Reviewing the business performance of CIFI Yongsheng Services in the first half of 2022, President Zhou Hongbin used the nine words “not easy, imperfect, and unwilling to admit defeat” as a summary at the performance meeting.
Viewpoint On the evening of August 25, CIFI Yongsheng Service released its 2022 semi-annual performance report.
During the reporting period, the service revenue of CIFI Yongsheng was approximately RMB 3.162 billion, a year-on-year increase of approximately 53.6%; the profit was approximately RMB 437 million, a year-on-year increase of approximately 35.8%; the profit attributable to the owners of the company was approximately RMB 377 million Yuan, an increase of about 33.4% year-on-year.
In addition, in the interim report, CIFI Yongsheng Services announced the first distribution of a 30% interim dividend, with a total cumulative dividend of 113 million yuan.
Under the downward pressure on the macro economy and the impact of the epidemic, CIFI Yongsheng’s service report will undoubtedly satisfy investors.
On the morning of the next day, the share price of CIFI Yongsheng Service gapped up by 4.59%. As of the close, its share price rose by 6.88% to HK$5.70 per share, with a turnover of HK$115 million.
“It’s not easy, it’s not perfect, it’s not easy to admit defeat”
On August 26, CIFI Yongsheng Service held the 2022 interim results conference online. Lin Zhong, Chairman of the Board of Directors, Zhou Hongbin, President, Zhou Di, Chief Financial Officer, Liu Guohong, General Manager of the Western Theater and other management attended the meeting and communicated with investors.
Reviewing the business performance of CIFI Yongsheng Services in the first half of 2022, President Zhou Hongbin used the nine words “not easy, imperfect, and unwilling to admit defeat” as a summary at the performance meeting.
The so-called “not easy”, he said, the sudden outbreak of the Shanghai epidemic in March this year, the group’s management team and the main battlefield in East China were blocked for three months. At the same time, the successive explosions of private housing enterprises have made the capital market have various suspicions and entanglements about enterprises. In such a large environment, it is not easy for CIFI Yongsheng to maintain a stable mentality and no deformation of actions.
As for “imperfect”, he pointed out that the performance of the first half of the year was not perfect. For example, in terms of external expansion, CIFI Yongsheng Service only completed the target of the same period last year in the first half of the year, which is still a small part of the established target.
Although it’s not perfect, it’s actually not bad.
Taking revenue as an example, as of June 30, 2022, CIFI Yongsheng’s service revenue was approximately RMB 3.162 billion. It is worth noting that its full-year 2020 revenue is about 3.12 billion yuan.
In terms of breakdown, property management services are the company’s largest source of income, with an income of 1.892 billion yuan, a year-on-year increase of 65%, accounting for 59.8% of the total income.
Although the community value-added business has achieved 545 million yuan under the double blow of the epidemic lockdown and the weakening of the overall social and economic environment, a year-on-year increase of 4.8%, and the growth rate has slowed down, but it still accounts for 17.2% of revenue, which is stable. It is the second largest source of profit for the company.
The rapid growth in revenue from value-added services for non-proprietors also deserves attention. During the period, non-owner value-added services realized revenue of 541 million yuan, a year-on-year increase of 38.1%, accounting for 17.1% of the total revenue.
In this regard, JPMorgan Chase released a research report that, driven by non-community value-added services, the core profit of CIFI Yongsheng Services in the first half of 2022 was 7% higher than the bank’s expectations, and its target price was raised from HK$4.8 to HK$5.6.
In terms of profitability, the gross profit margin of CIFI Yongsheng services during the period was 25.7%, down 4.2 percentage points from 29.9% in the same period in 2021. Among them, the gross profit margin of property management services was 23.5%, which was the same as the same period in 2021.
According to the semi-annual report, one of the main reasons for the year-on-year decline in the overall gross profit margin was the introduction of city services with relatively low gross profit margins.
CFO Zhou Di said that in the first half of this year, the gross profit margin of the company’s urban service business was only 7.2%, lower than last year.
Affected by the epidemic in the first half of the year, many bid openings were postponed to July and August in the second half of the year, but the labor input in the early stage was still there, including the increase in fuel cost prices in the first half of the year, which actually had a certain impact on the urban service business.
He pointed out that with the continuous access of large orders in June and July, the gross profit margin of urban service business can be maintained at more than 10% in the future, with a reasonable range of 10%-15%.
In addition, in terms of scale expansion, as of June 30, 2022, the cumulative GFA under management of CIFI Yongsheng services exceeded the 200 million square meters mark for the first time, reaching 208 million square meters, a year-on-year increase of 60%.
Among them, the proportion of the area under management from independent three parties has further increased, from 81.5% in the same period in 2021 to 82.8%, while the area under management from the related party CIFI Group has dropped to 17.2%.
In Zhou Hongbin’s view, the reason why such a result can be achieved is mainly due to the three words “not admit defeat”. Although faced with many hardships, Xuhui Yongsheng’s services have not flinched. As for the strategic goal of “ten times in five years”, the company also refused to admit defeat and still has a very strong confidence that it can be achieved.
Operating cash flow and M&A plans
If you want to “prick” in the semi-annual report of CIFI Yongsheng Service, operating cash flow may be one of the few data indicators that are relatively weak.
As of June 30, 2022, the net cash inflow from CIFI Yongsheng’s service operating activities was RMB 134 million, a decrease of approximately RMB 291 million from RMB 425 million for the same period in 2021.
In this regard, Zhou Di believes that although the net operating cash flow has decreased significantly, since the listing of CIFI Yongsheng Services at the end of 2018, this indicator has been positive for 8 consecutive periods. From 2019, the company’s net operating cash flow has accumulated to 2.36 billion, which is 1.2 times the cumulative net profit.
He pointed out that the decrease in operating cash flow was mainly affected by the advance receipts from the previous and subsequent periods.
“In the first half of the year, revenue increased by more than 50%, and the growth of accounts receivable also reached 60%. The current collection rate was 78%, which was two points lower than last year and did not meet expectations. At the same time, our advance receipts did not increase. In particular, from the perspective of the composition of receivables, our receivables in one year reach 80%, and the sum of one year and two years together reaches 92%, and the overall structure of receivables is still very healthy.”
As for how to increase the collection rate, Zhou Di said that the company will continue to improve, whether it is the old debt of more than two years, or the current collection. On the one hand, the company will focus on serving customers, and on the other hand, it will put more effort into collection and take effective measures. It is confident that by the end of the year, the collection rate will be maintained at 90% like last year. The level of old debt can also continue to decrease.
In terms of book cash, CIFI Yongsheng services are also relatively abundant. As of the end of the period, its bank balances, deposits and cash amounted to 3.854 billion yuan.
As for the follow-up arrangement of cash on hand, according to Zhou Di, it will be mainly used in the following three aspects: first, mergers and acquisitions; second, continuous investment in technology; third, improvement of people’s organizational ability and continuous investment of resources.
Among them, mergers and acquisitions, as an important part of CIFI Yongsheng’s “four-wheel drive” expansion strategy, will be the main direction of cash use.
It is reported that in the first half of this year, despite the impact of the epidemic, CIFI Yongsheng’s service M&A team has followed up and contacted more than 80 projects, 20 of which have entered into business negotiations, 13 have been due diligence, 9 projects have been approved, and finally In the end did not start.
He pointed out that CIFI Yongsheng Service has always adhered to the strategic principle of active and prudent, and only buys the right ones, not the expensive ones.
“We must work with shareholders who have the same strategic and development perspectives to build large and strong companies, and we must achieve 1+1 greater than 2, so that we will be more interested in such targets. Second, maintain post-investment and pre-investment management, Actively and prudently, we will continue to work hard to make mergers and acquisitions a tool, so that the money that shareholders give us is really spent on the cutting edge, so as to give shareholders a better return.”
The following is the live Q&A record of the 2022 Interim Results Conference of CIFI Yongsheng Service:
On-site question: In the first half of this year, some external environments of the economy and real estate were turbulent, and the property industry was also undergoing great changes. How should the management view the relationship between CIFI and Yongsheng Services under the current internal and external environment?
In the woods:Judging from the current changes and circumstances, in fact, CIFI’s strategic positioning of Yongsheng has never changed. Yongsheng service is an important part of CIFI’s entire concentric circle strategy, and it is also a future community life within CIFI’s system. Service platform and become a platform-based enterprise. Xuhui will make every effort to support and assist the development of Yongsheng.
In the process of development, Yongsheng still has to adhere to the overall positioning of marketization and independence, relying on but not relying on CIFI. At the same time, CIFI will give Yongsheng the greatest support in terms of enterprise development strategy, empowerment, resource coordination and resource sharing.
When expanding Yongsheng’s business, we will have a lot of resources to coordinate, including agency construction, and we are now entrusting the construction of projects to Yongsheng, including many communities in Xuhui Residence Management are for Yongsheng, including business management. The project is also for Yongsheng. In the future, some value-added services of Yongsheng in communities such as community elderly care services and community education services can also be coordinated with CIFI’s various concentric business segments.
In addition, because Yongsheng is to maintain independence, marketization, and take the development path of market competition. Both CIFI and Yongsheng will attach great importance to the interests of minority shareholders. Both CIFI and Yongsheng have good governance principles, adhere to principles, and adhere to the bottom line. There has been nothing in the past, and there will be no violation of the interests of minority shareholders in the future.
On-site question: How does the management evaluate the business and performance of CIFI Yongsheng Services in the first half of 2022, and do you think it is in line with your own internal expectations and ideas?
Zhou Hongbin:For the business performance in the first half of 2022, three words are used to describe “not easy, imperfect, and unwilling to admit defeat”.
First of all, the first half of the year was not easy. After the beginning of the new year, the sudden outbreak in Shanghai kept us under lockdown for three months. The entire management team of the group and our main battlefield in East China were locked down. We have been busy with epidemic prevention and control after the city was closed. During this process I feel a lot, it will be very difficult after the lockdown.
Secondly, the continuous explosion of real estate and private enterprises has brought various suspicions and entanglements in the capital market to us. In fact, I think it is really difficult to maintain a stable mentality and no deformation of actions under this general situation.
Third, the management area of nearly 200 million across the country has taken over more than 30 million square meters. Under the epidemic prevention and control, each project must be implemented. The team of the project is like fighting high temperature and fighting the epidemic. very easy.
We can present the results of the first half of the year to investors. I still think our team is an organization that is very combative, very hard-working, and very committed to fulfilling the spirit of contract.
The second word is “imperfect”. Although we have worked hard, the external environment has brought us the impact and pressure. The performance in the first half of the year was not perfect. From the perspective of our peers, our performance should outperform the industry. Also outperformed most of the competition, but not outperformed ourselves, which is not perfect.
At the same time, we are also affected by the epidemic in Shanghai. In the case of the stagnation of commercial writing and public construction, the cash flow has been affected to a certain extent, but we are still stable and rising in terms of breakthroughs in other residential cash flow, which is very good. The outbreak of the epidemic in various cities, such as the closure and control of Beijing, actually has a little impact on the northern theater, which is not perfect.
The second imperfection is Shituo. The adjustment of our team, we added the epidemic in the process of remodeling, so in the first half of the year, we only achieved the goal of the same period last year, which was still a small part of our established goal, but through the adjustment of the strategy in the second half of the year, we have Intend to do something to make up for, these are called “imperfections”.
I think that when an organization is facing such a big change, we still have to keep the third word called “not admit defeat”, which is the consensus of our team. Because of the various sudden “gray rhino” and “black swan” incidents in the first half of the year, it did cause a lot of interference to our actions, but we did not deform or admit defeat. At present, we maintain the pattern of outperforming the general trend. The strategic goal of the first five years and the strategic goal of ten times in the five years remain unchanged, and we still have very strong confidence that we can achieve it.
On-site question: Can the management dismantle in detail the collection of property fees and incremental accounts in the first half of this year.
Zhou Di:In the first half of this year, the company’s current collection rate was 78%, which was 2 points lower than last year, which did not meet expectations. At the same time, the increment of advance receipt is not particularly large. Let’s break down the reasons, mainly because of the superposition of several aspects.
On the one hand, the owners, including myself, are often due to work, and the payment is often made in the second half of the year, so the collection rate in the first half of the year is relatively low, and this year we have a slightly lower target. During the epidemic in the first half of the year, our group headquarters in Shanghai, including our colleagues in Shanghai East China, focused more on the fight against the epidemic, and the frequency and intensity of being able to provide payment services decreased relatively.
On the other hand, because we were suddenly restricted from the community, including express delivery, it did not open until June.
In fact, there is a relatively large part of our current business structure, which also comes from To B, which will cause us to be unable to issue some invoices and express delivery, because many of our business contracting entities are signed by Yongsheng entities. , because we did not receive the invoice, they did not initiate the payment process, which greatly affected our collection and payment. This piece has a very significant impact on us.
In addition, we have also seen that the epidemic has brought some social or economic confidence. Some small business owners are also the logistics supervisors of government agencies. For payment of expenses, his management precision has also improved, which really gives us The collection of payments brings certain pressures and challenges.
However, starting from June, we will continue to improve this area. Whether it is the old debt of more than two years or the current collection, we will focus on serving customers on the one hand, and on the other hand. With greater efforts in collection and effective measures taken, we are confident that by the end of the year, the collection rate will remain at the same level as last year at 90%, and I believe that old debts will continue to decrease.
On-site question: The book cash is still relatively abundant. Can you give some guidance and explanation on what key aspects will be used in the future?
Zhou Di:The main uses of cash in the company’s hands are still three: first, mergers and acquisitions, mergers and acquisitions are still our main spending direction; second, continuous investment in technology; a place.
Among them, in terms of mergers and acquisitions, we always adhere to the principle of continuous and prudent strategic mergers and acquisitions.
In the first half of the year, we paid more attention to the strategic considerations of combining urban deep cultivation and paying more attention to regional strengthening and business format complementation. In the past six months, the M&A team has worked very hard. We have followed up and contacted more than 80 projects in total, and 20 of them have continued to enter into business negotiations. The financial team has done their own financial due diligence. Due to the impact of the epidemic, we can only do it in other places. Our colleagues cooperated in financial due diligence. There were 13 due diligences, and we approved 9 projects. We did not start with the ones that were finally successful or those that could be bought under the current conditions.
In the future, Yongsheng will still adhere to the strategic M&A attitude of “only buy what is right, not what is expensive”. We must work with shareholders who have the same views on strategy and development to build a large and strong enterprise together. We must achieve 1+1 greater than 2. We will be more interested in such a target, not simply buying a piece of business. This is our principle.
At the same time, we will still adhere to the pre-investment management, remain active and prudent, and we will continue to work hard to let the M&A tool and the money given to us by the shareholders really be spent on the development of Yongsheng and the cutting edge, so as to give us Better returns for shareholders.
Regarding dividends, the company’s policy is still consistent. We insist on distributing 30% of the net profit attributable to the parent to shareholders every year. This year, because of the special moment, our board of directors decided to pay a 30% interim dividend. On the one hand, it is timely to give To the feedback from the small and medium shareholders, to overcome the relatively sluggish state together.
In terms of repurchase, Hong Bin also talked about it in his pages. In fact, our board of directors still has an unanimous opinion. When the price is obviously low, we will start the repurchase and prepare a certain amount of repurchase funds. , the company’s attitude towards this area is positive, and it can be seen in the past that we have done 14 buybacks, and our senior management team and directors have also increased shareholdings many times to enhance our confidence.
