Results for the first half of 2020 are in line with market expectations and profit warnings
Yiju announced results for the first half of 2020: revenue of 2.85 billion yuan, down 34% year on year, net profit of 29.93 million yuan, down 95% year on year, in line with profit warning.
The core business has been greatly affected by the pandemic. New home sales by domestic developers were significantly affected by the epidemic. In the first half of 2020, Yiju's new housing agency service business had a transaction volume of 147.5 billion yuan and commission revenue of 1.27 billion yuan, a year-on-year decrease of 51%. Real estate brokers' net service revenue was 1.1 billion yuan (down 16% year on year), and net profit was 37.51 million yuan.
Financial costs have increased dramatically. In the first half of 2020, the company's financial costs were 209 million yuan, an increase of 119% over the previous year, mainly due to the increase in financial costs due to the issuance of 500 million US dollars of senior notes in February and October 2019.
Operating cash flow turned positive in the first half of 2020. Net cash flow from operating activities was corrected in the first half of the year, reaching 833 million yuan, compared with a net outflow of 245 million yuan in the same period last year.
Development trends
Towards a comprehensive real estate transaction service platform. On July 31, EasyJu announced that it would acquire 56.19% of Leju's shares and also intend to issue new shares and convertible notes to Alibaba. Leju's main business includes advertising, e-commerce, and online listing services. We think EasyJu is expected to improve the marketing, customer discovery and conversion steps in its service content value chain. We anticipate Alibaba will bring potential technological empowerment. We anticipate that the two parties may jointly build an online real estate transaction service platform that will become Alibaba's only mainstream platform in the real estate sector. Considering potential technical, brand, and traffic enablement from Alibaba, we anticipate that Easyhome's operations will be more digital (in particular, the tenant platform and its second-hand housing broker and store network), and that efficiency will be optimized.
Profit forecasting and valuation
We keep our earnings forecasts unchanged. Maintaining an outperforming industry rating and target price of HK$14.48, corresponding to 18 times the price-earnings ratio in 2020, there is 48% room for growth compared to the current stock price. Currently, EasyJu is trading 12.1 times the 2020 price-earnings ratio.
risks
Earnings performance in 2020 fell short of our expectations.