20210315-招银国际-新城悦服务-01755.HK-Successful_VAS_expansion_paves_way_for_triple_earnings_in_three_years_5页_813kb

S-Enjoy Service (1755 HK) Summary

Core Content

S-Enjoy Service (1755 HK) is a property services company that has shown strong performance and growth potential. The company has delivered robust results in 2020 with a net profit increase of 60% YoY, surpassing market expectations. This growth is attributed to improved property management (PM) margins and the outperformance of value-added services (VAS), particularly in the community VAS segment, which saw a significant 183% revenue increase.

Main Points

Financial Performance

• Revenue Growth:
  • 2020 revenue reached RMB2,866 million, up 41.6% YoY.
  • 2021E revenue is expected to be RMB4,470 million, a 55.9% increase.
  • 2022E revenue is projected at RMB6,136 million, a 37.3% increase.
• Net Profit:
  • 2020 net profit was RMB452 million, up 60% YoY.
  • 2021E net profit is estimated at RMB682 million, up 50.7% YoY.
  • 2022E net profit is expected to be RMB943 million, up 38.4% YoY.
• Earnings Per Share (EPS):
  • EPS for 2020 was RMB0.55, up 60.4% YoY.
  • 2021E EPS is projected at RMB0.83, up 50.7% YoY.
  • 2022E EPS is expected at RMB1.15, up 38.4% YoY.
• Dividend:
  • The company declared a dividend of RMB0.275/share in 2020, with a 50% payout ratio.

Earnings and Growth Targets

• The company aims to triple its revenue and net profit over the next three years, with a 44% CAGR.
• The GFA (Gross Floor Area) expansion target is 180 million square meters over three years, with 50% expected to come from third-party bidding and M&A (up from 40% in 2020).
• The 2021 target of 50 million square meters of managed GFA is considered highly achievable, given the company's 100 million square meters of reserves.

Target Price and Recommendation

• The target price (TP) has been revised up to HK$34.6, reflecting a 25x 2022E P/E ratio.
• The recommendation remains BUY, indicating strong potential for returns over the next 12 months.

Key Information

VAS Expansion

• Community VAS has been a key driver of growth, contributing 17% of total revenue in 2020.
• The company is expanding into non-traditional services such as catering and elevator maintenance, which contributed RMB187 million in 2020, up from RMB12 million in 2019.
• These services are expected to continue contributing significantly to future earnings.

GFA Management

• The company plans to expand GFA through a mix of new contracts, M&A, and third-party bidding, with a 30%/30%/40% distribution.
• The average annual GFA expansion target is 60 million square meters in managed GFA and 72 million in contracted GFA for the next three years.
• The GFA under management is projected to reach 280 million square meters by 2023.

Financial Ratios

• Gross Margin: Improved to 30.7% in 2020 from 28.5% in 2019.
• Net Margin: Increased to 15.8% in 2020.
• ROE: Rose to 35.3% in 2020, with an expected increase to 40.4% by 2022.
• P/E Ratio: Expected to be 22.9x in 2020, decreasing to 16.5x in 2022.
• P/B Ratio: Expected to be 9.0x in 2020, decreasing to 6.4x in 2022.
• Yield: Increased to 3.0% in 2020.

Earnings Revisions

• 2021E Earnings: Revised up by 8%.
• 2022E Earnings: Revised up by 17%.
• Gross Profit: Expected to increase by 18.2% in 2021 and 32.5% in 2022.
• Operating Profit: Expected to increase by 4.4% in 2021 and 19.3% in 2022.
• Net Profit: Expected to increase by 3.4% in 2021 and 17.3% in 2022.

Share Performance

• 1-month return: 9.5%
• 3-month return: 21.7%
• 6-month return: -7.8%
• 12-month return: 32.3%

Stock Data

• Market Cap: HK$18,800 million
• Average 3-month Turnover: HK$61.60 million
• 52-week High/Low: HK$27.65 / HK$10.80
• Total Issued Shares: 821 million

Shareholding Structure

• Wang Zhenhua: 73.2%
• Free Float: 26.8%

Analyst and Ratings

• Analyst Certification: The analyst certifies that the views expressed in the report reflect their personal views and that they have no financial interest in the company.
• CMBIS Ratings:
  • BUY: Stock with potential return of over 15% over next 12 months.
  • HOLD: Stock with potential return of +15% to -10% over next 12 months.
  • SELL: Stock with potential loss of over 10% over next 12 months.
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Important Disclosures

• Risk Disclaimer: There are risks involved in transacting in any securities, and the information in this report is not suitable for all investors.
• Conflicts of Interest: CMBIS may have investment banking relationships with the companies mentioned and may have conflicts of interest.
• Legal Responsibility: CMBIS is not liable for any loss, damage, or expense incurred in relying on the information contained in this report.
• Distribution Restrictions: This report is intended for specific investors and may not be distributed to others without prior consent.

Conclusion

S-Enjoy Service is well-positioned for continued growth, driven by strong VAS expansion and the potential for significant GFA expansion. The company's earnings targets are achievable, and the revised target price reflects optimism about its future performance. Investors are advised to consult with professional financial advisors and to be aware of the potential conflicts of interest and legal disclaimers.