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绿城服务(02869.HK):料经营成果均好、回报股东积极

Greentown Services (02869.HK): Expected to have good operating results and positive returns to shareholders

Projected 20-25% year-over-year profit growth in 2024

We expect the company's core operating profit to increase 20% year on year in 2024 (gross profit reduced sales and management expenses), and net profit to mother increase 25% year over year, in line with market expectations and the company's annual target; dividend returns are expected to be more positive compared to previous guidelines.

Key points of concern

The increase in performance comes from the steady development of core business combined with improvements in overall operating efficiency. We expect the company's overall revenue to grow by 5-10% in 2024: Among them, revenue from the basic property management business will maintain a double-digit year-on-year growth rate, while park services will continue to focus on and improve efficiency strategies, and the pace of development is slightly slower. From a profit margin perspective, we believe that the company has achieved efficiency improvements in multiple business lines and the middle and back office. It is expected that in 2024, the gross margin increase and sales management rate will drop by more than 0.5 percentage points, supporting the growth rate of core operating profit to 20%. We judge that the overall impairment and one-time profit and loss under core operating profit were less suppressed than in 2023, and it is expected that the profit growth rate in the statement was faster than core profit.

Cash flow is resilient; high-quality outreach supports long-term development. We believe that under the pressure of the macroeconomic environment, the company's current collection rate in 2024 is generally the same as compared to the previous period, and the collection rate of previous arrears may fluctuate slightly, but customer recognition of its brand quality is expected to drive up the prepayment rate, which is expected to support the annual operating cash flow to reach more than 1 times the net profit level returned to mother. The company continues to have a quality expansion strategy in terms of external development. We expect Xintuo's annual contract amount to be around 4 billion yuan in 2024. The Xintuo project focuses on core cities, and the unit price will increase compared to the managed projects. In terms of price increases for stock projects, we believe that the company is expected to successfully complete the target set at the beginning of the year to renew contracts and raise the total price of 0.1 billion yuan for expired projects.

Continue to actively give back to shareholders. The company's dividend payout ratio has exceeded 50% in the past three years, including 72% in 2023. Management has guided future dividend payout rates of not less than 50%. Considering that the company's disposal of overseas investment projects progressed smoothly during the year1, we believe that after recovering cash, it may be expected to further return shareholders in the form of special dividends. The company also made full use of repurchase methods. In 2024, it used a total of 68.78 million yuan to repurchase about 26 million shares, which is equivalent to 9% of the predicted net profit to mother for the year (22% in 2023); since the beginning of 2025, it has repurchased 16.41 million shares, corresponding to a repurchase amount of 57.42 million yuan.

Profit forecasting and valuation

We believe that the company will continue to work in line with the target direction of equity incentive settings2, keep the 2024 and 2025 profit forecasts unchanged, and introduce the 2026 profit forecast. Core operating profit is expected to increase 20%, 17%, and 14% year over year, respectively, in 2024-26, and corresponding to a 25%, 20%, and 14% year-on-year increase in net profit to mother. Maintaining an outperforming industry rating and target price of HK$5.56, corresponding to the target price-earnings ratio of 18 times in 2025, implying 49% upside. The company is currently trading at 12 times the 2025 price-earnings ratio, which corresponds to an expected dividend rate of 4.9% for 2024.

risks

Past arrears have been greatly depreciated; expandable projects have been reduced; and the economic environment puts pressure on collection rates.

The translation is provided by third-party software.


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