Country Garden Services experience and satisfaction, in our opinion.
It has also shown its ability to grow inorganically, as illustrated by the recent completion of the acquisition of an effective 71.17% equity interest in
Languang Justbon (as at 19 Apr 2021) (2606 HK; non-rated).
It has also shown its ability to grow inorganically, as illustrated by the recent completion of the acquisition of an effective 71.17% equity interest in
Another key differentiating factor of CGS relative to its peers is its ability to offer a diverse range of value-added services to its customers. These include value-added innovation services, turnkey furnishing and move-in services, housekeeping services, community media services, real estate brokerage services and community area services.
• Robust core earnings growth potential – In terms of financial performance, Country Garden Services had delivered an EPS CAGR of 62.6% from 2018-2020. We are forecasting continued robust double-digit EPS growth of 29.6% in FY21F and 50.3% in FY22F. Our forecasts translate to a healthy EPS CAGR of 39.6% from FY20-22F, although its near-term EPS in 1H21 would be impacted by dilution from an equity placement in Dec 2020.
Management has set an ambitious top-line target over the medium term, with an aim to achieve over RMB100b in revenue in 2025, which would represent a CAGR of ~50% from FY20’s RMB15.6b revenue base.
• Trading premium over peers justified; initiate with BUY – CGS is trading at a significant premium over its peers’ forward price-to-earnings (P/E) ratio, but we believe this premium is justified, given that CGS has an unparalleled brand equity and scale in the industry, stronger track record and competitive advantages such as its ability to grow its third-party contracts robustly and offer a range of value-added services. There is room for further M&A activities even after the Languang Justbon acquisition, in our view. CGS is also trading at a price-to-earnings-to-growth (PEG) multiple of 0.7x for FY22F.
We value CGS using a target PEG approach, and derive a fair value estimate of HKD94.85. Based on CGS’ closing price of HKD78.05 on 19 Apr 2021, we see potential upside of 21.5%.
Initiate with BUY. Key risks to our forecasts include regulatory changes such as those related to taxes, property management fees and land use rights, weaker-than-expected economic growth and demand for residential properties, and competitive pressures. Potential catalysts
• Stronger-than-expected growth in GFA under management.
• Earnings accretive acquisitions.
• Continued rollout of favourable industry policies benefiting CGS. Quality deserves a premium
• Leading property management service provider with significant scale and strong brand equity
• Key beneficiary of positive industry prospects
• Forecasting robust EPS CAGR of 39.6% from FY20-22F Investment thesis Country Garden Services Holdings (CGS; stock code: 6098 HK) is a market leader in the property management services sector with a total contracted GFA of 821 sqm (as at 31 Dec 2020), representing growth of 19.8% from end-2019.
We believe CGS is able to benefit from significant economies of scale, strong sponsor support and brand equity. CGS also has the ability to offer a diverse range of value-added services to its customers, and has shown its ability to grow its scale and GFA under management via mergers and acquisitions.
Management has set an ambitious top-line target over the medium term, with an aim to achieve over RMB100b in revenue in 2025, which would represent a CAGR of ~50% from FY20’s RMB15.6b revenue base. Investment summary
• Market leader with significant economies of scale, strong sponsor support and brand recognition – Country Garden Services Holdings (CGS; stock code: 6098 HK) is a leading service provider of comprehensive property management services in China, with a presence in more than 350 cities across China, Hong Kong and overseas markets.
It has almost 3.3k property management projects under management with a total contracted GFA of 821m sqm (+19.8%) serving 4.24m households, as at 31 Dec 2020. We believe CGS is able to benefit from economies of scale given its large and extensive property management portfolio.
Growth has been partly underpinned by its strong sponsor support and large landbank from its parent Country Garden Holdings (2007 HK). CGS has established a strong track record and solid brand equity given its service platform which is aimed at creating a personalised community ecosphere to enhance customer.
– By CIMB Research