S-Enjoy delivered solid results with net profit +60% YoY, beating consensus but in line with our forecasts, thanks to improved PM margins and VAS outperformance through new services. We think the Company’s three-year GFA target (180mn sq m new managed GFA) requires further acceleration of third-party expansion, but earnings target (triple NP in next three years) could be achieved through VAS. We revise up 2021E/22E earnings by 8%/17% due to bright VAS outlook and visible GFA expansion in the near term, and raise TP to HK$34.6 reflecting 25x 2022E P/E. Maintain BUY.
- 2020 earnings beat on VAS. Revenue was up 41.6% YoY to RMB2,866mn driven by Basic PM +48% YoY, Community VAS + 183% and others +10%. Community VAS revenue was up 182.6% YoY to RMB498mn, contributing to 17% of revenue, beating our estimates thanks to accelerated retail services and new services in catering & elevator maintenance. GPM improved by 1.1ppt YoY to 30.7% mainly due to higher PM efficiency, bringing segment GPM up to 31.3% from 28.5% in 2019. Net profit came at RMB452mn (+60% YoY) in 2020, beating consensus but in line with our forecasts. The Company declared a dividend of RMB0.275/share, representing 50% payout ratio (52% in 2019).
- Look to non-traditional services to bolster VAS. In 2020, non-cyclical, non-traditional services (retail, catering, elevator) contributed RMB187mn (vs. RMB12mn in 2019), or 38% of VAS income. Entry into these services were made possible by 1) acquisition of Chengyue Times opens up catering services for non-residential tenants; 2) forming JV with service providers for Mitsubishi and Hitachi to kick-start elevator maintenance. S-Enjoy follows a similar path to CGS in terms of horizontal expansion and enjoys a similar first-move advantage, and thus could become a VAS winner after CGS.
- Company guides revenue and NP to triple in three years. In terms of GFA expansion, S-Enjoy plans to follow a 30%/30%/40% distribution between new contract gains from parentco/M&A/third-party bidding. The Company targets avg. 60/72mn sq m new managed/contracted GFA per year for the next three years to reach 280/420mn sq m by 2023, with 50% managed GFA from third-party bidding & M&A (2020: 40%). As for earnings, the Company guides for both revenue and NP to triple in three years (44% three-year CAGR). According to our estimates, the Company’s three-year GFA target seems ambitious as it requires avg. 28mn sq m contract gain through third-party bidding (vs. 15mn sq m in 2020), but 2021 target of +50mn sq m managed GFA is highly achievable given 100mn sq m reserve, and earnings target could still be achieved through VAS.
- Raise TP to HK$34.6. We revise up 2021E/22E earnings by 8%/17% due to bright VAS outlook and visible GFA expansion in the near term, and raise TP to HK$34.6 at 25x 2022E P/E. Maintain BUY.
