20230328-招银国际-绿城服务-02869.HK-High_brand_quality_to_boost_its_2023_recovery_4页_802kb

Greentown Service (2869 HK) Company Update Summary

Core Content

Greentown Service, a property services company, reported strong top-line growth in FY22, with a 18% YoY increase in revenue. However, the company faced significant challenges, including a 9% YoY decline in core EBIT and a 35% YoY drop in net profit, primarily due to the impact of the pandemic and a mix shift. The firm expects a recovery in 2023, with a 15% YoY growth in net profit, driven by its high brand quality, expansion in the existing home market, and continued cooperation with Cinda Yue Life.

Main Points

• Revenue Growth:

  • FY22 revenue reached RMB14.856 billion, up 18% YoY.
  • Basic PM revenue increased by 22% YoY to RMB9.446 billion, with 20% (RMB1.49 billion) contributed by the equity cooperation with Cinda Yue Life.
  • The company expects revenue to grow at a 20% CAGR from 2023 to 2025.

• Profitability:

  • Net profit declined by 35% YoY to RMB548 million in FY22, mainly due to a 2.3ppt drop in gross margin, increased AR impairment losses (up 58% YoY to RMB142 million), and a 227% YoY increase in other operating expenses.
  • Core operating profit declined by 9% YoY in FY22.
  • Management expects a 20-25% growth in core operating profit for FY23E, with net profit growing at a 15% CAGR from 2023 to 2025.

• Cost Control Measures:

  • The company implemented cost control measures, targeting a 0.5ppt reduction in labor cost to revenue ratio to support stable margins.

• Segment Performance:

  • Property management services remain the core business, contributing the majority of revenue.
  • Consulting services and community living services saw margin compression, with GPM dropping by 7ppt and 5ppt respectively.
  • Technology services experienced a 122% YoY growth in revenue, but this segment is expected to grow more slowly in the future.

• Investment Outlook:

  • The firm maintains a BUY rating, but has cut the target price to HK$5.93, reflecting a 25x 2023E P/E ratio.
  • The company is expected to benefit from the synergy of its cooperation with Cinda Yue Life, particularly in the PM business, which is projected to grow at a 20%+ CAGR from 2023 to 2025.

• Key Risks:

  • Worse-than-expected business expansion.
  • Slower-than-expected economic recovery.

Key Financial Information

Revenue Growth

Year	Revenue (RMB mn)	YoY Growth (%)
FY21A	12,566	24.3
FY22A	14,856	18.2
FY23E	18,123	22.0
FY24E	21,795	20.3
FY25E	26,033	19.4

Net Profit

Year	Net Profit (RMB mn)	YoY Growth (%)
FY21A	846	-
FY22A	548	-35.3
FY23E	639	16.7
FY24E	735	15.1
FY25E	840	14.3

Earnings Per Share (EPS)

Year	EPS (RMB)	YoY Growth (%)
FY21A	0.26	-
FY22A	0.17	-35.0
FY23E	0.20	17.6
FY24E	0.23	15.0
FY25E	0.26	13.0

Profit Margins

Metric	FY21A	FY22A	FY23E	FY24E	FY25E
Gross Margin (%)	18.5	16.2	16.6	16.5	16.2
Operating Margin (%)	9.2	5.8	5.5	5.3	5.1
Net Margin (%)	6.7	3.7	3.5	3.4	3.2

Valuation Metrics

Metric	FY21A	FY22A	FY23E	FY24E	FY25E
P/E (x)	14.9	23.1	19.8	17.2	15.1
P/B (x)	2.1	2.1	2.0	1.9	1.7
ROE (%)	12.1	7.7	8.5	9.2	9.8
ROA (%)	5.9	3.2	3.5	3.7	3.9
BVPS (RMB)	1.90	1.83	1.96	2.10	2.27

Summary of Financial Highlights

• GFA Expansion: Managed GFA increased by 26% YoY to 384 million square meters in FY22, with a significant portion contributed by the cooperation with Cinda Yue Life.
• Cost Management: The company is targeting a 0.5ppt reduction in labor cost to revenue ratio to improve margins.
• AR Impairment: AR impairment losses are expected to peak in 2022 and may continue to affect net profit growth in 2023.
• Target Price: The target price is now HK$5.93, reflecting a 25x 2023E P/E ratio, down from the previous HK$7.92.
• Shareholding Structure:
  • Orchid Garden: 31.6%
  • LI, Hairong: 14.0%
  • Free float: 54.4%

Key Ratios and Performance

• Sales Mix:

  • Property management services: 61.8% (FY21A) to 65.6% (FY25E)
  • Consulting services: 15.6% (FY21A) to 7.9% (FY25E)
  • Community value-added: 20.8% (FY21A) to 22.4% (FY25E)
  • Technology services: 3.3% (FY22A) to 4.1% (FY25E)

• Growth Trends:

  • Revenue growth is expected to slow from 20% in 2023 to 19.4% in 2025.
  • Net profit is projected to grow at a 15% CAGR, slightly slower than core EBIT due to lingering impairment pressure.

Conclusion

Greentown Service is expected to recover in 2023, supported by its strong brand quality, continued cooperation with Cinda Yue Life, and cost control measures. Despite the challenges faced in FY22, the company's core business remains stable, and the investment community is optimistic about its long-term prospects. The firm maintains a BUY rating, with a revised target price of HK$5.93, reflecting a 25x 2023E P/E ratio. Risks include slower-than-expected business expansion and economic recovery.