Poly Property Services
Results largely in line, 10% growth target unchanged
Poly Property Services' (PPS) 1H24 revenue grew by 10.2% YoY to RMB7.9bn, in line with our estimation. As expected, the growth was mainly driven by basic property management segment and grew by 16.1%, while community and non-community VAS revenues declined by 1.8% and 2.1%, respectively. Gross margin narrowed by 0.7ppt from 1H23 to 20.5%, due to 0.2ppt lower gross margin from basic property management and less contribution from VAS. The lower gross margin was offset by a 5.8% decrease of SG&A expenses, leading to 0.06ppt higher net margin than 1H23 to 10.7%. As such, net profit grew by 10.8% YoY to RMB846m, in line with our estimation. Trade receivables increased by 20.9% YoY, faster than revenue growth. Nevertheless, operating cash flow remained positive, amounting to RMB427m. New third party contract value declined by 13.6% YoY, but with increased quality. We like PPS for its strong support from parent, and unique competitiveness in public and SOE segments. Maintain BUY.
Key Factors for Rating
New third party contracted value decreased by 13.6% YoY to RMB1.2bn. This was partially due to intensified competition, and partially thanks to PPS' intentional move to improve concentration and quality. New contracted value from four major economic zones increased from 66.5% in 1H23 to 77.0%. New contract value from projects with over RMB10m annual contract value increased from 58.6% in 1H23 to 64.3%. Contribution from SOE also increased by 10ppts.
Trade receivables increased by 20.9% YoY, higher than the 10.2% revenue growth, but not too out of the line when compared to 16.1% basic property management revenue growth. The headwind was similar among the residential segment and third-party public projects, with cash collection rate for both declining by 3ppts, showing no particular difficulties with PPS' public projects. Historical overdue amount for public projects decreased from c.RMB600m at end-2023 to RMB100m at end-1H24, and PPS is actively exiting these projects. Cash collection rate for commercial and office buildings increased by 0.4ppt, which is an area that PPS also has strong competitive advantage especially for SOE ones. Commercial and office buildings accounted for 36% of PPS' new contracted value in 1H24, up from 24% in 1H23.
Key Risks for Rating
Economic pressure may continue to lead to lower cash collection rate.
Valuation
Our TP at HK$54.17 is based on 17x 2025E P/E. The stock currently trades at 7.8x 2025E P/E, which we think is attractive given PPS' double-digit growth, strong support from parent, and its unique competitiveness in public and SOE segments.
