Lower growth visibility obstacle to rerating
? Shimao Services’s core profit from FY21 audited financials was 4% lower
than its unaudited version. It did not declare dividends for FY21.
? Relying on third parties to grow its management portfolio and slower VAS
expansion mean that its overall FY22F gross profit margin will likely decline.
? Reiterate Hold with a lower TP of HK$4.3 (7.4x FY22F P/E).
FY21 audited core net profit 4% lower than unaudited version
Shimao published audited FY21 results on 22 Jun with core net profit (excluding fair
value changes in convertible bonds (CB)) of Rmb1.0bn, 4% lower than its unaudited
results. Its FY21 core net profit was still up 45% yoy despite this. However, it did not
declare DPS for FY21 as management wished to preserve cash for future business
needs; we see this as a key disappointment to investors as we believe it should have
sufficient free cash to maintain its payout (FY20: 31%).
Relying on 3P to expand its PM portfolio
Its contracted GFA/managed GFA was unchanged from its unaudited results at 308m sq
m/241m sq m at end-FY21. However, management was reluctant to provide GFA growth
guidance for property management (PM) services in FY22F, other than saying that
Shimao Services succeeded in bidding for 25m sq m of PM contracts via third parties. As
3P bidding becomes increasingly important for Shimao Services amid slower GFA
expansion from its parent Shimao Group (813 HK, Hold) and from M&A, we think its
gross profit margin (GPM) from PM services will gradually decline in FY22F.
GPM likely on a downtrend
Its overall GPM decreased by 2.7% pts yoy to 28.6% in FY21 due to expansion of city
services and low-margin business in community value-added services (VAS), e.g.
campus VAS. Due to the Covid-19 outbreak in China and Shimao Group’s ongoing
liquidity problems, we think revenue growth of its community VAS will come under
pressure in FY22F and a yoy decline in revenue from VAS to non-property owners will be
inevitable. As a result, we project a further decline in its overall GPM to 26.0% in FY22F.
CB repayment should not be an issue
We understand that a few CB investors have requested Shimao Services to redeem the
CB early since it was suspended from trading for more than 30 days for publication of its
FY21 audited results. We estimate that, after setting aside funds for CB repayment and
working capital, it will still have c.Rmb4bn net cash for other business needs in FY22F.
Reiterate Hold with a lower TP of HK$4.3
We cut FY22-24F EPS by 6-7% to factor in lower overall GPM projections (25-26% for
FY22-24F). With our new FY21-24F EPS CAGR of 18.5% and unchanged PEG of 0.4x,
our TP for Shimao Services is cut to HK$4.3. Reiterate Hold; its lower growth visibility
due to its parent’s liquidity problems hinders a rerating of Shimao Services. Key
downside risks: worsening of Shimao Group’s liquidity issues and pre-IPO investors
selling stakes in Shimao Services. Key upside risks include an improvement in Shimao
Group’s liquidity and faster-than-expected expansion of VAS.