20230113-招银国际-China_Project_Management_Sector_Prefer_defensive_Greentown_Mgmt._over_demotivated_CCM_11页_1mb

China Project Management Sector Summary

Core Content

The China project management sector has experienced mixed performance in FY22E, with a notable divergence between two major players: Greentown Mgmt. and CCM. The sector's demand for project management services (PJM) has weakened, particularly in 4Q22, where the combined market share of the top two companies declined by 7% YoY. However, Greentown Mgmt. has outperformed, while CCM has underperformed.

Main Findings

1. Weakening Demand in FY23E:

   • The demand is expected to continue weakening in FY23E due to reduced contributions from SMDs and LGFVs.
   • Demands from defaulted developers and FIs may require more capital injections to be activated.
   • The sector faces challenges due to sluggish property sales and ongoing liquidity issues in the market.

2. Greentown Mgmt. Performance:

   • Greentown Mgmt. reported 21% YoY growth in service fee in FY22E, significantly outperforming the industry.
   • The company's newly contracted GFA reached RMB 8.6bn, up 21% YoY.
   • Revenue and net profit are forecasted to grow 28% and 30% YoY in FY22E, respectively.
   • The company's diversified client structure, with 58% from government and SOEs, 30% from POEs, and 12% from FIs, provides stability.
   • The company's high bidding power and strong brand value have been key drivers of performance.
   • Low parent company risk and high dividend payout (65% YoY) further support its strong position.
   • Projected revenue and net profit growth for FY23E and FY24E are 13% and 21%, respectively.

3. CCM Performance:

   • CCM's newly contracted GFA and property sales dropped by 66% and 47% YoY, respectively.
   • The company's over-reliance on SMDs (67% of demand in FY22E) has made it vulnerable to market fluctuations.
   • Dividend payout is expected to remain at 80% in FY22E.
   • Parent company CCRE is under significant debt repayment pressure, which negatively affects CCM's performance.
   • The company's net profit is forecasted to decline by 55% in FY22E, followed by 16% and 15% growth in FY23E and FY24E, respectively.
   • The TP (Target Price) has been cut by 50% to HK$0.7, reflecting the company's weak performance and market risks.

Key Information

Greentown Mgmt. (9979 HK)

• Revenue Growth:
  • FY22E: +28% YoY
  • FY23E: +13% YoY
  • FY24E: +21% YoY
• Net Profit Growth:
  • FY22E: +30% YoY
  • FY23E: +14% YoY
  • FY24E: +21% YoY
• Projected Revenue:
  • FY22E: RMB 2,882mn
  • FY23E: RMB 3,257mn
  • FY24E: RMB 3,910mn
• TP (Target Price): HK$8.6 (up 6% from HK$8.1)
• Catalyst: Better policy implementation and increased investment in distressed assets.
• Risk: Weaker-than-expected property market.

CCM (9982 HK)

• Revenue Growth:
  • FY22E: -4% YoY
  • FY23E: +16% YoY
  • FY24E: +15% YoY
• Net Profit Growth:
  • FY22E: -55% YoY
  • FY23E: +16% YoY
  • FY24E: +15% YoY
• Projected Revenue:
  • FY22E: RMB 2,882mn
  • FY23E: RMB 3,257mn
  • FY24E: RMB 3,910mn
• TP (Target Price): HK$0.7 (down 50% from HK$1.4)
• Catalyst: Resolution of CCRE's debt crisis.
• Risk: Official default by CCRE or worse-than-expected expansion in government and capital PJM.

Valuation

• Greentown Mgmt. is currently trading at 13x 2023E P/E, and the TP is based on 18x 2023E P/E.
• CCM is valued at 5x 2023E P/E, which is below historical averages.

Financial Summary

Income Statement (RMB mn)

Cash Flow Summary (RMB mn)

Balance Sheet (RMB mn)

Investment Recommendation

• Greentown Mgmt.: Maintain Buy with TP rolled over to 2023E at HK$8.6, representing a 37% upside.
• CCM: Maintain Hold with TP cut by 50% to HK$0.7, representing a 3% downside.

Conclusion

Greentown Mgmt. has shown resilience and outperformed its peers despite weakening sector demand, thanks to its diversified client base, strong brand value, and stable financials. CCM, on the other hand, has struggled due to its heavy reliance on SMDs and the ongoing challenges of its parent company, CCRE. The overall sector is expected to face continued challenges in FY23E, with the potential for recovery dependent on policy support and market conditions.