Event: Greentown Services' 2023 revenue was +17% YoY, and core operating profit +32% YoY.
Greentown Services announced its 2023 annual results announcement, achieving revenue of 17.1% year on year, achieving gross profit of 2.9 billion yuan, up 21.3% year on year, gross profit margin of 16.8% year on year, up 0.6 pct year on year; core operating profit of 1.3 billion yuan, up 32.1% year on year; net profit to mother of 61 million yuan, up 10.6% year on year; declared a final dividend of HK$0.15 per share, compared with HK$0.1 per share in 2022.
Comment: Steady infrastructure management, excellent park service, significant improvement in profitability, generous dividends to shareholders.
1) Infrastructure management is growing steadily, and the park's service performance is outstanding. In 2023, the company's property management/park service/consulting service/technology service revenue was 111/36/23/ 400 million yuan, compared with +17.5%/+25.0%/+11.1%/-12.6%. The basic property management infrastructure was stable, which is the cornerstone of the steady growth of the company's overall performance. By the end of 2023, the company had 450 million square meters of management area and 370 million square meters of reserve area, and there is still a strong guarantee for future growth; in terms of park services, the company has built a five-in-one lifestyle service platform integrating community retail, home living, public space, asset brokerage, culture and education Tapping into owners' needs, the five major business segments all achieved positive year-on-year revenue growth during the year. Among them, the community retail business achieved revenue of 1.27 billion yuan, accounting for the highest share of the sector's revenue, at 35.6%. Revenue from the home life and culture education business grew at 113.5% and 26.1% year-on-year, respectively, with impressive performance.
2) Improve overall quality and efficiency, and significantly improve profitability. In 2023, the gross margin of the company's property management/park services/consulting services was 13.0%/21.5%/23.4% respectively, up 0.9 pct/0.7 pct year on year, management expenses rate 7.3%, down 0.4 pct year on year. The company adopted a series of measures to improve quality and efficiency during the year, and strengthened cost control, including more comprehensive digitalization to improve management efficiency, promote organizational streamlining and organizational optimization, and promote talent flow to business lines. Overall operating efficiency improved, and profitability improved markedly.
3) Accounts receivable are well controlled, cash flow is abundant, and shareholders are generously repaid with dividends. In 2023, the company strengthened repayment assessment and control. By the end of 2023, the company's trade and other receivables were about 5.1 billion yuan, an increase of 6% over the previous year, and the growth rate of accounts receivable was significantly lower than the revenue growth rate; it achieved operating cash flow of 1.44 billion yuan, an increase of 106.5% over the previous year, covering 2.4 times net profit to mother; at the end of the year, the company had 4.53 billion yuan in cash and cash equivalents, an increase of 8.3% over the previous year. The company attaches importance to shareholder returns. The dividend amount for 2023 is 430 million yuan, and the dividend ratio is over 70%. Based on the closing price on March 27, 2024, the company's dividend rate is 5.1%, which is attractive.
Profit forecast, valuation and rating: The company's core operation is steady, independent development capabilities and outreach capabilities are the industry's benchmark. Overall operating efficiency and profitability have improved markedly, and the brand reputation is high; non-operating factors in 2023, including impairment of equity and debt investments, and impairment of receivables affect the company's profits. Due to the principle of prudence, we raised the company's financial asset impairment forecast and adjusted the company's 2024-2025 net profit forecast to 75/91 billion yuan, adding the 2026 forecast to 1.07 billion yuan, corresponding to 2024-2026 EPS is 0.23 (original 0.26) /0.28 (original 0.30) /0.34 yuan, respectively. The current stock price is 11/9/8 times PE. The company's long-term development is improving, performance is growing steadily, values shareholder returns, and maintains a “buy” rating.
Risk warning: Outreach falls short of expectations, development of value-added services falls short of expectations, and non-operating factors continue to affect profits.