Greentown Service's core operating profit/revenue both went up 20% YoY in 1H23, in-line with the market expectation. GP margin declined 0.6 ppts to 18.7% but hedged by improving SG&A fee rate (-0.6 ppts to 10.0%). We saw visible recovery on home living services, housing brokerage and education services which will be proved to be a good VAS exploration in our view. The operating cash flow improved by active ARs mgmt. and will cover 1x NP in FY23E according to the Company. We like the Company for its high independence, stable parentco., good progress on VAS exploration and recovering cash flow. Maintain BUY

1H23 earnings in-line with GPM declined but SG&A expense improved. Company delivered 20% YoY growth in both revenue and core operating profit in 1H23 (core operating profit= GP-SG&A), in-line with the market expectation. This was resulted from 1) the decline of GP margin to 18.7% in 1H23 from 19.2% in 1H22 on lower profitability from non-owner VAS given developers are cutting expenses. It is worth noting that Company kept no- decline in GPM for basic PM segment and improved that for community VAS business despite a difficult 1H. 2) Improvement of SG&A fee rate to 10.0% in 1H23 from 10.6% in 1H22 due to active organizational optimization. NP grew faster at 21.8% YoY to RMB 415mn as Company booked RMB 86mn in share results from JV (6.5x of that in 1H22). FY23E guidance was unchanged with core operating profit to grow 20-25% YoY and GPM at 16.5-17.5%.

Community VAS is showing visible recovery. Despite slow consumption recovery in 1H23, Greentown Services showed an apparent recovery in community VAS segment by reporting 26.5% YoY rev. growth 1H23 (vs. 18.7% in 1H22 and 9.1% in FY22) and 1.1ppts improvement in GPM ( to 24.3%). The improvements were mostly powered by 1) home living services, rev. +122.6% YoY in 1H23 vs.19.9% in 1H22 and 32.5% in FY22 boosted by an equity corporation on home care services and a breakthrough made in elderly care business, 2) Housing brokerage services rev. up 39.8% YoY in 1H23 vs. 4.4% in 1H22 driven by smart marketing models (encourage all residents to provide info. by giving certain commission), 3) education services that reduced losses by RMB 9.05mn in 1H23. The business will soon be proved a good VAS exploration in our view.

Cash flow is improving on active AR mgmt. Company's cash flow from operations turned to positive at RMB 52mn in 1H23 from RMB -372mn in 1H22 due to its active management on historical ARs and collection rate.Company expects operating cash flow to cover 1x of NP in FY23E.

Maintain BUY with TP unchanged at HK$ 5.93. We like the Company for its quality services with branding value, high independence, stable parentco, good progress on VAS exploration and recovering cash flow. Maintain BUY with TP unchanged at HK$5.93, reflecting 25x 2023E P/E. Catalysts: breakeven in education business, higher efficiency in AR mgmt. Risk: slower-than-expected third party expansion.