20211108-招银国际-融创服务-01516.HK-A_possible_win-win_situation_to_acquire_parentco_s_commercial_arm_5页_1010kb

Summary of CMB International Securities | Equity Research | Company Update on Sunac Services (1516 HK)

Core Content

CMB International Securities has issued an equity research update on Sunac Services (1516 HK), analyzing the potential benefits of its recent acquisition of the asset-light commercial management and operation segment of Sunac China. The acquisition, valued at RMB1.8bn, is expected to create a win-win situation for both Sunac Services and its parent company, Sunac Holdings.

Main Points and Key Information

Acquisition Overview

• Date of Announcement: 8 November
• Acquisition Type: 100% of Sunac China's commercial management and operation segment
• Managed GFA (as of 31 Oct 2021): 3.054 million sq m
• Contracted GFA (as of 31 Oct 2021): 3.729 million sq m
• Reserve Ratio: 18%
• Net Profit (10M21): RMB78.8 million

Financial Impact

• Pro-forma Boost to Revenue and Net Profit: RMB140 million in 2022E net profit, with a net margin of over 54%
• Revenue and Net Profit Growth:
  • Revenue: 1.8% increase
  • Net Profit: 7.1% increase
• Valuation Impact: The acquisition is at 13x 2022E PE, slightly lower than Sunac Services' current 14x 2022E PE, making it value accretive.
• Liquidity: Sunac Services has RMB8.4bn in cash as of 1H21, sufficient to cover the acquisition.

Business Model of Commercial Services

• Total Projects Under Management: 21 (28 under contract)
• Management Fee Structure:
  • Matured Projects: 30% of NOI (equivalent to 15% of revenue)
  • Incubation Projects: 5% of revenue
• Net Revenue Contribution: Around 10% of revenue from commercial services

Pro-forma Analysis

• GFA Under Management and Contracted: Increases by 3.05mn/3.73mn, representing 1.4% / 0.9% growth
• Revenue and Net Profit (2022E):
  • Revenue: RMB14,188 million, with an 1.8% boost
  • Net Profit: RMB1,981 million, with a 7.1% boost
• Net Margin (2022E): >50%, significantly higher than the group's overall net margin

Valuation and Market Position

• PE Ratio (2022E): 13x for Sunac CM, compared to 14x for Sunac Services
• Industry M&A Analysis:
  • Sunac Services ranks 32.2 in terms of consideration and 22.3 in managed GFA acquired
  • Average PE for similar M&A deals in the industry is 13x
• Target Price: HK$29.80, +115.0% upside from current price (HK$13.86)

Share Performance

• 1-month Return: -13.4%
• 3-month Return: -26.8%
• 6-month Return: -38.6%
• 12-month Return: N.A.

Shareholding Structure

• Sunac Holdings: 71.72%
• Free Float: 28.28%

Key Financial Ratios

• Net Margin (2022E): 14.0%
• Gross Margin (2022E): 27.8%
• ROE (2022E): 17.4%
• Current Ratio (2022E): 1.9x
• Receivable Turnover Days (2022E): 91 days

Earnings Summary (YE 31 Dec)

P/E and Other Ratios (YE 31 Dec)

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

Conclusion

The acquisition of Sunac CM is expected to significantly enhance Sunac Services' financial performance, particularly through the high net margin of the CM business, and improve the group's overall profitability and valuation. The transaction is also expected to provide liquidity to the parent company and support its growth in home delivery services. With a target price of HK$29.80, the stock is currently undervalued and presents a strong investment opportunity.