20211026-招银国际-旭辉永升服务-01995.HK-Likely_large_acquisition_deal_underway_to_boost_earnings_5页_1016kb

CMB International Securities | Equity Research | Company Update Summary

Core Content

CMB International Securities has issued a company update on Ever Sunshine (1995 HK), highlighting its potential for a significant acquisition deal to boost earnings. The report suggests that the company is positioning itself for a 5-year growth plan with a 38% CAGR, and the current placement is part of a strategic move to fund this acquisition.

Main Points

• M&A Strategy: Ever Sunshine is expected to pursue a large acquisition to enhance its earnings and scale up. The company has raised RMB4.1bn through a placement at HK$15.76 per share, which is 8.8% below the closing price of HK$17.28 on 24 Oct 2021.
• Placement Details: The placement involved 83.52mn new shares, representing 4.67% of the newly enlarged share capital, and raised HK$1.3bn.
• M&A Timing: The current environment, with tight property policies and regulation in the property management (PM) industry, is favorable for M&A. SMEs are being pushed out, and there have been 20 M&A activities in the PM sector since September, with an average P/E of 13x in 2021E, significantly lower than the secondary industry average of 31x.
• Strategic M&A Approach: Ever Sunshine has been conservative in its M&A strategy, with M&A contributing only 10% to its managed GFA compared to the industry's 16%. This is evidenced by their strategic exits and patience in acquiring Red Star Macalline at a 13x P/E.
• Valuation Impact: The acquisition is expected to boost earnings by RMB150mn in 2021E, which could offset the 5% EPS dilution and enhance the company's valuation. Currently, it trades at 34x P/E, which is lower than its 5-year average of 38x but higher than the industry's 31x.
• Buy Recommendation: The report reiterates a "BUY" rating with a target price of HK$22.16, representing a +38.3% upside from the current price of HK$16.02.

Key Information

• Earnings Summary:

  • Revenue is projected to grow from RMB1,076mn in FY18A to RMB7,339mn in FY22E.
  • Net profit is expected to increase from RMB101mn in FY18A to RMB931mn in FY22E.
  • EPS is forecasted to rise from RMB0.09 in FY18A to RMB0.56 in FY22E.

• Stock Data:

  • Market Cap: HK$26,760mn
  • 3-Month Trading Range: HK$81.32mn
  • 52-Week High/Low: HK$26.05/HK$12.00
  • Total Issued Shares: 1,670mn

• Shareholding Structure:

  • Lin Family: 55.36%
  • CGC: 6.09%
  • Free Float: 38.55%

• Share Performance:

  • 1-Month: +21.7%
  • 3-Month: -5.1%
  • 6-Month: -7.3%
  • 12-Month: +0.7%

• Recent M&A Activities:

  • The PM sector has seen 20 M&A activities since September, with an average P/E of 13x.
  • Several notable deals include CG Services acquiring R&F PM at 20x P/E, Ever Sunshine acquiring Red Star Macalline at 13x P/E, and others.

• Financial Summary:

  • The company has maintained a strong cash position, with RMB3bn cash on hand and RMB1.1bn raised.
  • Net cash from operating activities is expected to increase, supporting the upcoming M&A deal.

• Balance Sheet:

  • Total assets are projected to grow from RMB1,493mn in FY18A to RMB7,005mn in FY22E.
  • Total liabilities are expected to increase from RMB590mn in FY18A to RMB1,787mn in FY22E.
  • Equity to shareholders is forecasted to rise from RMB899mn in FY18A to RMB4,733mn in FY22E.

• Key Ratios:

  • Gross margin: 28.7% in FY18A to 31.9% in FY22E
  • Net margin: 9.3% in FY18A to 12.7% in FY22E
  • ROE: 11.2% in FY18A to 19.8% in FY22E
  • ROA: 6.7% in FY18A to 13.3% in FY22E
  • Current ratio: 2.4x in FY18A to 3.6x in FY22E

Analysts

• Jeffrey Zeng: (852) 3916 3727 | jeffreyzeng@cmbi.com.hk
• Xiao Xiao: (852) 3761 8952 | xiaoxiao@cmbi.com.hk

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
• NOT RATED: Stock not rated by CMBIS
• 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

• The report contains forward-looking statements and is based on the analysts' assumptions and interpretations.
• CMBIS does not provide individually tailored investment advice.
• The information is not guaranteed for accuracy, completeness, or timeliness.
• CMBIS may have investment banking relationships with the companies covered in this report.
• The report is intended for major institutional investors in the United States and Singapore and may not be distributed to others without prior written consent.