20220527-招银国际-绿城管理控股-09979.HK-Recovered_new_contract_growth,_maintain_BUY_5页_929kb

Greentown Management (9979 HK) Company Update Summary

Core Content Overview

Greentown Management (9979 HK) has shared its unaudited operating data during the AGM, indicating signs of recovery in new contract value growth. The firm maintains its BUY rating with a target price of HK$8.09, implying an 18x 2022E P/E. The analysis highlights key factors driving the rating and outlines potential upside catalysts and risks.

Key Business Segments

• Government PJM: Expected to deliver >50% revenue growth in FY22, reaching approximately RMB860mn, accounting for 30% of total revenue (up from 25% in FY21). This growth is attributed to a significant number of social-housing projects moving to the billable stage.
• Commercial PJM: While affected by the decline in property sales (accounting for <10% of total revenue), it is expected to improve in 2H22 due to recovering sentiment in the property market. The company estimates that RMB2.95bn in service fees were completed in 2022 YTD, with RMB0.85bn in April and May, close to the RMB0.88bn in 2Q21, suggesting a recovery in contracting pace.

New Business Trends

• Capital PJM: The negotiation process is more complex and delayed, expected to account for <10% of total revenue in FY22 and 20% in the long-term. This segment has slower progress but solid demand.
• Urban Investment Companies: Projects from these entities typically have longer bidding cycles and funding demands. The company is more selective, and growth may be discounted unless funding pressures are eased by the central government, as rumored.

Valuation and Catalysts

• The company has launched a share award scheme, using future bonuses of authorized employees to conduct share placements at HK$5, with an exercise price of HK$6.5.
• Southbound shareholding has increased to 1.52%, indicating interest from mainland investors.
• Upside catalysts include:
  1. More obvious recovery in property sales
  2. Simplified and standardized capital project negotiations
  3. Easing of funding pressure for urban investment companies

Risks

• Further spread of the impact of the pandemic
• Weaker performance of the property market

Financial Highlights

• Revenue is projected to grow by 23.3% in FY22 and 17.2% in FY23, with a target of RMB3,722mn in FY24.
• Net profit is expected to increase by 27.2% in FY22 and 19.2% in FY23, reaching RMB982mn in FY24.
• EPS is forecasted to rise from RMB0.37 in FY22 to RMB0.51 in FY24.
• P/E ratio is expected to decline from 15.5 in FY21 to 8.9 in FY24, reflecting improved earnings and valuation.

Share Performance

• Current price: HK$5.45
• Target price: HK$8.09 (upside of +48.4%)
• 1-month: -0.4%
• 3-month: -14.8%
• 6-month: +22.2%
• 12-month relative performance: +46.3% compared to the market

Shareholding Structure

• Greentown China Holdings Ltd: 73.17%
• SUPUR Industrial Capital: 2.99%
• LOU GONGWANG: 1.27%

Key Financial Ratios

• Gross profit margin: 47.8% (FY20A) to 46.8% (FY24E)
• Net profit margin: 24.2% (FY20A) to 26.4% (FY24E)
• ROE: 14.3% (FY20A) to 22.9% (FY24E)
• Current ratio: 0.9 (FY20A) to 0.6 (FY24E)
• Receivable turnover days: 78 (FY20A) to 122 (FY24E)
• Payable turnover days: 315 (FY20A) to 286 (FY24E)

Cash Flow and Liquidity

• Net cash from operating activities is projected to be RMB698mn in FY22 and RMB910mn in FY24.
• Net cash from investing activities is expected to be RMB43mn in FY22 and RMB26mn in FY24.
• Net cash from financing activities is expected to be RMB-437mn in FY22 and RMB-595mn in FY24.

Market Position and Comparison

• The company is part of the China PJM sector, which is expected to outperform the relevant broad market benchmark.
• CMBIGM's ratings for other companies in the sector include BUY, HOLD, and SELL, with varying target prices and growth expectations.

Important Disclosures

• The report is not investment advice and is for informational purposes only.
• The information is based on publicly available data and may not reflect the latest developments.
• CMBIGM is not liable for any loss or damage arising from reliance on the report.
• The report is intended for major US institutional investors in the U.S. and may not be distributed to others without prior consent.
• In the U.K. and Singapore, the report is distributed to specific categories of investors as defined by local regulations.

Analyst Certification

• The analyst certifies that the views expressed accurately reflect personal opinions and that there are no conflicts of interest that could affect the objectivity of the report.