We hosted a group meeting with CGS senior management and further discussed its RMB100bn plan, and below are the key questions:
- Profitability trend along with its top line growth. CGS is confident to achieve stable GP margins. In breakdown, 1) Basic PM may still maintain above 30% GPM as using more technology could offset the salary increase. 2) VAS could still deliver 60%+ GP Margin due to its platform business model. 3) Further margin recovery from “Three Supplies and Property Management” business after optimization. Therefore, the bottom line would continue to grow together with top line.
- Community VAS: Management sees 60% revenue CAGR towards 2025 and thinks RMB30bn target is doable. As for the strategy, the Company said it would do the followings: 1) further increase penetration in its traditional business such as home decoration. This could be done as managed GFA will have higher occupancy rate. 2) Provide more new services such as community group shopping.
- Outlook for city services: Management guided that it has high visibility achieving RMB20bn revenue target by 2025. So far CGS has a contracted value of RMB13bn with a contracted term of >3-5 years and will convert RMB4-5bn this year. As for future growth, the Company will mainly rely on the two acquired companies in 2020 to expand rather than further M&A. Regarding the margin and cash flow, management expects a margin improvement after optimization and operating cash flow is still quite healthy.
- Step into commercial GFA management: This is a relatively new area for CGS and so far it has only 100 office and other buildings. Management guided that CGS has just formed the team to explore this area and RMB15bn target is more of a long-term vision. We think it may involve some future M&A in order to quickly develop this area and it would provide more business opportunities if successful.
- M&A integration: The Company reiterated its confidence to achieve better-than-forecasted results based on its historical M&A track record. We think this boost investors’ confidence on its future.
