20220624-招银国际-金茂服务-00816.HK-Fast_growing_SOE_player_with_organic_capacity_to_be_improved_35页_1mb

Jinmao Services (816 HK) Summary

Core Content

Jinmao Services is a property management company under Sinochem Holdings, a state-owned enterprise (SOE) and the world's largest chemical producer. The company is expected to benefit from the growth of its parent company, Jinmao Group, and from strategic M&A and third-party city operation projects. It is initiated with a HOLD rating and a target price of HK$5.48, which is a +12% upside from the current price of HK$4.90.

Main Points

Growth Drivers

• Parentco Growth: Jinmao Group, the parent company, has a contracted sales CAGR of 19% from 2018-21, and the completion of its large-scale projects is expected to deliver 15mn sq m of managed GFA annually from 2022-24E.
• Third-party Projects: Collaborations with local governments and strategic partnerships will contribute 14-15mn sq m of GFA annually from 2022-24E.
• M&A Deals: Recent acquisitions, such as Beijing Capital Service, will add 2.8mn sq m of managed GFA. Future M&A could bring 6-10mn sq m annually, contributing to growth.
• Community VAS Penetration: The company has a strong presence in Tier 1-2 cities, and with a higher management fee and premium services, it is expected to improve community VAS penetration and monetization.

Revenue and Earnings

• Revenue Growth: The company is projected to grow from RMB1.5bn in 2021 to RMB7.1bn in 2024E, with a 68% CAGR.
• Basic PM Revenue: Expected to grow at 71% CAGR, reaching RMB4.1bn in 2024E.
• Community VAS Revenue: Projected to grow at 126% CAGR, reaching RMB1.768bn in 2024E.
• VAS to Non-Owners: Expected to grow at 32% CAGR, reaching RMB1.2bn in 2024E.
• Net Profit Growth: Net profit is expected to grow at 74% CAGR, reaching RMB933mn in 2024E.

Valuation

• The company is currently trading at 9x 2022E P/E, while the organic earnings (core profits minus non-owner VAS and parent-assisted community VAS profits) represent 53% of total earnings in 2022E.
• Organic earnings are valued at 18x P/E, equivalent to 10x 2022E P/E, leading to the target price of HK$5.48.
• The company is compared to peers like Country Garden Services and Poly Services, with a lower P/E ratio and slower net profit growth than some of its competitors.

Key Information

Growth Projections

Valuation Summary

Risks

• Parentco Performance: If the parentco's sales or home completions slow down, it could impact Jinmao Services' growth.
• Community VAS Growth: The growth of community VAS is linked to the parentco's delivery pace and may be affected by market liquidity issues.

Catalyst

• Share Incentives Plan: Similar to Poly Services, a share incentives plan may be launched, potentially boosting the share price if KPIs are set high.

Conclusion

Jinmao Services is a fast-growing SOE property management company with strong growth potential due to its parentco's expansion and strategic M&A. However, its VAS growth is highly correlated with the parentco, and the company is expected to improve community VAS penetration to enhance its organic growth. Despite the high growth, the current valuation and market conditions suggest a HOLD rating.