Growth likely challenging in FY22-23F
■ Jinke Property reported an 11% yoy decline in FY21 contracted sales GFA; we think Jinke SS will be unable to meet its FY22-23F portfolio growth target.
■ Management does not see any receivables collection issue related to Jinke Property; however, we project a higher receivables provision out of prudence.
■ Reiterate Add with a lower TP of HK$48.80. Its valuation (15x FY22F P/E vs. 35% FY21-24F EPS CAGR) is attractive, in our view.
May find it challenging to meet GFA growth targets in FY22-23F
We hosted a pre-blackout conference call with Jinke SS’s management. Jinke SS met its FY21F operating growth target with ~80m sq m increase in managed GFA: ~30m sq m from third-party (3P) bidding, ~30m sq m from M&As and ~20m sq m from parent Jinke Property (000656 CH, NR). In Dec 21, it acquired Jinke Property’s hotel management business that could enrich its non-residential property management (PM) portfolio. Yet, Jinke Property recorded an 11% yoy decline in contracted sales GFA in FY21 due to a
weaker property market in China; we think this would pose a challenge to Jinke SS which is still targeting 100m sq m p.a. growth in managed GFA over FY22-23F.
Management: no receivables issues with parent
Management estimates the revenue from Jinke Property in FY21F was ~Rmb900m (+17% yoy, per our calculation) while its A/R collection days from Jinke Property stay normal (3-4 months, per our estimates). Management still guided for c.80% yoy growth in net profit in FY21F. However, as we have written about its peers, we expect an increase in its overall A/R provisions in FY21F due to weaker liquidity among property developers.
Management expects flattish gross margin trend
Management said FY21F overall gross margin was likely largely unchanged from FY20 (i.e. 30%) while its net margin likely softened due to higher expenses. In community value-added services (VAS), it sees decoration services ramping up, and the acquisition of hotel management business will help it expand group catering services. Despite partial lockdown in some cities, management is optimistic about the growth prospects for travelling services when Covid-19 subsides further. We estimate a gradual softening of the gross margin for community VAS, from 36% in FY20 to 34% in FY21F and further to 31% in FY23F due to the introduction of new VAS with lower gross margins (20-30%).
Reiterate Add with a lower TP
We cut FY21-23F EPS by 2-8% to factor in Jinke SS’s slower growth in managed GFA and revenue from VAS to non-property owners. Our TP declines to HK$48.80, now based on FY22F P/E of 17.7x to reflect cuts in our 3-year EPS CAGR forecast. Our Add call remains in view of its attractive valuation (15x 2022F P/E) compared to a 35% EPS CAGR over FY21-24F. Key downside risks: worsening of Jinke Property’s liquidity and higher-than-expected impairment of Jinke SS’s receivables. Re-rating catalysts: a recovery in Jinke Property‘s property sales and rollout of new strategic investments or services with new investor Boyu Capital.