GREENTOWN SERVICE(02869.HK)：COUNTER-CYCLICAL GROWTH AND IMPROVED PROFITABILITY IN 1H2024 MAINTAIN "BUY"-格隆汇

机构：国泰君安国际
研究员：Chunli Zhan

　　We maintain "Buy" investment rating and revise up our TP to HK$4.00. For the next few years, we believe the Company will continuously benefit from 1) solid third-party expansion; and 2) its efficiency improvement. We revise up Greentown Service's (the "Company") 2024F-2026F EPS forecasts to RMB0.232, RMB0.271 and RMB0.321, respectively, at a CAGR of 19.4% during 2023-2026F. We revise up our TP to HK$4.00, by applying 16.0x 2024F PER.
　　1H2024 results beat market and our expectations. The Company delivered outstanding 1H2024 results among its peers. In 1H2024, the Company's total revenue recorded steady growth of 10.6% YoY to RMB9,068 mn. Among the total revenue, property services continued to be the largest revenue contributor, which recorded stronger growth at 14.6% YoY. Thanks to its effective cost reduction, in 1H2024, the Company's core operating profit increased by 25.8% YoY to RMB893 mn. 1H2024 shareholders' net profit also recorded consistent growth, reaching RMB505 mn, up by 21.5% YoY. The management declared no interim dividend for this year.
　　Profitability has achieved some results by effective cost control. Although the property sector is facing continuous profitability pressure, the Company improved its gross profit margin and further lowered its SG&A ratio. In 1H2024, the Company's gross profit margin in property services improved by 1.1 ppts YoY to 14.9%, while the SG&A ratio declined by 0.6 ppts YoY to 7.6%. The increase in the number of employees also reflected the Company’s improved labor efficiency per capita. The total number of employees only increased by 6.3% YoY by mid-2024. Meanwhile, revenue grew by 10.6% YoY in 1H2024.
　　Attractive share scheme for employees and higher 2024 profit guidance. On 26 Jun. 2024, the Company announced to grant share options to the management and employees tied to certain performance targets, such as 2024/ 2025/ 2026 core operating profit should grow not less than 20%/ 40%/ 60% of that in 2023. Considering that the Company's core operating profit achieved over 25% YoY growth in 1H2024, we believe the profit target for the year of 2024 is not hard to achieve. Furthermore, considering its continuous improvement in profitability, we also expect the Company to achieve its 2025 and 2026 profit targets.
　　Catalysts: 1) Market share gains; 2) fast growth from the development of the Company’s VAS; and 3) more cooperation with local governments and SOEs.
　　Downside risks: 1) Real estate market slump worsens; 2) hurdles in raising property management fee; and 3) impairment risk from account receivables.