CGS (6098 HK) Company Update Summary
Core Content
CGS (China Property Service Group), listed on the Hong Kong Stock Exchange, has been the subject of a recent equity research update. The report outlines the company's financial performance, strategic moves, and outlook for the future.
Main Points
Financial Performance
- Revenue: Increased by 85% YoY in FY21 to RMB28.8bn, driven by M&A activities, particularly in city services and community VAS.
- Net Profit: Rose by 50% YoY in FY21 to RMB4.0bn, matching the profit alert.
- EPS: Increased from RMB1.28 in FY21 to RMB2.35 in FY23E, with a YoY growth of 38.9% in FY23E.
- Gross Margin: Declined from 34.0% in FY20A to 30.7% in FY21A, and is expected to remain stable at 29.5% in FY22E.
- Net Margin: Dropped from 17.2% in FY20A to 14.0% in FY21A, and is projected to decrease further to 13.1% in FY22E.
- Dividend: Increased YoY from RMB0.30 to RMB0.42 in FY22E, with a payout ratio of 23.4% in FY21A.
Strategic Adjustments
- 2022E Revenue Growth: Adjusted down to 50% from previous expectations, with a focus on slowing growth due to the decline in city services.
- Segment Adjustments: The company is shifting focus towards VAS contributions, with the target revenue for VAS increased to RMB35bn from RMB30bn. City services revenue is expected to decrease to RMB10bn from RMB15bn.
- Basic PM Segment: High visibility to RMB50bn, with contracted GFA of 1.5bn sq m.
- Commercial Operational Services: The company has already secured 100 projects and plans to boost this segment via M&A.
Operational and Financial Metrics
- Trade Receivables: Increased significantly to RMB10.3bn in FY21, mainly due to M&A-related consolidation. This is expected to improve in FY22E with less M&A and improved receivable management.
- Margin Pressure: Reduced in FY22E due to less M&A dilution, with GPM/NPM estimated at 29% and 13% respectively.
- Valuation: Attractive at 15x 2022E P/E, with a target price of HK$47.63, down from the previous HK$91.17.
- Maintain Buy Rating: The company is recommended to maintain a Buy rating despite the short-term volatility.
M&A and Acquisitions
- Everjoy PM Acquisition: The company is considering the acquisition of Everjoy PM at RMB748mn, equivalent to 6x 2021A PE. Total consideration may exceed RMB3.1bn.
- Acquisition Impact: The acquisition is expected to have a positive impact on the company's operations, with more GFA being delivered in the future.
Key Information
Earnings Summary
| FY |
Revenue (RMB mn) |
YoY Growth (%) |
Net Income (RMB mn) |
EPS (RMB) |
YoY Growth (%) |
| 20A |
15,600 |
61.7 |
2,686 |
0.98 |
55.7 |
| 21A |
28,843 |
84.9 |
4,033 |
1.28 |
31.1 |
| 22E |
43,303 |
50.1 |
5,662 |
1.69 |
32.2 |
| 23E |
61,955 |
43.1 |
7,863 |
2.35 |
38.9 |
| 24E |
86,155 |
39.1 |
10,899 |
3.26 |
38.6 |
Valuation and Market Performance
- P/E Ratio: 22.7x in FY22E, down from 30.1x in FY21A.
- P/B Ratio: 12.7x in FY22E, down from 15.6x in FY21A.
- Yield: Increased to 1.5% in FY22E.
- ROE: Expected to rise to 20.1% in FY24E.
- Target Price: HK$47.63, representing a +52.2% upside from the current price of HK$31.30.
Shareholding and Market Data
| Metric |
Value |
| Market Cap (HK$ mn) |
105,311 |
| Avg 3 mths t/o (HK$ mn) |
869.15 |
| 52w High/Low (HK$) |
85.20/22.80 |
| Total Issued Shares (mn) |
3,365 |
Shareholding Structure
| Shareholder |
% Ownership |
| Chen Chong |
45.1% |
| JPM |
5.7% |
| Free float |
48.7% |
Share Performance
| Period |
Absolute Return (%) |
Relative Return (%) |
| 1-mth |
-29.6 |
-26.2 |
| 3-mth |
-30.8 |
-25.7 |
| 6-mth |
-41.5 |
-33.9 |
| 12-mth |
-57.1 |
-43.9 |
Financial Summary
Income Statement
| FY |
Revenue (RMB mn) |
Gross Profit (RMB mn) |
Net Profit (RMB mn) |
| 20A |
15,600 |
5,300 |
2,686 |
| 21A |
28,843 |
8,864 |
4,033 |
| 22E |
43,303 |
12,763 |
5,662 |
| 23E |
61,955 |
18,054 |
7,863 |
| 24E |
86,155 |
25,259 |
10,899 |
Balance Sheet
| FY |
Total Assets (RMB mn) |
Total Liabilities (RMB mn) |
Total Equity (RMB mn) |
| 20A |
31,204 |
15,045 |
16,159 |
| 21A |
66,813 |
28,439 |
38,373 |
| 22E |
81,069 |
38,542 |
42,527 |
| 23E |
100,228 |
51,300 |
48,928 |
| 24E |
111,345 |
53,421 |
57,924 |
Cash Flow Summary
| FY |
Net Cash from Operating (RMB mn) |
Net Cash from Investing (RMB mn) |
Net Cash from Financing (RMB mn) |
| 20A |
6,709 |
-5,526 |
7,118 |
| 21A |
- |
- |
- |
| 22E |
8,148 |
-2,800 |
-1,416 |
| 23E |
10,899 |
-2,800 |
-1,966 |
| 24E |
561 |
-2,800 |
-2,725 |
Key Ratios
| FY |
Current Ratio |
Receivable Turnover Days |
ROE |
ROA |
EPS (RMB) |
DPS (RMB) |
BVPS (RMB) |
| 20A |
1.6 |
123 |
18.4 |
8.6 |
0.98 |
0.23 |
2.84 |
| 21A |
1.3 |
197 |
11.1 |
6.0 |
1.28 |
0.30 |
2.46 |
| 22E |
1.2 |
197 |
14.1 |
7.0 |
1.69 |
0.42 |
3.03 |
| 23E |
1.2 |
197 |
17.1 |
7.8 |
2.35 |
0.59 |
4.20 |
| 24E |
1.4 |
197 |
20.1 |
9.8 |
3.26 |
0.81 |
6.05 |
Analyst Rating and Outlook
- Rating: Maintain Buy
- Target Price: HK$47.63
- Previous Target Price: HK$91.17
- Upside: +52.2%
- Current Price: HK$31.30
- Reasoning: Despite short-term volatility and margin pressure, the company's valuation remains attractive at 15x 2022E P/E, and the management has committed not to do placement for M&A. The company is expected to maintain a stable growth trajectory with improved receivable management and less M&A dilution.
Industry Comparisons
PM Sector Comps
| Company |
CMBI Rating |
TP (HK$) |
Last Price (HK$) |
Mkt Cap (HK$ mn) |
P/E 21A |
P/E 22E |
P/E 23E |
Net Profit Growth 22E |
Net Profit Growth 23E |
| CGS |
BUY |
47.6 |
31.3 |
105,311 |
30.1 |
22.7 |
16.4 |
49.6 |
38.5 |
| CR MixC Lifestyle |
BUY |
56.0 |
36.3 |
82,855 |
43.6 |
31.2 |
23.2 |
37.7 |
34.4 |
| A-Living |
HOLD |
34.2 |
11.5 |
16,387 |
5.5 |
4.4 |
3.5 |
25.6 |
25.1 |
| Greentown Services |
HOLD |
9.5 |
7.5 |
24,278 |
21.3 |
17.9 |
14.0 |
20.7 |
28.9 |
| Ever Sunshine |
HOLD |
12.7 |
9.7 |
16,965 |
21.0 |
15.0 |
10.9 |
43.4 |
38.1 |
| Poly Services |
HOLD |
53.4 |
55.4 |
30,655 |
28.6 |
23.0 |
18.1 |
23.5 |
26.7 |
| S-Enjoy |
SELL |
8.6 |
8.9 |
7,745 |
9.1 |
6.8 |
5.0 |
36.6 |
34.6 |
| Powerlong Commercial |
BUY |
33.2 |
5.6 |
3,626 |
6.6 |
4.7 |
3.5 |
38.4 |
33.3 |
| Excellence CM |
BUY |
14.9 |
3.9 |
4,698 |
7.0 |
5.0 |
3.8 |
39.2 |
35.0 |
| Central China New Life |
BUY |
12.9 |
4.2 |
5,267 |
6.8 |
5.1 |
3.9 |
31.7 |
30.4 |
| Sino-Ocean Services |
BUY |
7.1 |
3.7 |
4,393 |
8.6 |
6.0 |
4.4 |
43.7 |
36.4 |
| New Hope Services |
BUY |
4.4 |
2.3 |
1,905 |
8.1 |
4.8 |
NA |
55.5 |
NA |
| Redsun Services |
BUY |
9.4 |
3.0 |
1,257 |
6.5 |
4.4 |
3.1 |
50.2 |
44.1 |
| Evergrande Services |
BUY |
10.4 |
2.3 |
24,865 |
5.6 |
4.2 |
3.2 |
32.1 |
31.2 |
| Sunac Services |
BUY |
29.8 |
4.4 |
13,422 |
8.4 |
5.7 |
4.1 |
45.0 |
37.9 |
| COPH |
NR |
NA |
9.3 |
30,403 |
32.8 |
23.9 |
18.3 |
38.8 |
30.0 |
| Times Neighborhood |
NR |
NA |
2.1 |
2,099 |
4.3 |
2.3 |
1.9 |
39.9 |
30.1 |
| Aoyuan Healthy Life |
NR |
NA |
1.7 |
1,249 |
2.7 |
1.9 |
1.5 |
41.3 |
31.2 |
| Shimao Services |
NR |
NA |
3.8 |
9,428 |
6.0 |
4.2 |
3.0 |
40.7 |
38.2 |
| KWG Living |
NR |
NA |
2.7 |
5,527 |
6.2 |
4.2 |
3.1 |
50.4 |
32.9 |
| Average |
- |
- |
- |
- |
22.5 |
16.3 |
12.2 |
39.2 |
34.1 |
Conclusion
CGS is expected to maintain its Buy rating due to its attractive valuation and the potential for future growth, despite short-term challenges such as margin pressure and trade receivables. The company's strategic focus on VAS and commercial operational services, along with its acquisition of Everjoy PM, positions it well for continued expansion. The financial metrics show a consistent growth trajectory, with increasing revenue and net profit, and improving ROE and yield. The company's balance sheet remains strong, with a stable current ratio and increasing equity to shareholders. The cash flow is positive, with net cash from operating activities increasing in FY22E and FY23E. The company's share price has experienced a decline over the past year, but the target price is set at HK$47.63, indicating potential for recovery. The report highlights the company's strong fundamentals and its potential to outperform the market.
