Summary of Greentown Service (2869.HK) Conference Call Company Overview - **Company**: Greentown Service (GTS) - **Ticker**: 2869.HK - **Industry**: Property Management Services (PMS) Key Financial Highlights - **1H25 Core Operating Profit**: Increased by 25% year-on-year (yoy), exceeding management's guidance of 15% yoy and Goldman Sachs' estimate of 17% yoy [1][3] - **Gross Profit Margin (GPM)**: Improved by 0.5 percentage points (pp) yoy, with all sub-segments showing yoy GPM increases [1] - **PMS Revenue**: Grew by 10% yoy, contributing 71% to total revenue, marking a return to record levels since 2016 [1][3] - **Accounts Receivable (AR)**: Expanded by 14% yoy, with management optimizing AR structure to maintain a healthy balance [1][9] - **Cash Reserves**: Increased by 26% yoy, totaling over Rmb1.1 billion net addition [1][8] Management Guidance and Future Outlook - **FY25 Guidance**: Maintained core operating profit growth target of 15% yoy, supported by double-digit PMS revenue growth and further margin improvements [3][4] - **Long-term Margin Outlook**: Management aims for continued GPM improvement and SG&A ratio optimization through 2026-2027 [3][4] - **Project Engagement**: Focused on high-profitability projects in core cities, with a target of Rmb4 billion in new contracts for FY25 [4] Operational Insights - **Project Sourcing**: 95% of new projects located in core cities, with significant contributions from large state-owned enterprises (SOEs) [4][7] - **Community Living Services**: Efforts to enhance revenue generation through community services, early childhood education, and elderly care [4] - **Organizational Streamlining**: Continued efforts to reduce SG&A expenses, which decreased to 7.9% of total revenue [1][7] Risks and Challenges - **Community VAS Revenue**: Experienced a decline of 6% yoy, primarily due to a significant drop in home living services [9] - **AR Impairment Loss**: Increased by 34% yoy, indicating potential collection challenges [9] - **Market Competition**: Facing intensified competition in the property management sector, which may impact margins [4][15] Investment Thesis - **Rating**: Buy - **12-Month Target Price**: Revised to HK$6.3 from HK$5.0, based on a 12X 2027E free cash flow valuation [6][15] - **Valuation Comparison**: GTS trades at a lower P/E ratio compared to peers, with a projected 25% EPS CAGR and a 6% yield [6] Conclusion - Greentown Service is positioned for continued growth and profitability, supported by strong project engagement and effective cost management strategies. However, potential risks related to revenue declines in certain segments and market competition should be monitored closely.

Summary of Conference Call Notes Industry Overview - The conference call focuses on the China Property Management industry, specifically discussing two companies: Greentown Service and Sunac Services. Greentown Service Key Points - **Financial Performance**: Greentown Service's 2024 net profit increased by 30% year-on-year, with a dividend per share (DPS) up 33%, primarily due to the disposal of a subsidiary, resulting in a special dividend [2] - **Core Profit Growth**: Excluding one-off items, net profit rose by 11% year-on-year, aligning with expectations [2] - **Operational Stability**: The company maintains healthy operations characterized by stable gross margins and declining expense-to-revenue ratios [2] - **Cash Flow**: Net operating cash flows are 1.7 times the net profit, indicating strong cash generation [2] - **Management Goals**: The management aims to enhance gross margins and reduce expenses, positioning the company for stable earnings growth in the forecast periods [2] - **Rating**: The current share price reflects its value, leading to a maintained "Hold" rating [2] - **Earnings Forecast Adjustments**: Earnings forecasts for 2025 and 2026 were cut by 13% and 15% respectively due to overly optimistic previous estimates. Revised forecasts imply 12-14% year-on-year earnings growth from 2025 to 2027 [8] - **Target Price**: The target price was raised to HKD4.30 from HKD4.10, reflecting a 5% upside [6][13] Risks - **Upside Risks**: Faster-than-expected growth in gross floor area (GFA) expansion, successful expense cuts, higher-than-expected dividend payouts, and lower-than-expected losses from receivables [14] - **Downside Risks**: Major slowdown in GFA expansion, failure to maintain gross profit margins, poor performance in consulting services, and macro regulatory uncertainties [14] Sunac Services Key Points - **Financial Performance**: Sunac Services reported flat core profit and DPS for 2024 compared to 2023, with total revenue largely flat at a 1% decline year-on-year [3] - **Revenue Drivers**: Property management services grew by 4% year-on-year, while value-added services to non-property owners saw a significant decline of 61% year-on-year [3] - **Related Party Exposure**: The impact of related party exposure on earnings outlook is diminishing, with unsecured trade receivables from related parties declining to RMB181 million from RMB2.7 billion [3] - **Payout Ratio**: The company targets a stable payout ratio of 55% in the medium term [3] - **Cash Collection Challenges**: Cash collection rates for newly delivered projects and certain regions are under pressure, with gross margins for property management services falling by 2.9 percentage points to 20.9% [3] - **Rating**: Given limited visibility on margin trends, a "Hold" rating is maintained [3] - **Earnings Forecast Adjustments**: Earnings forecasts for 2025 and 2026 were cut by 3% and 6% respectively due to margin compression, with a new 2027 earnings forecast of RMB843 million implying 2% year-on-year growth [10] Risks - **Upside Risks**: Improvements in financing for Sunac China, successful debt restructuring, policy relaxation, and better GFA expansion [18] - **Downside Risks**: Impairments on receivables, margin pressure, and regulatory risks [18] Conclusion - Both Greentown Service and Sunac Services face challenges in revenue growth and margin pressures but are managing to maintain stable operations and cash flows. The adjustments in earnings forecasts reflect a cautious outlook, with both companies maintaining a "Hold" rating amidst evolving market conditions.