20180809-招银国际-雅生活服务-03319.HK-VAS_boosts_profit_5页_719kb

A-Living Services (3319 HK) Summary

Core Content

A-Living Services (3319 HK), a subsidiary of China Merchants Bank, reported significant growth in its first-half of 2018 (1H18) financial performance. The company's revenue increased by 103% YoY to Rmb1,406 million, with a gross profit margin of 36.3%, up 4.4 percentage points from the previous year. Net profit attributable to shareholders rose by 196.2% YoY to Rmb332 million, resulting in a net profit margin of 23.6%, which is a notable improvement from 16.2% in 1H17.

Main Growth Drivers

• Managed GFA Growth: The increase in managed gross floor area (GFA) was primarily driven by mergers and acquisitions (M&A).
  • On 9 April 2018, A-Living acquired a 51% interest in Nanjing Zizhu Property Management, contributing 24.3 million sq.m of managed GFA.
  • On 11 July 2018, the company acquired a 51% interest in Lanzhou Chengguan Property Service, adding 24.9 million sq.m of managed GFA.
  • As of 30 June 2018, the company's managed GFA increased from 78.3 million sq.m (as of Dec-17) to 109.1 million sq.m, with Zizhu Property contributing 70% of the growth in 1H18.
• Third-party Projects: A-Living also expanded its project pipeline through third-party projects, adding 23.2 million sq.m in 2017 and 21 million sq.m in 1H18.

Value-Added Services (VAS) Performance

• VAS contributed 46.6% of total revenue in 1H18, compared to 20.9% in 1H17.
• The gross margin of VAS expanded from 31.6% to 44.6% in 1H18.
• VAS-to-non-property-owners revenue grew from Rmb107 million in 1H17 to Rmb575 million in 1H18, significantly boosting overall profit.
• VAS-to-property-owners revenue increased from Rmb38 million in 1H17 to Rmb80 million in 1H18.

Valuation and Investment Recommendation

• Target Price: HK$19.16 (up from previous target price of HK$15.74), implying a potential upside of +38.8%.
• Current Price: HK$13.80.
• PER: The stock is trading at 20.5x FY18 and 15.1x FY19 PER.
• Peer Comparison: The average PER for peers is 21.4x FY19.
• Recommendation: Maintain BUY.

Financial Highlights

Earnings Summary (YE Dec 31)

Key Ratios

• Sales Mix (%):
  • Property management services: 61.9% (FY18E), 64.8% (FY19E), 65.3% (FY20E)
  • VAS-to-non-property-owners: 32.5% (FY18E), 29.8% (FY19E), 29.3% (FY20E)
  • VAS-to-property-owners: 5.6% (FY18E), 5.4% (FY19E), 5.4% (FY20E)
• Profit & Loss Ratios (%):
  • Gross margin: 34.5% (FY18E), 33.8% (FY19E), 33.7% (FY20E)
  • Pre-tax margin: 26.7% (FY18E), 25.4% (FY19E), 25.2% (FY20E)
  • Net margin: 18.4% (FY18E), 17.2% (FY19E), 17.0% (FY20E)
  • Effective tax rate: 25.0% (FY18E to FY20E)
• Growth (%):
  • Revenue: 121.5% (FY18E), 52.8% (FY19E), 32.4% (FY20E)
  • Gross profit: 128.0% (FY18E), 49.6% (FY19E), 32.0% (FY20E)
  • EBIT: 161.7% (FY18E), 45.5% (FY19E), 31.2% (FY20E)
  • Net profit: 148.1% (FY18E), 42.4% (FY19E), 31.2% (FY20E)

Balance Sheet Ratios

• Current ratio (x): 2.9 (FY18E), 2.3 (FY19E), 2.1 (FY20E)
• Trade receivables turnover days: 91 (FY18E to FY20E)
• Trade payables turnover days: 281 (FY18E to FY20E)
• Inventory turnover days: 5 (FY18E to FY20E)
• Net debt to total equity ratio (%): 88.6 (FY16A), net cash (FY17A to FY20E)

Returns (%)

• ROE: 21.0% (FY20E)
• ROA: 13.5% (FY20E)

Per Share Data

• EPS (Rmb): 0.57 (FY18E), 0.77 (FY19E), 1.01 (FY20E)
• DPS (Rmb): 0.23 (FY18E), 0.35 (FY19E), 0.45 (FY20E)
• BVPS (Rmb): 3.04 (FY18E), 3.04 (FY19E), 3.27 (FY20E)

Analyst Certification and Disclosure

• The research analyst certifies that the views expressed reflect their personal opinions and that no compensation is directly or indirectly related to the views in this report.
• The analyst confirms that they have not traded in the stock covered in the report within 30 days prior to its issuance and will not do so for 3 business days after issuance.
• The report is not an offer or solicitation to buy or sell securities and CMBIS is not liable for any loss or damage incurred in reliance on the information.
• The report is based on publicly available and reliable information, but is not guaranteed for accuracy, completeness, or timeliness.
• CMBIS may issue other reports with different assumptions and conclusions.

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.

Important Disclosures

• There are risks involved in transacting in any securities.
• The information in this report is not suitable for all investors.
• CMBIS does not provide individually tailored investment advice.
• Past performance is not indicative of future performance.
• The value and returns of any investments are uncertain and may fluctuate.
• This report is for the use of intended recipients only and may not be reproduced, reprinted, sold, redistributed, or published without prior written consent.