Excellence announced solid 2020 results with net profit up 82%, beating consensus and in line with our estimates, thanks to strong third-party gains (+44% GFA, +38% revenue) and growing VAS through customized services and AM. We are convinced that Excellence’s business model, which focuses on contracts with large corporate customers (Internet giants, TMT up-and-comers, etc.) can enable outperformance in a field (office buildings) that in general has been somewhat slowing down. We raise earnings forecast in 2021E/22E by 8.2%/1.6% and reiterate BUY.
- 2020 earnings a solid beat. Managed GFA grew 36% YoY to 32mn sq m, in which commercial GFA grew 35% to 16mn sq m (third-party: +44%, parentco: +4%). Revenue was up 38% YoY to RMB253mn, driven by VAS (+76%) which contributed to 14% of revenue (2019: 11%). Basic PM revenue grew 34% YoY, driven by third-party commercial projects (+38%) and public projects (+60%). Gross margin grew 2.7ppt to 26.3%, thanks to better profitability on commercial PM (2020 GPM: parentco +2.4ppt, third-party +4.4ppt) and VAS (2020 GPM: +9.4ppt to 34.6%). The Company announced dividend of HK$0.095/share, representing 30% payout ratio.
- Maintains guidance of 45% NP CAGR in two years. Company reaffirmed previous guidance of RMB500mn/700mn net profit in 2021E/22E, or 45% CAGR in two years. It expects third-party expansion to be the future driver, with basic PM/VAS making up 80%/20% of revenue.
- Serving large corporate customers key to navigating the office building market. 80% of Excellence’s third-party contracts are for managing regional branches/HQs for large corporate customers, and in 2020 the Company has gained new customers such as JD, DJI and Kuaishou, in addition to existing cooperation with Tencent, Baidu, etc. We think such a business model offers several advantages: 1) secures tenants & price hikes against general slowdown of office building market which suffers from oversupply, declining occupancy and potential loss of pricing power; 2) avoids direct competition with pipeline-heavy competitors such as CR Mixc; 3) taps into GBA’s growing TMT scene which will offer ample opportunities for expansion; 4) enables customized VAS for individual customers.
- Raise earnings forecast by 8.2%/1.6% in 2021E/22E. We raise earnings forecast in 2021E/22E by 8.2%/1.6% on results and confidence in Excellence’s business model. Maintain TP of HK$ 14.9 on 20x 2022E P/E. Reiterate BUY.
