Takeaways from virtual property conference
? Poly Prop Services’ (Poly PS) management said third-party GFA expansion
was slower than expected in 5M22 due to the recent Covid-19 outbreak.
? It expects an increase in gross profit margin for community VAS as it
optimises the mix of services, after introducing new ones a few years ago.
? It remains conservative on M&As, citing concerns over valuation and
potential integration issues. Reiterate Hold, with a TP of HK$47.
Slower third-party bidding progress amid Covid-19 outbreak
? Poly PS management said during our virtual property conference that the company’s
GFA expansion via third-party (3P) bidding was slower than expected in 5M22, due to
the Covid-19 outbreak in recent months. Nevertheless, the proportion of residential
GFA to non-residential GFA acquired from 3P bidding so far this year has been
maintained at about 1:3. As in previous years, management did not provide growth
guidance for FY22F.
? Management does not expect any social security waiver by the Chinese government in
FY22F, unlike FY20 when the pandemic in China began.
? Management expects pressure on receivables collection from public facilities as a
result of a weak economy.
Looking forward to an increase in GPM for community VAS
? In community value-added services (VAS), some businesses of community living
services, e.g. move-in and furnishing services and community retail, were cut down
during the pandemic. Those related to community assets (e.g. space operation) ran as
normal, according to \ management.
? By optimising the mix of community VAS after the introduction of new services a few
years ago, management expects an increase in GPM of community VAS (FY21:
31.4%).
? Management expects a hoh decrease in the revenue share of VAS to non-property
owners in 1H22F, due to developers’ weaker property sales.
Still awaiting better M&A valuations
? Management said the valuations for acquisition targets are declining but thinks they
can go even lower — which is why Poly PS has not yet made any sizeable M&As yet.
? Other than valuation, management said it would give equal importance to the target’s
readiness for integration while evaluating an acquisition.
Reiterate Hold with a TP of HK$47
? The first phase of Poly PS’s Restricted Share Incentive Scheme was approved by
shareholders in Feb 22. Management says the next phase, if any, would have to be
launched no less than two years after the approval of the first phase.
? We reiterate Hold on Poly PS with a TP of HK$47, still based on 20.3x FY22F P/E
(0.9x PEG and 23% FY21-24F EPS CAGR).
? Key downside risks include prolonged lockdowns in key Tier-1 and -2 cities in China,
while EPS-accretive M&As and faster-than-expected expansion of community VAS are
key upside risks.