20220324-招银国际-旭辉永升服务-01995.HK-Downgrade_to_Hold_on_margin_and_community_VAS_outlook_6页_901kb

Ever Sunshine (1995 HK) Company Update Summary

Core Content Overview

CMB International Global Markets has downgraded Ever Sunshine from Buy to HOLD due to a below-expectation 2021 performance, particularly in the Community VAS segment. The downgrade is primarily attributed to the declining penetration rate and a downward trend in gross margin.

Main Points

1. 2021 Financial Performance

• Revenue Growth: Total revenue increased by 51% YoY to RMB4.7bn, but core net profit growth was only 33%, missing the guidance of 50–60%.
• Segment Performance:
  • Basic PM grew by 51% YoY (RMB2.65bn), contributing 56.4% of total revenue.
  • Community VAS grew by 39% YoY (RMB1.1bn), contributing 23.4% of total revenue, which is a decline from 25.3% in 2020.
  • Non-owner VAS grew by 52% YoY (RMB0.87bn), contributing 18.4% of total revenue.
• Gross Margin: Declined to 27.6% in 2021, a -3.8ppt YoY drop, mainly due to the decline in all three segments and the introduction of lower-margin city services.
• Net Margin: Increased slightly to 13.1% in 2021, up by 0.6ppt.
• EPS: Rose by 51% YoY to RMB0.37/share.
• Dividend: Increased by 55% YoY to HK$0.1299/share, with a 29% payout ratio.

2. Key Concerns and Outlook

• Community VAS Uncertainty: Penetration rate declined to RMB6.4/sqm from RMB7.8/sqm, with management citing Covid-19 disruptions. The segment's GP margin fell to 44.9% in 2021, and the company now expects it to range between 40–50%.
• Margin Pressures: The overall gross margin is expected to decline further to 26–28% in 2022–2023, with Basic PM and Community VAS facing more margin pressure.
• Third-party Expansion: Basic PM business is the main growth driver, with 90% of the new GFA coming from third-party expansion, and managed GFA reaching 139mn sqm in 2021.
• M&A Potential: The company has RMB4bn in cash after a placement in October 2021, which may support potential M&A activities.

3. Revised Forecasts and Target Price

• Revenue Forecasts: Revised down by 1% for 2022 and 13% for 2023.
• Gross Margin: Cut by 6.3ppt for 2022 and 0.6ppt for 2023.
• Net Profit: Reduced by 10% in 2022 and 14% in 2023.
• New Target Price: Set at HK$12.72, down from HK$22.16, reflecting a 22x 2022E P/E (vs. previous 35x), in line with the industry average.

4. Valuation and Industry Comparison

• P/E Ratio: Decreased from 26.4x in 2021 to 20.5x in 2022 and 15.2x in 2023.
• P/B Ratio: Fell from 6.0x in 2021 to 4.9x in 2022 and 3.7x in 2023.
• Earnings Growth: Expected to slow from 45.8% in 2021 to 38.9% in 2022 and 25.8% in 2023.
• Industry Comparison:
  • Country Garden Services is rated BUY with a 21.5x P/E.
  • CR MixC Lifestyle is rated BUY with a 44.4x P/E.
  • A-Living and Greentown Services are rated HOLD with 24.2x and 20.6x P/E respectively.
  • Ever Sunshine is rated HOLD with a 24.2x P/E in 2022, aligning with the industry average.

Key Financial Metrics

Shareholding and Performance

• Shareholding Structure:

  • Lin Family: 55.36%
  • CGC: 6.09%
  • Free float: 38.55%

• Share Performance:

  • 1-month: -28.7%
  • 3-month: -7.5%
  • 6-month: -16.3%
  • 12-month: -41.4%

• Market Cap: RMB19.488bn

• 52-week High/Low: HK$22.55 / HK$6.59

• Total Issued Shares: 1,753mn

Risk and Disclaimer

• The report is not investment advice and should be independently evaluated.
• CMBIGM is not a registered broker-dealer in the US or Singapore.
• The analyst is not subject to US or Singapore regulatory requirements.
• There is a potential conflict of interest due to CMBIGM's investment banking relationships with the companies discussed.

Conclusion

Ever Sunshine's downgrade to HOLD reflects concerns over Community VAS performance, margin pressures, and uncertainty in new business lines. While Basic PM remains a strong growth driver, the company's overall financial outlook has become more cautious, leading to a lower target price and revised earnings forecasts. Investors are advised to consult with financial advisors and evaluate the company's performance independently.