Buffett once had an investment quote like this, which was very exciting.

“If we have firm long-term investment expectations, short-term price fluctuations make no sense to us unless they give us an opportunity to increase our holdings at a lower price. If there is a nuclear war, please ignore this incident.”

For most people, it's actually difficult to “own for a long time” during the investment process. Looking at the real estate and property sector in recent years, it can be said that there are few that can actually get through the cycle. Most real estate companies and property companies are underperforming in the capital market. Therefore, investors must not only be able to withstand the “beta” pressure of the industry, but also have the ability to select “alpha.” This is really not easy.

(Source: Futu Market)

It is undeniable that from the perspective of the real estate industry, it has gone through a period of twists and turns and turbulence, and not even leading housing enterprises have been spared from thunderstorms. Therefore, those that can still stay at the table today, especially housing enterprises and property companies that seem insignificant in terms of size and market value, must actually have core competitiveness.

The author noticed Kang Qiaoyue Life (2205.HK), which recently released financial reports. Despite the sluggish environment of the entire industry in the past few years, the company's performance at the management level is quite remarkable.

Judging from financial data, in 2023, Kang Qiaoyue Life achieved revenue of about 934 million yuan, an increase of 17.8% over the same period last year; annual net profit of about 53 million yuan; and net profit to mother of about 39 million yuan. It is worth mentioning that against the backdrop of the overall downturn in the industry, Kang Qiaoyue Life still insists on dividends and actively gives back to shareholders. In the three years since the company went public, it has been paying cash dividends for three consecutive years. In fiscal year 2023, the company plans to pay a final dividend of 0.053 yuan per share, with a dividend payment rate of over 100% and a dividend ratio of 11%. To a certain extent, this also reflects that the company is affected by the industry environment and the capital market continues to be suppressed, paying great attention to shareholder returns and stabilizing market confidence. High dividend levels also increase investors' margin of safety.

The performance is so steady and steady, so what did this cyclical player do right?

1. Behind the steady financial report, a few financial highlights that cannot be ignored

Through Kang Qiao Yue Life's latest report card, you can actually see several core highlights.

First, the basic market is still solid and stable, and profitability remains highly stable.

Judging from the situation in the past few years, the decline in revenue and profits of real estate companies has become the norm in the market. Prior to that, many property companies' performance forecasts all showed a sharp decline in profits or even losses. It is easy to see that the entire industry has actually not come out of the painful period affected by related real estate.

On the other hand, Kang Qiaoyue's life showed a steady performance against the trend. In terms of gross margin, the company's overall gross margin was about 23.6% in 2023, and it continues to be stable.

As industry risks were cleared up, the impact of real estate from related parties declined, and the company's operations moved towards higher quality development, and the excellent performance of gross margin highlighted the continuous consolidation of the company's operating quality.

Second, Kang Qiaoyue Life's deep-seated advantages continue to be reflected in performance data, driving its outstanding performance in project management and operation efficiency.

In the process of high-quality development, Kang Qiaoyue Life is based on the “deep cultivation” layout concept, continuously promotes the improvement of project management density, promotes collaboration and sharing among projects, helps optimize resource allocation, improve operational efficiency, and thereby reduce overall costs.

At the same time, long-term “deep regional cultivation, deep urban cultivation, deep business format cultivation, deep project cultivation and deep customer cultivation” has also given the company an excellent reputation and high brand awareness in the local market, helping the company to better expand its business. This is also fully reflected in the company's outreach capabilities, such as its continued deep cultivation in the Yangtze River Delta region, and its achievements are remarkable.

The third highlight is that Kangqiao Life continues to increase in the proportion of third-party projects, and its marketability and independence are unique in the industry.

In addition to deep-seated support, Kangqiao Life's outstanding performance in service quality and customer satisfaction is also at the core of supporting the company's expansion. According to financial data, by the end of 2023, Kang Qiaoyue Life's share of the third sector continued to grow. Third-party developers accounted for 81.3% of the contract area, about 54.6 million square meters; third-party developers accounted for 79.9% of the management area, or about 32.8 million square meters.

Finally, one point that cannot be overlooked is that Kang Qiaoyue Life's continuous breakthroughs in the non-residential sector have built stronger comprehensive strength and differentiated competitive advantage.

Compared to property companies that only operate in the field of residential services, Kangqiao Yue Life has built a variety of business formats. The company has formed three product categories: “Yue Life”, which focuses on residential services, “Yue Business Management”, which focuses on office, commercial and industrial park services, and “Yuecheng Clothing”, which focuses on urban services. According to financial data, by the end of 2023, the construction area of Kangqiao Yue Life's non-residential properties under management reached about 6.6 million square meters, an increase of 59.8% over the previous year. It is easy to see the high growth attitude shown by companies in the non-residential sector.

Compared to residential services, non-residential businesses often have higher profit margins and more stable cash flow, and at the same time, barriers to business competition are deeper. Continued breakthroughs in the non-residential sector can be said to have opened up a wider market space and development opportunities for Kangqiao Yue Life.

Taken together, the above highlights can be said to be the anchor of the company's core competitiveness. They not only demonstrate Kang Qiaoyue Life's outstanding strength in terms of independence, expansion ability, service quality, and operational efficiency, but also reflect the company's resilience and innovation ability to maintain continuous development without fear of the market cycle. These core competitiveness anchors also drive the company to make continuous breakthroughs in the industry and inject lasting impetus into its long-term steady development.

2. What are the major supporting logics of the market for property companies. What are Kang Qiaoyue's life opportunities?

Standing in the present, whether from the industry or the company itself, we can see Kang Qiaoyue Life's relatively clear logic of value restoration and growth.

On an industry level.

First, industry policy expectations have entered a calm track, providing the market with support for steady judgment on subsequent industry development. With increased industry certainty, undervaluation advantages and a background of scarce assets will drive the layout of capital to property management.

Right now, AI is booming in the market, US stocks are beyond the cold, and Bitcoin and gold are breaking historic highs. Just imagine where the money will go next? Or it can be said that in an environment where potential assets are scarce, the property industry, which has been at the bottom for a long time, actually has some certainty on the way back to valuation.

Second, from the perspective of capital allocation, the past few years have been plagued by industry factors, and the fund's holding ratio to housing enterprises and property companies is low. This has also brought good expectations for the entry of incremental capital in a stable environment for the industry. As the policy stabilizes, the configuration window has opened.

Finally, focus on the company level. The following highlights of Kangqiao Yue Life form the catalyst and support for market performance.

First, steady management strength that has been continuously verified

No matter how the industry changed, the company maintained steady growth. At the same time, in the face of market challenges, Kang Qiaoyue Life showed a flexible attitude and maintained the high-quality development of the business. This good management strength provides investors with confidence and helps to increase market capital.

Second, incremental opportunities after the market is cleared.

As the market clears up and integrates, Kang Qiaoyue Life, which remains on the table, will have the opportunity to gain more market share and growth opportunities with good competitiveness. These incremental opportunities not only enable the company to stand out in a competitive market environment and achieve faster business expansion and revenue growth, but also enable the company to use these incremental opportunities to further strengthen its market position and achieve long-term sustainable development.

Third, valuation reshaping after changes in the management structure.

With the company's share of external expansion and the continuous increase in the non-residential business format, the company has brought opportunities to reshape its valuation.

By adjusting and optimizing the management structure, Kang Qiaoyue Life has achieved diversification and collaborative development of the business. At the same time, it will also improve qualitatively in terms of profitability, risk resistance, and long-term competitiveness. This change will cause the market to re-evaluate the company's value. This will also bring new differences in market expectations to the company and help the capital market achieve excellent performance.

3. Conclusion

CITIC Securities once stated in a research report that history has proved that there is no systematic downward pressure on the profitability of the property management industry. The core logic of this judgment lies in the ability of the property management circuit to operate across cycles. If anything, the influence of factors related to real estate development in the past still raised questions about the independence of property companies and suppressed the market to a certain extent to give higher valuations. Today, with the reshuffle of the industry and the reduction of related factors, this concern has weakened among more independent property companies, which helps support the market to give new valuations to these property companies.

More importantly, under the “rent collection” attribute of property enterprises, there are multiple management optimization paths and expansion potential. First, use digital transformation to promote the optimization of labor costs and the improvement of operational efficiency. Second, through value-added services and new models, new business formats, and new business opportunities brought about by technological exploration, property companies will have the opportunity to further open up the ceiling for growth.

Judging from the financial report handed over by Kang Qiaoyue Life, the company used excellent growth data to show the market its strong countertrend growth ability and momentum for scale expansion, and there is significant room for future growth. At a time when industry valuations are bottoming out and recovering, I believe the “alpha” shown by the company at the management level will also be interpreted simultaneously in the capital market.