Market’s low expectations unjustified
? Times Neighborhood (TN) has met its FY21F key operating targets. However, we think it could lower its growth guidance for FY22-23F.
? Despite a flattish gross profit margin outlook, management believes improvements in net profit margin in FY21F are likely thanks to cost savings.
? TN does not have a share buyback plan currently, but it is continually purchasing shares in the market for its share incentive scheme.
? Reiterate Add with a lower TP of HK$4.5 (0.25x PEG)
Meeting FY21F key operating targets
Times Neighborhood (TN) largely achieved its key operating targets for FY21F, with increment of ~56m sq m contracted GFA and ~43m sq m managed GFA. Third-party (3P) contracts accounted for 18m sq m (70% from non-residential properties) of its increment in managed GFA. Although it did not provide updates on its aspirations for FY22-23F, we think TN will slow down its expansion via M&A earlier, given that the quality of targets has become harder to assess amid the weaker property market. Going forward, its preferred targets would be those with several million sq m of managed GFA.
Increase in NPM in FY21F looks likely
TN’s revenue from sister company Times China (1233 HK, Hold) could rise by c.30% yoy in FY21F (FY20: Rmb600m), based on our estimates. Management does not foresee any deterioration in receivables from Times China (no negative news on Times China’s debt repayment so far), but it believes the improvement in gross profit margin (GPM, FY20: 30%) might be insignificant in FY21F due to costs associated with expansion of new value-added services (VAS) and professional services (e.g. city services). An increase in
net profit margin (NPM, FY20: 13.2%) would still be likely in FY21F on the back of TN’s efforts in lowering administrative and marketing costs.
No share buyback plan at the moment
Management does not have a plan for a share buyback at the moment but has said it is taking the opportunity to purchase shares in the secondary market for TN’s share incentive scheme, which indirectly helps support the share price. Meanwhile, major shareholder Mr. Shum has increased his shareholding in the company by more than 0.6% in 2021 based on our search of Stock Exchange filings.
Reiterate Add; market’s low expectations unjustified
We cut FY21-23F EPS by 6-22% to factor in TN’s slower growth in managed GFA and revenue from VAS to non-property owners. Our TP declines to HK$4.5, now based on 2022F P/E of 7.1x to reflect cuts in our 3-year EPS CAGR forecast. Our Add call remains in view of its attractive valuation (4.2x 2022F P/E) compared to a 28% EPS CAGR over FY21-24F. Key downside risks: worsening of Times China’s liquidity and higher-thanexpected impairment of TN’s receivables. Re-rating catalysts: stronger-than-expected revenue growth from GFA and VAS, and improvement of Times China’s property sales.