Redsun Services delivered strong FY20 results with core earnings up 63% to RMB93mn (beating our estimates by 10%). Management guides 50% revenue/net profit CAGR up to 2023, and we could see 60% earnings growth in 2021E as Redsun’s acquisition of Wuhan Huidehang may boost earnings by 30%. As for 2022E/23E, the Company may rely more on 3rd-party expansion which may contribute 30-40% of new contracted GFA (vs. 15% in 2020) as well as VAS. We raise earnings forecast for 2022E/23E by 7.9%/12.7% and maintain BUY on Redsun as an attractive name among small players.
- Redsun delivered strong 2020 results. Managed GFA was up 71% to 27mn sq m, with 52% from third-party (2019: 30%). Revenue grew 53% YoY to RMB768mn driven by strong VAS performance (+311% YoY). Segment wise, basic PM growth (+40% YoY) was slower than expected but VAS acceleration exceeded our expectations, contributing to 14% of revenue, closing in on industry average of ~15%. At bottom line, core profit (excl. listing expenses) grew 63% YoY, beating our estimates by 10%. The Company declared a dividend of RMB0.05/share, representing 31% payout ratio.
- Management guides 50% revenue/NP CAGR in next three years. Company guided 50% revenue/NP CAGR in the next three years, and aimed for 60% of managed GFA to come from third-party (incl. M&A) by 2023. We see some uncertainties on third-party execution, but community VAS should sustain high growth due to AM services (car-park sales, 44% of 2020 VAS revenue) having 3-4 years of sellable reserve. Furthermore, we think many of Redsun’s initiatives, such as commercial projects, new VAS tryouts in community retail, and city services can be promising.
- Some M&A to accelerate scaling, but recent acquisitions have been margin accretive. The Company suggests 60% of third-party GFA gain in 2021 will come from M&A. However, we think there is less of the usual concern on M&A quality, because Redsun’s acquisitions since IPO have been profitable (2020 NPM: Wuhan Huidehang - 24%, Chuzhou Yurun - 12%, vs. 12% of Redsun), and Redsun plans to focus its M&A effort in the YRD where PM fees are generally higher with less chance of margin dilution.
- Raise 2021E/22E earnings forecast and Maintain BUY. We raise 2021E/22E earnings by 7.9%/12.7%. Currently Redsun trades at 6.3x 2022E P/E vs. industry average 15x, which is quite attractive. Maintain BUY.
