20220329-招银国际-绿城服务-02869.HK-Faster_conversion_rate_is_the_key_5页_883kb

Greentown Services (2869 HK) Summary

Core Content

Greentown Services (2869 HK) is a property services company whose re-rating is primarily expected to be driven by an improvement in the conversion rate of reserved GFA (Gross Floor Area) to managed GFA. This conversion rate is critical for the growth of its basic property management (PM) and community services. However, the company faces challenges due to the ongoing downturn in the property sector, which has slowed the conversion process and led to the exit of some existing projects.

The company reported a 20% growth in 2021 earnings, reaching RMB846 million, in line with its guidance. Revenue grew 24.3% year-over-year (YoY) to RMB12.6 billion, driven mainly by the consulting service (31% YoY growth) and community living services (30% YoY growth). The gross profit margin (GPM) and net profit margin (NPM) narrowed slightly to 18.5% and 7.1%, respectively. The company declared a dividend of HK$0.20 per share, with a 63% payout ratio, which is a 13 percentage point increase YoY.

Key Financial Highlights

• Revenue Growth:

  • FY20A: 17.8%
  • FY21A: 24.3%
  • FY22E: 27.8%
  • FY23E: 25.6%
  • FY24E: 24.7%

• Net Income Growth:

  • FY20A: 36%
  • FY21A: 12%
  • FY22E: 26%
  • FY23E: 21%
  • FY24E: 17%

• EPS (RMB):

  • FY20A: 0.23
  • FY21A: 0.26
  • FY22E: 0.33
  • FY23E: 0.40
  • FY24E: 0.47

• P/E Ratio:

  • FY20A: 25.6
  • FY21A: 22.9
  • FY22E: 18.2
  • FY23E: 15.0
  • FY24E: 12.8

• P/B Ratio:

  • FY20A: 2.9
  • FY21A: 3.2
  • FY22E: 2.9
  • FY23E: 2.6
  • FY24E: 2.3

• Net Profit to Shareholders:

  • FY20A: RMB710 million
  • FY21A: RMB846 million
  • FY22E: RMB1,064 million
  • FY23E: RMB1,291 million
  • FY24E: RMB1,516 million

• Target Price: HK$7.92 (Previous TP: HK$9.11)

• Current Price: HK$7.38

• Up/Downside: +7.3%

Main Business Segments

• Basic PM Business:

  • Grew 21% YoY to RMB7.77 billion in 2021.
  • Average PM fee increased to RMB3.6/sq m/month.
  • Non-residential property contribution increased to 30.8% of total PM service fee.

• Community Living Services:

  • Rose 30% YoY to RMB2.836 billion, contributing 23% to total revenue.
  • Driven by 46% YoY growth in community products and services and 45% YoY growth in cultural and education services.

• Consultancy Services:

  • Increased 31% YoY to RMB1.96 billion, accounting for 15.6% of total revenue.
  • Gross profit margin contracted to 30% due to intensified market competition.

2025 Plan and Challenges

• The 2025 plan implies a 37% YoY compound annual growth rate (CAGR), but the visibility of achieving this target is low due to the property sector's downturn.
• In 2022E, the company expects revenue growth of only 28-35%, which is lower than the 37% CAGR needed for the 2025 plan.
• The company's reserved/managed GFA ratio is greater than 1, higher than the industry average of 50%, indicating a lower conversion rate.
• In 2021, only 19% of reserved GFA was converted, below the historical average of 22%.

Education Segment

• The cultural & education segment grew 45% YoY to RMB460 million in 2021.
• Management is confident in achieving breakeven this year due to the resumption of MAG operations in Australia, which account for 82% of the education revenue.
• This may help remove the overhang of loss-making in the segment.

Key Ratios

• Gross Margin:

  • FY20A: 19.0%
  • FY21A: 18.5%
  • FY22E: 18.7%
  • FY23E: 18.7%
  • FY24E: 18.6%

• Net Margin:

  • FY20A: 7.0%
  • FY21A: 6.7%
  • FY22E: 6.6%
  • FY23E: 6.4%
  • FY24E: 6.0%

• ROE:

  • FY20A: 10.4%
  • FY21A: 12.1%
  • FY22E: 14.1%
  • FY23E: 15.4%
  • FY24E: 16.2%

• Current Ratio:

  • FY20A: 1.8
  • FY21A: 1.6
  • FY22E: 1.6
  • FY23E: 1.6
  • FY24E: 0.8

Analyst Recommendation

• Rating: HOLD
• Reason: The company's growth is expected to stabilize at 28% and 26% YoY for 2022E and 2023E, respectively.
• Growth Assumptions:
  • 2023/24E: Assume a higher conversion rate to imply 26% YoY basic PM revenue growth.
• Dividend Payout Ratio: Increased to 63% in 2021, with a 112% DPS growth.

Shareholding and Performance

• Shareholding Structure:

  • Orchid Garden: 36.7%
  • LI, Hairong: 21.3%
  • Free float: 42.0%

• Share Performance (Bloomberg):

  • 1-mth: -8.5%
  • 3-mth: +7.0%
  • 6-mth: +13.7%
  • 12-mth: +25.5%

Financial Summary

• Total Assets:

  • FY20A: RMB13.079 billion
  • FY21A: RMB14.375 billion
  • FY22E: RMB15.825 billion
  • FY23E: RMB17.938 billion
  • FY24E: RMB12.453 billion

• Total Liabilities:

  • FY20A: RMB5.967 billion
  • FY21A: RMB7.004 billion
  • FY22E: RMB8.245 billion
  • FY23E: RMB9.451 billion
  • FY24E: RMB10.939 billion

• Shareholders' Equity:

  • FY20A: RMB6.821 billion
  • FY21A: RMB7.019 billion
  • FY22E: RMB7.551 billion
  • FY23E: RMB8.391 billion
  • FY24E: RMB9.376 billion

• Cash Flow:

  • FY20A: RMB1.316 billion
  • FY21A: RMB812 million
  • FY22E: RMB1.694 billion
  • FY23E: RMB1.541 billion
  • FY24E: RMB1.854 billion

CMBIGM Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• NOT RATED: Not rated by CMBIGM.

Analyst Certification and Disclosures

• The analyst certifies that all views expressed accurately reflect his or her personal views and that there is no direct or indirect compensation related to the specific views in the report.
• The analyst confirms that there were no trades in the stocks covered in the report within 30 days prior to the report's issue and will not trade within 3 business days after the issue.
• CMBIGM or its affiliates may have investment banking relationships with the issuers covered in the report.

Disclaimer

• The report is for informational purposes only and should not be construed as an offer or solicitation to buy or sell any securities.
• The information is based on publicly available data and is not guaranteed for accuracy or completeness.
• CMBIGM does not provide individually tailored investment advice and encourages investors to consult with a professional financial advisor.
• The report may be subject to change without notice and may not reflect the company's current position or strategy.

Distribution Restrictions

• The report is distributed solely to major US institutional investors as defined in Rule 15a-6 under the US Securities Exchange Act of 1934.
• In Singapore, the report is distributed by CMBISG, an Exempt Financial Adviser, and is subject to legal responsibility as required by law.