GREENTOWN SERVICE GROUP(2869.HK)：RESULTS BEAT WITH DECENT CASH FLOW-格隆汇

机构：中银国际
研究员：Gurney LIU/Maggie CAI

　　Greentown Service’s (GS) 2024 revenue grew 6.4% YoY to RMB17.9bn, 3.9% below our estimation partially because revenue for discontinued business was not included in the reported topline. Gross margin improved by 0.4ppt from 2023 to 16.8%, while SG&A as % of revenue decreased by 0.7ppt. As a result, core operating profit grew by 22.5% YoY. We calculated that excluding one-off losses on investments, core net profit grew by 13.4% YoY to RMB861m, 3.1% higher than our estimation and 10.9% higher than market consensus. Core net profit grew slower than core operating profit mainly because impairment loss on trade receivables increased by 76.3% YoY to RMB218.8m. GS declared both final dividend and special dividend, lifting payout ratio to 75%. In 2025, management targets to further improve gross margin by 0.5ppt and decrease SG&A as % of revenue by 0.5ppt, and to achieve 15% growth in core operating profit. We lifted our TP by 12% upon more visible growth, and maintain our BUY rating on the stock.
　　Key Factors for Rating
　　New addition of annualised contract value in 2024 amounted to RMB3.77bn, in line with our results preview. It was less than the target of RMB4bn set at the beginning of the year, which we believe was partially due to intensified competition and partially down to the company’s intentional move to improve project quality. According to management, 90% of the new expansion are from core cities. At the same time, for projects with less than RMB2m contract value, they would provide light asset consulting or platform service to the actual property management company. For 2025, GS targets to obtain RMB4bn of annualised contract value.
　　Operating cash flow in 2024 amounted to RMB1.47bn, equals to 1.7x of net profit, thanks to good cash collection for current period and pre-collection. Trade receivables before impairment increased by 15.6%, faster than revenue growth, partially due to increased contribution from non-residential segment which generally has longer cash collection cycle, as well as deterioration for the collection of past period receivables. Management has laid out comprehensive measures to improve cash collection in 2025.
　　Key Risks for Rating
　　Cash collection ratio may be under pressure given economic uncertainty.
　　Valuation
　　We lifted our target 2025E P/E from 14x to 16x on more visible growth prospect. The stock currently trades at 13.5x 2025E P/E, and offers 5.2% 2025E yield, which we think is undemanding considering GS’ strong competitiveness in the residential segment, its cooperation with major SOEs, and stable cash flow.