Diversifying its sources of revenue

■ A-Living achieved its FY21F GFA target after adding Shandong Hongtai; we think its growth from FY22F onwards could slow due to high portfolio base.
■ Management believes A-Living’s diversified revenue sources (e.g. city services) should be able to withstand the impact of lower Agile contributions.
■ It also believes A-Living has sufficient cash to support operations and further M&As and therefore, there are no plans for another share placement.
■ Reiterate Add due to attractive valuation (5.3x FY22F P/E), with a lower TP of HK$20.9 (0.4x PEG).

GFA targets for FY21F achieved

We hosted investor calls with A-Living’s management who said A-Living should be able to meet its FY21 guidance of 70m sq m growth in contracted GFA (excluding New CMIG PM portfolio), driven by third-party (3P) contracts as well as consolidation of Shandong Hongtai (managing 35m sq m GFA of campus projects as of end-1H21). In FY22-23F, 3P will still be a key source of growth, management said. However, we think the challenges faced by A-Living in fuelling this growth are not small in the absence of a strong parent and on a high portfolio base (630m sq m managed GFA at end-FY21F, based on our estimate).

Various sources of revenue other than Agile to drive further growth

Management acknowledged investors’ concerns over its parent Agile (3383 HK, Reduce) whose liquidity issues may hinder A-Living’s growth in managed GFA and revenue from extended value-added services (VAS) from Agile. It is however confident of being able to diversify its sources of growth from 3P for GFA expansion and from VAS to property owners (e.g. turnkey furnishing, decoration). It also highlighted city services as a new revenue driver; management targets no less than a 30% CAGR through FY23F.

No share repurchase plan; sufficient cash on hand

Management believes a share repurchase plan is unlikely, given its H-share nature which requires pre-approval from the China Securities Regulatory Commission (CSRC) for a reduction of share capital. A-Living’s cash level (several billion Rmb left after outflow for recent M&A) is sufficient to support daily operations and pursue more M&As, according to management, and hence, there are no plans to raise capital again in the equity market.

Reiterate Add, with a lower TP and PEG multiple

We revise FY22F/23F EPS by -6%/-10% as we factor in slower growth in managed GFA and lower projection for revenue from extended VAS. Our new EPS CAGR for valuation is lowered to 20%. Based on a lower PEG multiple of 0.4x, we cut our TP for A-Living to HK$20.9. But we reiterate our Add call for its attractive valuation (5.3x FY22F P/E and 6.5% dividend yield). Key downside risks: worsening of Agile’s liquidity and higher-than expected impairment of receivables. Re-rating catalysts: stronger-than-expected revenue growth from GFA and VAS, and recovery of Agile’s liquidity.