20210205-招银国际-新城悦服务-01755.HK-2020E_NP_up__50__YoY__Rerating_on_improving_third_Party_expansion_and_VAS_3页_754kb

S-Enjoy Service (1755 HK) Summary

Core Content

S-Enjoy Service (1755 HK) is a property service company that has reported a significant increase in its 2020E net profit, exceeding 50% year-over-year (YoY) growth. The company is currently trading at a 16x 2022E P/E ratio, which is lower than the industry average of 22-25x. This valuation discrepancy is attributed to two key factors: improving third-party expansion and fast growth in Value-Added Services (VAS).

Main Points

1. Earnings Performance

• 2020E Net Profit: Expected to be RMB 448 million, a 58.8% YoY increase, with potential for even higher results due to VAS outperformance.
• 2020E Earnings Per Share (EPS): RMB 0.55, up 58.8% YoY.
• Consensus EPS for 2020E: RMB 0.51, slightly below the actual forecast.
• 2022E Net Profit: Expected to reach RMB 805 million, with EPS at RMB 0.98.
• Earnings Growth:
  • 2020E: +52.5% YoY revenue growth.
  • 2022E: +27.3% YoY revenue growth.
  • 2020E: +58.8% YoY net profit growth.
  • 2022E: +27.2% YoY net profit growth.

2. Valuation and Rerating Potential

• Current P/E (2022E): 16x, significantly lower than the industry average of 22-25x.
• Rerating Rationale:
  • Third-Party Expansion: 40% of newly-added GFA under management in 2020, up from 20% in previous years and above the industry average of 30%. This trend supports long-term growth and addresses concerns about sales slowdown from its parent company.
  • VAS Growth: Expected to grow at a 56% CAGR from 2019 to 2022E, with a revenue contribution increasing from 9% in 2019 to 13% in 2020E, nearing the industry average of 15-17%.

3. Financial Highlights

• Revenue: Projected to grow from RMB 1,173 million (FY18A) to RMB 5,485 million (FY22E), with a steady decline in growth rate from 72.5% (FY19A) to 27.3% (FY22E).
• Gross Profit: Expected to increase from RMB 345 million (FY18A) to RMB 1,610 million (FY22E).
• Net Profit: Projected to rise from RMB 152 million (FY18A) to RMB 805 million (FY22E).
• ROE: Expected to reach 35.5% in 2022E, reflecting strong profitability.
• BVPS: Expected to grow from RMB 1.06 (FY18A) to RMB 2.99 (FY22E), indicating rising shareholder value.

4. Catalysts for Future Growth

• HK-Connect Inclusion: Likely to be announced on 26 Feb, which could boost investor interest.
• 2020E Earnings Beat: Anticipated in March, which may drive positive market sentiment.

5. Market Position and Share Structure

• Market Cap: HK$15,681 million, with a high probability of inclusion in HK-Connect.
• Shareholding: Wang Zhenhua holds 73.2% of shares, while free float is 26.8%.
• Share Performance:
  • 1-month: +13.7%
  • 3-months: +9.3%
  • 6-months: -19.5%
  • 12-months: +48.5%

Key Information

GFA Growth

• 2020E GFA Growth: 66% YoY, with a reserved/managed GFA ratio of 100%, both top of the industry.
• Third-Party Contribution: 40% in 2020E, surpassing the industry average of 30% and approaching that of market leader Ever Sunshine (60%).

VAS Revenue Contribution

• 2019: 9%
• 2020E: 13%
• 2022E: Expected to be closer to the industry average of 15-17%.

Growth Projections

Valuation Metrics

Key Ratios

Analyst Recommendation

• Rating: BUY (Maintain)
• Target Price: HK$29.50
• Potential Return: +54.5% over next 12 months

Analysts

• Bowen Li: (852)36576239, bowenli@cmbi.com.hk
• Jeffrey Zeng: (852)39163727, jeffreyzeng@cmbi.com.hk

Disclaimer

• The report is for informational purposes only and not intended as investment advice.
• CMBIS does not provide individually tailored investment advice.
• The report may contain projections and estimates that are subject to change.
• There are risks involved in trading any securities, and past performance is not indicative of future results.
• CMBIS may have conflicts of interest and is not liable for any loss incurred from reliance on this report.

Conclusion

S-Enjoy Service (1755 HK) is showing strong financial performance and growth potential, supported by improving third-party expansion and VAS growth. Despite its current valuation, the company is expected to narrow the gap with market leaders, making it a good candidate for a rerating. The BUY rating is maintained, with a target price of HK$29.50. Investors are encouraged to consult with a professional financial advisor before making investment decisions.