20230313-招银国际-绿城服务-02869.HK-Profit_alert_roughly_in-line_3页_729kb

Greentown Service (2869 HK) Summary

Core Content Overview

Greentown Service (2869 HK) issued a profit alert for 2022E, indicating a decline in net profit attributable to shareholders by 30–40% YoY to RMB 500–590 million, primarily due to RMB 200 million in impairment losses on accounts receivables and equity instruments. This decline was attributed to the weaker macroeconomic environment in the second half of 2022. The core net profit, however, was in-line with market expectations, declining by 5–10% YoY to RMB 500–590 million, with a core net margin of 6.5–6.9%, down from 9% in 2021. The core net profit margin contraction is mainly due to a GP margin decline to 16–17%, as the company experienced less effective labor cost control.

The company is expected to recover its margins over time through three key factors:

1. Resumption of consumption leading to recovery in community value-added services (e.g., housing brokerage, education services).
2. Higher proportion of commercial projects in managed GFA, as the company focuses on expanding its commercial segment.
3. Improved macroeconomic environment reducing impairment losses and supporting net profit margin recovery.

Despite the challenges, the analyst maintains a BUY rating, citing stable core business expansion, high brand quality, and low risk from related parties.

Key Financial Highlights

Earnings Summary

• Revenue: Expected to grow steadily from RMB 10,106 million (FY20A) to RMB 23,038 million (FY24E).
• Net Profit to Shareholders: Projected to increase from RMB 710 million (FY20A) to RMB 1362 million (FY24E).
• EPS: Projected to rise from RMB 0.23 (FY20A) to RMB 0.42 (FY24E).
• P/E Ratio: Expected to decrease from 20.1 (FY20A) to 11.2 (FY24E).
• P/B Ratio: Projected to decrease from 2.3 (FY20A) to 1.8 (FY24E).
• Yield: Expected to increase from 1.5% (FY20A) to 3.1% (FY24E).
• ROE: Projected to rise from 10.4% (FY20A) to 14.8% (FY24E).

Financial Ratios

• Gross Margin: Expected to remain stable at 18.1–18.7%.
• Operating Margin: Projected to decrease from 9.6% (FY20A) to 8.2% (FY24E).
• Net Margin: Expected to increase from 5.5% (FY22E) to 5.9% (FY24E).
• Effective Tax Rate: Maintained at 25.2% for FY22E to FY24E.
• Current Ratio: Expected to remain at 1.6.
• Receivable Turnover Days: Stabilized at 89 days.
• ROA: Projected to increase from 5.4% (FY20A) to 6.9% (FY24E).

Segment Review

• Property Management Services: Revenue remains relatively stable, but GFA conversion rate is still low at 20% due to project delays and exit of some projects.
• Community Value-Added Services: Suffered heavier damage from repeated outbreaks of COVID-19, especially in housing brokerage, education services, and car parking selling.
• Consultancy Services: Affected by worsening property market conditions.
• Retail Business: Showed decent growth in FY22E due to participation in material supply during lockdowns.
• Technology Services: Expected to grow, with revenue projected at RMB 400 million (FY22E) and increasing to RMB 900 million (FY24E).

Future Outlook

• Gross Profit Margin: Expected to recover to 17–18% by 2024E, driven by recovery in community value-added services and increased commercial project involvement.
• Net Profit Margin: Anticipated to improve due to less impairment and better macroeconomic conditions.
• Net Profit: Projected to grow from RMB 862 million (FY22E) to RMB 1,362 million (FY24E).
• Share Performance: The stock has seen negative returns in the past 12 months, with a current price of HK$4.92 and a target price of HK$7.92, implying a +61.0% upside.

Risk Factors

• Worse-than-expected business expansion.
• Slower-than-expected economic recovery.

Analysts

• Miao Zhang: (852) 3761 8910, zhangmiao@cmbi.com.hk
• Jeffrey Zeng: (852) 3916 3727, jeffreyzeng@cmbi.com.hk
• Bella Li: (852) 3757 6202, bellali@cmbi.com.hk

Stock Data

• Market Cap: HK$15,903 million
• Average 3-Month Turnover: HK$24.37 million
• 52-Week High/Low: HK$9.20 / HK$3.22
• Total Issued Shares: 3,232 million

Shareholding Structure

• Orchid Garden: 31.6%
• LI, Hairong: 14.0%
• Free Float: 54.4%

CMBIGM Ratings

• BUY: Potential return of over 15% over the next 12 months.
• Industry Outlook: OUTPERFORM expected for the property service sector over the next 12 months.

Important Disclosures

• This report is not investment advice and should be independently evaluated.
• CMBIGM is not liable for any loss or damage arising from reliance on this report.
• The report is intended solely for major US institutional investors and Accredited Investors in Singapore.
• No guarantees are made regarding the accuracy or completeness of the information.