Once again the Company delivered another solid results with earnings up 74% YoY, 9% higher than its guidance. Looking into next 3 years, Management guided 45-55% earnings growth to achieve its 5-year target. Despite the fact that market is demanding more, we like company to continue its long-term strategy towards 3rd party expansion (may shift more to high-margin non-residential areas) and profitable VAS initiatives, without being distracted by the industry fashion. Its robust long-term earnings growth is more important to cement its leading position. Maintain Buy.
- Refreshed management guidance – 45-55% earnings CAGR in 2020-23E: During the results presentation, company mentioned the earnings growth guidance was 50-60% in 2021E and then 40-50% in 2022/23E. This is actually in line with previous target of 10 folds in 2018-23E however markets may find it less appealing compared to other peers. Based on the track record, the Company usually can deliver a better-than-guided results so we consider this guidance to be fair with potential upside. Also contracted GFA may reach 350-400mn sq m.
- 3rd Party expansion shifts to focus on non-residential area: in 2020, revenue of non-residential properties grew 91% YoY and contributed 42% of basic PM revenue (vs. 37% in 2020). Due to its relatively high margin (such as school/hospital), company will shift more resources to expand its GFA in the future. We believe the Company could replicate the same success as in residential projects due to industry-high incentives and company culture. Just in Feb, it has just signed the contracts with 5 universities as a proving evidence.
- Community VAS – expansion only into profitable and promising areas: Fast-growing community VAS remains the key revenue and GP contributor to the group (25% and 40%, respective). Looking forward, on top of the existing business, Management is also seeking to expand more services such as new retail (JiejieGao). However, it takes a more conservative approach, which means it will step into areas with a clear and profitable business model. With that, we think Ever Sunshine can continue to make VAS as a key growth fuel in both topline and bottom line.
- Strong 2020 results: the Company delivered a strong 2020 earnings at RMB390 mn (+74% YoY), 9% higher than its profit alert. The total revenue grew 66% YoY to RMB3.12bn in 2020 with PM and Community VAS contributing 56% and 25% of the total. GP Margin expanded 1.8ppt YoY to 31.4% in 2020 (on higher contribution of non-residential PM) and thus NPM reached higher to 12.5% in 2020 (+0.6ppt YoY). EPS came at RMB0.24/share in 2020 (+66% YoY) and the Company declared a dividend of HKD0.0838/share, representing 29% payout ratio.
- Lower TP to HK$22.16 and maintain Buy. We revise down our FY21/22E net profit forecast by 15-18% to reach RMB626/931mn. As a result, we lower our TP from HK$28.8 to HK$22.2 using a slightly lower 2022E PE multiple of 33x (previously 35x).
