coverage reached 1.3 times, and there is a strong guarantee for subsequent scale growth. At the end of 2024H1, of the management area: 1) housing, public services, and commercial use accounted for 39.5%, 55.8%, and 4.7% respectively, and non-residential businesses accounted for a total of 60.5%; 2) Poly parties and third parties accounted for 35% and 65% respectively; in the contract area, poly parties and third parties accounted for 37% and 63% respectively, and third parties accounted for an increase of 1.5 pcts compared to the end of 23H1.

For 2024H1, the company's new expansion contract amount was 1.2 billion yuan, -13.7%, and the annual contract amount for a new third party was 1.07 billion yuan, or -17.1% year-on-year; among them, the single-year contract amount for new expansion third party projects above the 10 million level accounted for 64.3%, +5.7 pct year on year. 2024H1, the average property fee for company housing was 2.33 yuan/square meter* month, compared with +0.04 yuan/square meter* month. Among them, the average property fees for the poly side and third party were 2.44 and 1.82 yuan/square meter* month, respectively, and the average property management fee unit price for housing increased steadily.

Revenue from property management services is growing steadily, and gross margin of value-added services continues to rise. 2024H1, the company's property management services, non-landlord value-added services, and community value-added services achieved revenue of 5.59, 1.03, and 1.25 billion yuan, respectively, +16.1%, -2.1%, and -1.8%, respectively, accounting for 71.0%, 13.1%, and 15.9%, respectively. The gross margins were 16.8%, 18.1%, and 38.9%, respectively, -0.2, -1.5, and +0.7 pct year-on-year, respectively. In property management services, residential, public services, and commercial revenue accounted for 58.5%, 25.7%, and 15.8% respectively, while non-residential revenue accounted for 41.5%, an increase of 0.4 pct over the previous year. Among value-added services for non-landlords, co-marketing services, office leasing, and other value-added services for non-landlords were -7.6%, -13.3%, and +17.4%, respectively, accounting for 52.1%, 16.7%, and 31.2%, respectively. Revenue from the company's property management business grew steadily, and the gross margin of community value-added services continued to rise.

Investment analysis opinion: Steady increase in performance, cost improvement, unit price increase, maintenance of the “buy” rating. Poly Property is backed by Poly Real Estate. The scale growth rate is highly deterministic, and the non-residential property management business is strategically laid out. In November '21, the company issued equity incentives and established a medium- to long-term incentive system to focus on long-term high-quality development. By the end of 2024H1, the company's management area reached 0.76 billion square meters, and the contract area reached 0.95 billion square meters. The company is actively expanding in business fields such as schools, public, industrial parks, and urban scenic spots, and the background resources of central enterprises are expected to help the company continue to expand non-residential projects. Considering the intensification of competition in the industry, we lowered the company's 2024-26 earnings forecast to 2.82, 3.15, and 3.50 yuan (originally 2.90, 3.33, 3.69 yuan). The current price is only 8.8 times PE in 24, maintaining a “buy” rating.

Risk warning: Business expansion fell short of expectations, incentive plans fell short of expectations, rising labor costs led to declining profit margins.