A-LIVING(03319.HK)：THE PAIN LASTS FOR A LONGER TIME MAINTAIN "NEUTRAL"-格隆汇

机构：国泰君安国际
研究员：Chunli Zhan

　　Maintain "Neutral" and reduce TP to HK$3.70. We believe A-Living (the "Company") may need to take longer time for its recovery, considering that 1) the related-party risk is still not fully resolved; and 2) weakening profitability. We forecast A-Living's 2024F-2026F EPS to RMB0.852, RMB0.915 and RMB0.927, respectively. We revise down our TP to HK$3.70, by applying 4.0x 2024F PE multiple. We maintain the investment rating of "Neutral" on the Company.
　　Weak 2023 results due to margin squeeze and large impairment losses.
　　A-Living’s top line growth slowed down with YoY growth of only 0.4%, reaching RMB15.4 bn in 2023. 2023 overall GPM continued to decline by 4.9 ppts to 17.1%, but largely in line with that of 17.2% in 2H2022. The Company made large impairment provision for trade receivables and goodwill in 2023 (totaling RMB963 mn), which further dampened its earnings performance. The Company’s 2023 shareholders’ net profit finally recorded RMB461 mn, down by 74.9% YoY. If excluding these exceptional losses, the Company's core net profit reached RMB1,552 mn (down by 30.3% YoY) in 2023, at a reasonable core net profit margin of 10.0%. The Company declared final dividend of RMB0.06/share.
　　Margin pressure may continue, considering the management's focus on improving quality. Apart from the macro economic factors, we believe another reason for the Company's squeezed margin was the higher investment in improving the service quality among its managed communities. Also, we observed that the Company has slowed down its expansion pace, with single digit growth in its contracted GFA in 2023 (4.8% YoY). Considering its large managed projects from third parties or through M&As, we expect the Company to take longer time to complete the transformation, improving the quality of its managed projects.
　　Getting rid of related-party risk is still a key task. The Company’s total accounts receivable in 2023 continued to grow by 3.9% YoY to RMB11,130 mn.
　　Although the Company has made sufficient allowance for the impairment of trade receivables in 2023, we believe A-Living’s related-party risk is still a key concern for investors. According to the management, the Company is making great effort to chase back the trade receivables, especially from its related parties. Unsold property assets have settled part of the accounts receivables from its related parties.
　　Upside risks: 1) Improvement in profitability; 2) faster growth in property owners VAS and city services; and 3) liquidity improvement from its parent. Downside risks: 1) Slower growth in GFA expansion; 2) large impairment loss from accounts receivable; and 3) labor cost hikes.