20170929-招商证券_香港_-绿城服务-02869.HK-Industry_leader_with_outperforming_growth_26页_2mb_2mb

Summary of Greentown Service Group (2869 HK) Report

Core Content

Greentown Service Group (2869 HK) is a leading property management services provider in China, listed in 2016 and ranked as the second-largest in 2017. The company is expected to deliver high earnings growth, with a projected 31% CAGR in 2016-2019E. It currently manages 118mn sqm GFA, with an additional 135mn sqm of reserved GFA that will convert into revenue-bearing area over the next 3-4 years. Value-added services (VAS) are a significant growth driver, with 52% CAGR expected for 2016-2019E and VAS revenue as a percentage of total revenue to rise from 13% in 2016 to 21% in 2019E.

Main Points

• Earnings Growth: Greentown Service is expected to maintain strong earnings growth, outperforming peers with a 29% CAGR in property management services revenue.
• Gross Margin Improvement: The gross profit margin (GPM) for property management services is expected to improve from 6% in 2013 to 11% in 2016 and 14% in 2019E, driven by a higher proportion of non-residential GFA.
• VAS Growth: VAS revenue is growing rapidly, with a +60% CAGR from 2013-2016. It is expected to grow at 52% CAGR in 2016-2019E and increase its contribution to total revenue.
• Target Price and Rating: The report initiates coverage with a BUY rating and sets a target price of HK$5.66, which is 26x P/E on FY18E EPS, significantly higher than historical and peer averages.
• Stock Performance: The stock price has risen +85% YTD, indicating a potential re-rating cycle is underway, supported by visible GFA growth, robust VAS development, and high earnings growth.

Key Financials (RMB mn)

Growth Drivers

• Managed GFA Expansion: Managed GFA is expected to grow from 105mn sqm in 2016 to 217mn sqm by 2019E, with a +27mn sqm/yr from reserved GFA and additional growth from M&A and open biddings.
• VAS Expansion: VAS is growing as a percentage of total revenue and is expected to significantly contribute to future earnings. It includes services such as property asset management, community products, cultural & education, home living, and community space services.
• Strategic M&A and Cooperation: The company has expanded its geographical presence through acquisitions and strategic co-operations, including with SOEs and other property management firms.
• Open Bidding Success: Greentown Service has achieved high winning rates in open bidding, particularly in top-tier cities like Shanghai, Hangzhou, and Suzhou.

Industry Overview

• Market Growth: The total property management GFA in China is expected to grow by +19% over the next four years, reaching 22.0bn sqm by 2020E.
• Urbanization and Income Growth: Urbanization and rising disposable income are key drivers of demand for property management services.
• Government Policies: Favorable policies such as the Twelfth Five-Year Plan and the Circular on relaxing price controls have increased pricing flexibility for property management companies.

Company Background

• Established in 1998: Greentown Service is a Hangzhou and Yangtze River Delta-focused company, spun off from Greentown Property Group (3900.HK) in 2016.
• Segments: The company operates through three main segments: property management services (70% of FY16 revenue), consulting services (17%), and value-added & community living services (13%).

Competitive Position

• Top 10 Players: Greentown Service ranks among the top 10 property management companies in China, with a market share increasing from 4.9% in 2013 to 10.2% in 2016.
• Market Consolidation: The industry is consolidating, with the top 100 companies capturing 29.4% of the market in 2016.

Strategic Developments

• Acquisitions and Partnerships: The company has expanded through strategic acquisitions and partnerships, including with Zhejiang Nansong, Tianjin Yinte, and Jiangxi Gantie.
• Geographical Expansion: It has expanded beyond Hangzhou and the Yangtze River Delta to other regions.
• VAS Introduction: The introduction of VAS such as cultural & education services and community products has been a key focus.

Financial Projections

• Earnings Visibility: High earnings visibility and growth are supported by the expansion of managed GFA and the development of VAS.
• Re-rating Potential: The report suggests that the re-rating cycle for the company is just beginning, supported by its growth trajectory and strong financial performance.

Conclusion

Greentown Service Group is positioned to benefit from the growing property management market in China, driven by urbanization, rising disposable income, and favorable government policies. Its strong growth in managed GFA and VAS, along with a robust financial model, supports a BUY rating and a target price of HK$5.66, reflecting its potential for further appreciation.