20220331-招银国际-融创服务-01516.HK-Very_attractive_risk_reward_after_earnings_outlook_reset__Maintain_Buy_5页_829kb

Sunac Services (1516 HK) Summary

Core Content

Sunac Services is a property services company that has shown strong performance and growth potential despite the challenges posed by its parent company's debt crisis. The report highlights that the company's new earnings guidance of a 25% CAGR from 2021 to 2024 is more favorable than initially feared, indicating a positive outlook for its future earnings.

The company's diversified business model includes property management (PM), value-added services (VAS) to non-property owners, community VAS, and commercial operations. These segments contribute to different revenue streams and growth opportunities, with the Community VAS segment being highlighted as a key driver of future growth due to its low penetration rate compared to industry standards.

Main Points

1. Earnings Outlook and Valuation

• Earnings Guidance: The company aims for a 25% CAGR in earnings from 2021 to 2024.
• Valuation: Currently trading at 8x 2022E PE, which the report suggests has already priced in most of the negatives.
• Target Price: HK$7.02, representing a +36% upside from the current price of HK$5.16.
• Rating: Maintain Buy.

2. Parent Company Risk

• The parent company's debt crisis has been a concern, but the report suggests that the risk has been alleviated due to transparent corporate governance and independence in operations.
• The company has not engaged in any investment products or provided guarantees to Sunac, and it treats parentco receivables like those of other companies.

3. Key Growth Drivers

• Community VAS: Expected to grow at over 50% CAGR, with VAS/managed GFA increasing from RMB2.4/sq m in 2021 to RMB5/sq m by 2024E. It is projected to contribute 12% of total revenue by 2024E.
• Basic PM: Third-party expansion is expected to support a 30% CAGR, helping offset the impact of slowed GFA delivery from the parent company.
• Commercial Operations: The company has managed its malls and achieved 25% growth in retail sales and RMB1bn in rental income. It also expanded five third-party malls using the light asset model, which could lead to significant future growth with a potential GPM of 75%.

Key Financial Highlights

Revenue Growth

• FY20A: RMB4,625 million
• FY21A: RMB7,904 million (+71% YoY)
• FY22E: RMB10,553 million (+33.5% YoY)
• FY23E: RMB13,182 million (+24.9% YoY)
• FY24E: RMB15,989 million (+21.3% YoY)

Net Profit Growth

• FY20A: RMB597 million
• FY21A: RMB1,276 million (+114% YoY)
• FY22E: RMB1,509 million (+24% YoY)
• FY23E: RMB1,876 million (+24.3% YoY)
• FY24E: RMB2,283 million (+21.7% YoY)

EPS Growth

• FY20A: RMB0.25
• FY21A: RMB0.41 (+64% YoY)
• FY22E: RMB0.49
• FY23E: RMB0.61 (+24.3% YoY)
• FY24E: RMB0.74 (+21.7% YoY)

P/E Ratio

• FY20A: 17.3
• FY21A: 10.5
• FY22E: 8.8
• FY23E: 7.1
• FY24E: 5.8

ROE

• FY20A: 6.2%
• FY21A: 15.0%
• FY22E: 18.2%
• FY23E: 23.4%
• FY24E: 31.4%

Share Performance

• 1-Month: -34.2%
• 3-Months: -41.7%
• 6-Months: -71.4%
• 12-Months: -82.3%

Market Capitalization and Shareholding

• Market Cap: HK$14,438 million
• Free Float: 33.64%
• Shareholding Structure:
  • Sunac Holdings: 66.36%
  • Free float: 33.64%

Key Ratios

• Sales Mix:

  • Property management services: 60.0% (FY20A) to 62.9% (FY24E)
  • VAS to non-property owners: 36.2% (FY20A) to 22.6% (FY24E)
  • Community VAS: 3.8% (FY20A) to 12.5% (FY24E)
  • Commercial: 0.1% (FY20A) to 2.1% (FY24E)

• Profit & Loss Ratios:

  • Gross margin: 27.6% (FY20A) to 29.2% (FY24E)
  • Net margin: 12.9% (FY20A) to 14.3% (FY24E)
  • Effective tax rate: 23.9%

• Balance Sheet Ratios:

  • Current ratio: 3.7 (FY20A) to 1.3 (FY24E)
  • ROE: 6.2% (FY20A) to 31.4% (FY24E)
  • ROA: 4.6% (FY20A) to 12.9% (FY24E)

Analyst Ratings

• CMBIGM Ratings:

  • BUY: For stocks with potential return of over 15% over the next 12 months.
  • HOLD: For stocks with potential return of +15% to -10% over the next 12 months.
  • SELL: For stocks with potential loss of over 10% over the next 12 months.
  • NOT RATED: For stocks not rated by CMBIGM.

• Sunac Services Rating: BUY

Analyst Certification

The research analyst certifies that the views expressed in the report accurately reflect their personal views and that they have not received compensation based on the specific views in the report.

Disclosures

• The report is not an offer or solicitation to buy or sell any security.
• CMBIGM does not provide individually tailored investment advice.
• The information is based on publicly available data and may not be accurate or complete.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.

Important Notes

• The report is intended for distribution in the United States solely to "major US institutional investors".
• CMBIGM is not a registered broker-dealer in the United States and is not subject to U.S. rules regarding the preparation of research reports.
• The report is distributed in Singapore by CMBISG, an Exempt Financial Adviser, and is subject to Singapore's financial regulations.