Binjiang Service (03316. HK) 2022 Annual Report Comments: Three Factors Achieve the Company's Cash Cow Background

The company's performance was in line with expectations. In 2022, the company will achieve an operating income of 1.98 billion yuan, a year-on-year increase of 41.7%, and a net profit of 410 million yuan attributable to the parent company, a year-on-year increase of 28.0%. The company announced the distribution of a final dividend of HK$1.001 for 2022, and the annual dividend ratio would continue to maintain a level of approximately 60%.

The expansion of third parties is aggressive, and the area under management continues to expand. In 2022, the company's management area will reach 41.97 million square meters, a year-on-year increase of 40.1%, with a net gain of 12.02 million square meters. Among the total area, the externally expanded area from third parties reached 8.67 million square meters, a year-on-year increase of 16%, accounting for 72% of the net newly added site. Under the background of active external expansion, the company's average property management fee in 2022 will remain stable at a high level of 4.26 yuan/month/square meter (4.30 yuan in 2021). The good news is that the proportion of the company's revenue in the Hangzhou area has increased from 73% to 76% in the case of accelerated external expansion, which means that the company has further expanded its dominant position in the high-end market in Hangzhou and consolidated its regional density advantage. Due to the epidemic and other factors, the gross profit margin of the company's basic properties in 2022 will drop slightly by 10bps to 19.1%.

The delivery of related parties is about to enter the peak period, and we will work with related parties to maintain the reputation of the Binjiang brand. The company relies on the high-quality delivery of Binjiang Group, a related party in custody, to ensure the steady growth of the scale of properties under management. In 2022, the company will deliver a net increase of 3.35 million square meters of the area under control provided by related parties. Although the proportion of the newly added area supplied by the company's associated parties has decreased yearly, the projects delivered by related parties have high unit prices, good quality, and increased satisfaction, and most focus on core areas. More importantly, the delivery of Binjiang Group, especially the delivery of high-end real estate in Hangzhou, is expected to enter the peak period after 2024. This is because Binjiang Group will actively increase its land reserve in 2022, and the amount of equity land acquisition ranks seventh in the country. In addition, the company and Binjiang Group maintain the reputation of the Binjiang brand and combine good houses and good services to support the continuous expansion of the company's business scale and service categories.

Sustainable high dividend features are rare. The company's current dividend yield is 4.2%. Since the company went public in 2019, it has distributed 760 million yuan in dividends (including dividends planned for 22 years), accounting for 61% of its net profit. It has continued to maintain a dividend payout ratio of around 60%. In the case of no need to use interest-bearing liabilities and the sustainable development of the leading business, the company reflects the true nature of sustainable and healthy dividends. The company has also become the company with the highest sustainable dividend payout ratio in the property management industry. The company's balance sheet is also generally healthy, as the company has historically not relied on acquisitions for growth.

Risk factors. The company's trade, and other receivables will reach 340 million yuan by 2022, equivalent to 17% of 2022 revenue. Among them, trade receivables reached 6.24 million yuan over one year, accounting for 2.4% of trade receivables. Overall, the company's receivables maintain a healthy level in the industry, but compared with the full scale in 2022, it still increased by 170 million yuan.

Serving the high-end market, highly focused on Hangzhou and generous dividends, has achieved the company's "cash cow background": the company focuses on high-end and promotes high-quality rapid development through quality external expansion and strategic coordination. The Hangzhou market also has the potential for continuous cultivation, and the 5S business is more promising to Become the growth engine of the company's future performance. The company is a Hong Kong stock target with high and high dividends and has the possibility of entering Hong Kong Stock Connect in the second half of this year. According to the company's latest annual report, we adjusted the company's 2023/2024/2025 EPS forecast to 1.96/2.58/3.32 yuan (the original 2023/2024 forecast was 2.10/2.98 yuan, and the new 2025 forecast was introduced). We calculate that, in terms of possible dividends in 2025, the current company's dividend yield is 9.3%. We refer to the current average PE level of 18x in 2023 for leading property management companies with stable, related party credit and increased delivery area. Given the company's small scale, we give the company a target valuation of 15xPE in 2023, corresponding to a target price of HK$33.7 per share. Maintain a "Buy" rating.