Still on a fast growth track
? CIFI ES achieved c.90m sq m/60m sq m in contracted GFA/managed GFA in FY21F, based on management’s latest estimates.
? We estimate that it held c.Rmb4bn cash at end-FY21F, sufficient to engage in M&As to grow managed GFA and to expand community VAS offering.
? We reiterate our Add call with a lower TP of HK$19.2. It is our preferred name among mid-cap China property managers.
About 60m sq m growth in managed GFA in FY21F
CIFI ES attained c.90m sq m/c.60m sq m yoy growth in contracted GFA/managed GFA in FY21F, based on management’s estimates before the blackout period began in late Jan. Hence, we estimate that CIFI ES had c.160m sq m managed GFA at end-FY21F. Thereafter, we believe that CIFI ES would continue to proceed with yoy growth of 55m70m sq m in managed GFA in FY22-23F, primarily driven by third-party (3P) expansion and M&As. We estimate that its parent CIFI (884 HK, Add) would account for just 13% of
CIFI ES’s managed GFA portfolio at end-FY23F.
Sufficient liquidity to proceed with M&As in FY22-23F
CIFI ES raised HK$1.3bn from share placement in Oct 21; that replenished the total amount spent on acquiring two key portfolios in FY21, namely Hunan Meizhong (urban services) and Shanghai Macalline Property Management (commercial). Management believes that other M&A deals could occur in 1H22F as valuations have come down. We estimate that CIFI ES should have c.Rmb4bn cash in hand at end-FY21F; that is sufficient to sustain its portfolio growth by M&A and to expand its community VAS offerings (e.g., turnkey furnishing and decoration services) in FY22-23F. Besides, since investors responded favourably to its parent CIFI rights issue in Dec 21, we believe CIFI ES’s investors need not worry about its receivables collection from CIFI.
Profit share of VAS to non-property owners will inevitably decline
VAS to non-property owners accounted for just 17% of CIFI ES’s gross profit in 1H21. Management does not think that sales centre management is a key focus of CIFI ES’s business; we believe that weaker growth in this business due to China’s weak property sales in 2H21 should not have material impact on CIFI ES’s profit. We estimate the gross profit share of VAS to non-property owners would decline to c.10% in FY23F.
Reiterate Add with a lower TP of HK$19.2
We raise FY21-23F EPS by 3-4%, after factoring in higher profit from Macalline’s portfolio and higher revenue growth from community VAS that offset c.5% EPS dilution due to the share placement. We however lower EPS CAGR to 35% (from 40%) as we roll over the valuation basis by one year to FY21-24F. Our TP is lowered to HK$19.2, still based on 0.9x PEG (equivalent to 31.6x FY22F P/E). Reiterate Add. CIFI ES remains our favourite among the mid-cap China property managers. Key downside risks include value-destructive M&As, while successful expansion in VAS and smooth post-M&A integration could be re-rating catalysts.