2

买入

收盘价: 3.40港元 (2017年5月16日)

目标价: 4.05港元 (+19.1%)

股价表现

市值 12.125亿美元

发行在外股数 32.869亿股

核数师 KPMG

自由流通量 38.8%

52周交易区间 1.98-3.42港元

三个月日均成交量 113万美元

主要股东

Orchid Garden

Investment (36.72%)

李海荣(主席) (21.29%)

来源: 公司, 彭博

来源: 公司, 中国银河国际证券研究部

中国房地产行业 – 物业管理

Key Financials (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Revenue 2,919 3,722 4,778 5,990 7,296

YoY Change 32.4% 27.5% 28.4% 25.3% 21.8%

Net Profit After Tax 198 286 401 523 651

YoY Change 32.6% 44.3% 40.3% 30.7% 24.4%

EPS (RMB) 0.10 0.12 0.14 0.19 0.23

YoY Change 32.6% 22.3% 19.2% 30.7% 24.4%

ROE 95.7% 216.2% 23.3% 25.5% 26.0%

P/E 30.6x 25.0x 21.0x 16.1x 12.9x

Dividend Yield 0.0% 1.2% 1.4% 1.9% 2.3%

绿城服务是中国领先的物业管理公司，专注中至高端、位于长三角的住宅物业。我们相信

绿城是最能捕捉这方面强劲增长的上市公司。我们预计公司的核心业务及增值服务都能维

持强劲增长，预计2016年至2019E年每股盈利的年均复合增长率为24.7%。我们视公司为

板块的首选，首次覆盖并给予“买入＂评级。我们的目标价4.05港元是建基于25倍的

2017E市盈率。公司的PEG不足一倍，我们相信并不算是高位，而公司坐拥超过20亿人民

币净现金，在并购方面的潜在上升空间并未计算在内。

投资亮点

核心业务自然增长。绿城服务在管面积的增长速度一直在加快。由于公司的储备合同

面积极大，公司未来几年有望实现良好的自然增长。我们估计，每年将有约25%储备

合同建筑面积成为有效的在管面积，并开始为公司带来不俗的收入贡献。我们预计，

公司的物业服务毛利将从2016年的2.86亿元人民币增长至2019年的6亿元人民币。

快速增长的增值服务推动整体利润。公司收益的另一个主要动力，将来自快速增长的

增值服务业务。除了传统的物业管理服务，绿城服务提供两种增值服务：物业咨询服

务和社区生活服务。我们预计后者将会呈现高速增长。我们预期，由于这分部的毛利

率将维持在40％以上，因此有望将公司2017年总体毛利率推升到20.0％。我们预计社

区生活服务的毛利将从在2019年增长至6.17亿元人民币（2016年为2.11亿元人民

币）。

在长江三角洲有良好的定位。公司总部位于杭州，其收入和服务业务主要集中在经济

活跃的华东地区。截至2016年底，公司超过71％的收入及合同面积都来自长三角地

区。由于公司的业务较集中在中国较富裕地区，这使公司可收取高于同业水平的管理

费。

预期将有周详的扩张计划。即使公司过去进行多次投资，但截至2016年底公司的净现

金头寸仍达21.82亿元人民币。我们相信公司充裕的财务资源有助其进行资本操作。我

们也预期绿城服务将继续吸引强大的合作伙伴，特别是国有企业。

值得拥有溢价的行业龙头。根据我们的2017年每股盈利预测（0.14元人民

币），绿城服务目前的2017年市盈率为21.0倍。由于绿城服务有望在2017和

2018年维持盈利增长势头，加上公司深受深港通资金欢迎，我们认为25倍的

2017年市盈率仍然合理。特别是，我们的盈利预测并未计及潜在并购带来的

贡献。

有活力的行业龙头，增长前景清晰；首次覆盖并予买入评级

2017年5月17日

李嘉豪, CFA—分析员

(852) 3698 6392

tonyli@chinastock.com.hk

王志文, CFA—研究部主管

(852) 3698 6317

cmwong@chinastock.com.hk

来源: 彭博

绿城服务 [2869.HK]

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主要财务指标（百万元人民币）

1

BUY

Close: HK$3.40 (May 16, 2017)

Target Price: HK$4.05 (+19.1%)

Price Performance

Market Cap US$1,212.5m

Shares Outstanding 3,286.9m

Auditor KPMG

Free Float 38.8%

52W range HK$1.98-3.42

3M average daily T/O US$1.13m

Major Shareholding

Orchid Garden

Investment (36.72%)

Chairlady Li Hairong

(21.29%)

Sources: Company, Bloomberg

Sources: Company, CGIS Research

China Property Sector

Property Management

Key Financials (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Revenue 2,919 3,722 4,778 5,990 7,296

YoY Change 32.4% 27.5% 28.4% 25.3% 21.8%

Net Profit After Tax 198 286 401 523 651

YoY Change 32.6% 44.3% 40.3% 30.7% 24.4%

EPS (RMB) 0.10 0.12 0.14 0.19 0.23

YoY Change 32.6% 22.3% 19.2% 30.7% 24.4%

ROE 95.7% 216.2% 23.3% 25.5% 26.0%

P/E 30.6x 25.0x 21.0x 16.1x 12.9x

Dividend Yield 0.0% 1.2% 1.4% 1.9% 2.3%

Greentown Service is a leading property management company in China, focusing on mid- and high-end residential properties in the Yangtze River Delta. We believe it is the best-positioned listed company in the market to capture the fast-growing demand in its focus seg-ment. As its core business and value-added service segment are likely to maintain strong growth, we forecast that the Company’s EPS will grow at a CAGR of 24.7% from 2016 to 2019E. We view the Company as the top pick in the sector, and initiate coverage with a BUY rating. Our target price of HK$4.05 is based on 25x 2017E PER. We believe PEG of about 1x is not demanding, as the potential upside from M&A supported by its net cash of >RMB2bn is not included.

Investment Highlights

Solid Organic Growth in Core Business. The growth of contracted GFA

under Greentown Service’s management has been accelerating, and with a large reserve contracted GFA, the Company is likely to secure solid organic growth in the next few years. We estimate that in each year, around 25% of the reserve contracted GFA will become effective contracted GFA under management and start to provide meaningful revenue to Greentown Service. We project its property services gross profit to grow from RMB286m in 2016 to RMB600m in 2019E.

Fast-expanding value-added services lifting overall margins. Another key driver for

the Company's earnings will be its fast-growing value-added services segment. Other than traditional property management services, Greentown Service offers two types of value-added services: consultancy services and community living services. We expect the latter to experience high growth going forward. As we expect the segment to maintain a GPM of more than 40%, this could help lift the Company's overall GPM to 20.0% in 2017E. We forecast gross profit from community living services to grow from RMB211m in 2016 to RMB617m in 2019E.

Well-positioned in the Yangtze River Delta. As the Company is based in Hangzhou,

its revenue and services are mostly in economically vibrant eastern China. As at the end of 2016, more than 71% of the Company’s revenue, as well as contracted GFA under management, came from the Yangtze River Delta. The high concentration in the richer regions in China allows the Company to charge higher management fees than its industry peers.

Solid Expansion Plan Expected. As at the end of 2016, the Company held net cash of

RMB2,182m even after multiple investments. We believe this huge war chest will support the Company's corporate action. We also expect Greentown Service to continue to attract powerful partners, especially SOEs.

A Leader Deserves A Premium. Based on our 2017 EPS forecast of RMB0.14,

Greentown Service is currently trading at 21.0x 2017 PER. Given that Greentown Service is likely to maintain its earnings growth momentum in 2017E and 2018E, and that it is a frequently traded stock under Shenzhen-Hong Kong Stock Connect, we believe a 25x

2017E multiple target is still justified. In particular, our profit forecast does not include any contribution from potential M&A.

An Energetic Industry Leader with Visible Growth. Initiate with BUY

May 17, 2017

Tony Li, CFA—Analyst

(852) 3698 6392

tonyli@chinastock.com.hk

Wong Chi Man, CFA—Head of Research

(852) 3698 6317

cmwong@chinastock.com.hk

Source: Bloomberg

Greentown Service Group [2869.HK]

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Key financials

Sources: Company, Capital IQ, CGIS Research estimates

Revenue (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Property services 2,091 2,620 3,366 4,187 5,117

Consulting services 551 618 706 777 847

Community living services 277 484 706 1,025 1,333

Total 2,919 3,722 4,778 5,990 7,296

GP (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Property services 213 286 376 479 600

Consulting services 187 219 254 280 305

Community living services 131 211 324 472 617

Total 531 716 955 1,231 1,521

Income Statement (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Balance Sheet (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Revenue 2,919 3,722 4,778 5,990 7,296 Bank Balances and Cash 836 2,182 2,527 3,160 3,912

COGS (2,388) (3,006) (3,824) (4,758) (5,775) Restricted Bank Deposits 91 115 115 115 115

Gross Profit 531 716 955 1,231 1,521 Trade Receivables 420 547 806 1,010 1,230

SG&A (238) (285) (367) (460) (560) Inventories 2 10 6 5 6

Other Operating Items (7) (10) (15) (23) (30) Other Current Assets 28 (0) 0 (0) (0)

Operating Profit 286 421 573 749 931 Total Current Assets 1,377 2,853 3,453 4,290 5,263

Finance Costs (9) (7) - - -

Other Income 2 4 - - - PP&E 64 264 323 375 431

Net Profit Before Tax 278 419 573 749 931 Goodwill & Intangible Assets - - 2 4 6

Income Tax (76) (124) (163) (212) (264) Other Non Current Assets 201 205 221 241 263

Net Profit After Tax 198 286 401 523 651 Total Non Current Assets 265 470 546 620 700

Minority Interest (After Tax) 5 9 10 13 16 Total Assets 1,642 3,323 3,999 4,910 5,962

EPS (RMB) 0.10 0.12 0.14 0.19 0.23

DPS (RMB) 0.00 0.04 0.04 0.06 0.07 Trade Payables 847 943 1,060 1,320 1,602

Short-term Borrowings 180 - - - -

EBITDA 276 411 562 740 922 Other Current Liabilities 445 612 824 1,009 1,206

EBIT 264 397 540 712 888 Total Current Liabilities 1,472 1,555 1,884 2,328 2,807

Long-term Borrowings - - - - -

Revenue Growth 32.4% 27.5% 28.4% 25.3% 21.8% Other Non-current Liabilities 21 22 26 30 35

Operating Profit Growth 41.4% 47.5% 36.1% 30.7% 24.4% Total Non-current Liabilities 21 22 26 30 35

Net Profit Growth 32.6% 44.3% 40.3% 30.7% 24.4% Total Liabilities 1,493 1,577 1,910 2,358 2,842

EPS Growth 32.6% 22.3% 19.2% 30.7% 24.4%

Total Common Equity 115 1,692 2,016 2,453 2,989

Gross Margin 18.2% 19.2% 20.0% 20.6% 20.9% Minority Interest 17 27 37 49 65

Operating Margin 9.8% 11.3% 12.0% 12.5% 12.8% Total Equity 132 1,719 2,052 2,502 3,055

Net Profit Margin 6.8% 7.7% 8.4% 8.7% 8.9% Total Equity & Liabilities 1,625 3,296 3,963 4,861 5,897

Cash Flow Statement (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Ratios FY2015 FY2016 FY2017E FY2018E FY2019E

Net Profit After Tax 198 286 401 523 651 ROE 95.7% 216.2% 23.3% 25.5% 26.0%

D&A Add-back 13 15 22 28 34 ROA 15.2% 17.4% 12.1% 13.1% 13.3%

Net Change in Working Capital 289 169 62 224 241

Other Operating Items 11 (76) 27 45 59 Net Debt / Equity Net Cash Net Cash Net Cash Net Cash Net Cash

CFO 511 394 513 821 986 EBITDA Interest Coverage 30x 59x ∞ ∞ ∞

CAPEX (58) (84) (80) (80) (90) Rec. Turnover Days 54 62 62 62 62

Other Investing Items 189 (63) 12 13 13 Other Rec. Turnover Days 10 16 16 16 16

CFI 132 (147) (69) (67) (77) Payables Turnover Days 113 101 101 101 101

Other Payables Turnover Days 3 5 5 5 5

Dividends Paid (265) (22) (99) (120) (157)

Net Change in Debt 30 (180) - - - Current Ratio .94x 1.84x 1.83x 1.84x 1.87x

Other Financing Items (9) 1,259 - - - Quick Ratio .93x 1.83x 1.83x 1.84x 1.87x

CFF (244) 1,057 (99) (120) (157) Valuation FY2015 FY2016 FY2017E FY2018E FY2019E

Total Cash Flow 399 1,303 345 633 752 P/E 30.6x 25.0x 21.0x 16.1x 12.9x

Free Cash Flow 442 397 409 706 851 P/B 56.5x 4.8x 4.0x 3.3x 2.7x

EV / EBITDA N/A 18.0x 12.3x 8.5x 6.0x

Dividend Yield 0.0% 1.2% 1.4% 1.9% 2.3%

3

(1) Solid Organic Growth in Core Business

Greentown Service is a premium property management company in China, and

we believe it is the best-positioned listed company in the market to capture the fast-

growing demand in the mid- to high-end property services market.

The growth of contracted GFA under management by Greentown Service has

been accelerating, and with a large reserve of contracted GFA, the Company is likely

to secure solid organic growth in the next few years. As at the end of 2016, contracted

GFA under the management of Greentown Service reached 105m sq.m, generating a

CAGR of 24.3% in 2013-2016. In the meantime, reserve contracted GFA grew at a

CAGR of 31.5%, reaching 119.4m sq.m. in 2016.

We estimate that each year, about 25% of the reserve contracted GFA will become

effective contracted GFA under management and start to provide meaningful revenue

for Greentown Service. Combined with rising average monthly management fees (from

RMB2.69/sq.m in 2013 to RMB3.08/sq.m in 2016), we therefore forecast the

core segment, property services, will continue to grow robustly in 2017E and 2018E.

Investment Thesis

Strong growth in contracted GFA

under management

Source: Company, CGIS Research estimates

Figure 1: Total Contracted GFA and Reserve Contracted GFA of Greentown Service (unit:

'000 sq.m.)

Reserve contracted GFA and rising

management fees support robust

growth in its core segment

65,889

82,799

105,200

135,219

162,263

67,300

89,100

119,400 155,220

194,025

20.4%

25.7%

27.1% 28.5%

20.0%

28.2%

32.4%34.0%

30.0%

25.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

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FY2014 FY2015 FY2016 FY2017E FY2018E

Contracted GFA under Management Reserve contracted GFA of undelivered properties in pipeline

YoY Growth - Contracted GFA (RHS) YoY Growth - Reserve Contracted GFA (RHS)

4

Revenue for the segment is expected to grow 28.5% in 2017E and 24.4% in 2018E,

reaching RMB3,366m in 2017E and RMB4,187m in 2018E.

Source: Company, CGIS Research estimates

2.69

2.943.06 3.08 3.08

3.193.31

3.42

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1.1

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2.1

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FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E

Average Monthly Management Fee per sq.m

Figure 2: Average Monthly Management Fee per sq.m Charged by Greentown Service

(Unit: RMB)

Source: Company, CGIS Research estimates

Figure 3: Revenue by Segment (Unit: RMB m)

1,224 1,624 2,091

2,620 3,366

4,187 5,117

6,140

330 439

551 618

706

777

847

914

117

142 277

484

706

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1,624

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2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E

Property services Consulting services Community living services

5

(2) Fast-expanding value-added services lifting overall

margins

Another key driver of the Company's earnings will be its fast-growing value-added

services segment. Other than traditional property management services,

Greentown Service offers two types of value-added services: consultancy services and

community living services. We expect the latter to experience high growth going

forward. As we expect the segment to maintain a GPM of more than 40%, this could

help lift the Company's overall GPM to 20.0% in 2017E.

The community living services segment comprises three categories: (1) community

products and services; (2) home living services; and (3) community space services.

To differentiate itself from its competitors and to facilitate its services, in

Sept 2014, Greentown Service strengthened this segment by launching a "smart

community" project and developing a mobile app called "Happy Greentown".

We expect revenue from "community products & services" to continue to grow robustly

in 2017E and 2018E, given the strong track record of the Company. In 2016, its

revenue grew 194% YoY to RMB308.6m, showing signs of Greentown Service reaping

the fruits of its service optimization both online and offline.

The explosive growth can also be attributed to the strong performance of Greentown

property agency. This division handles property sales and rentals. The

hot property market aided the division in recording strong revenue gains in 2016.

Although the property market has been tightened in various key cities by the

government since late 2016, we expect the softness of this division to be offset by

other services in 2017E.

Value-added services should help

lift the overall GPM to 20.0% in

2017E

Figure 4: Categories of Community Living Services

Source: Company, CGIS Research

“Community products & services”

recorded 194% YoY revenue

growth in 2016

Community Living Services

Community Products and Services

• Life-style products and services

• Property value management services

Home Living Services

• Property repair and maintenance

• Housekeeping services

• Healthcare and recreation

Community Space Services

• Leasing out advertisement space

• Advertisement design, production and publication

6

With the help of its reputable business partners, the Company is expected to benefit

from a strong contribution from newly developed business services.

One of the most promising services enjoying high growth in 2017E will be education

services. Managing more than 800 communities in China, Greentown Service aims to

offer services like nursery schools and hobby classes to residents in the communities it

manages. Management is highly confident that it will be a big success, given the

surging demand for quality education to be offered in the communities. As an example

of the Company's dedication in this area, Greentown Service has secured Harvest

Montessori School, a Canadian education organization as one of its partners.

Source: Company, CGIS Research estimates

Figure 5: Breakdown of Revenue from Community Living Services (Unit: RMB m)

34 41

105

309

436

654

69 85

146 134

190

251

14 16 26 41 80

120

-

100

200

300

400

500

600

700

FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E

Community products and services Home living services

Community space services

Education services should see

strong growth in 2017E

7

(3) Easy-to-read margin expansion

The robust growth in Greentown Service's property management business can be

easily translated into earnings and understood by investors, in our view. In 2016,

97.6% of the total contract value of its property management business was booked on

a lump-sum basis, which is significantly higher than that of its peers Colour Life and

COPL, making management's efforts to enhance profitability more visible.

In fact, the gross profit margin (GPM) of the Company’s property management

business has expanded consistently over the past few years, reaching 10.9% in 2016.

The absolute level of GPM is not that high compared to other property management

companies on an apple-to-apple basis, but we note that the Company has been

focusing on cost-saving initiatives. This should help its GPM to continue to expand.

For example, Greentown Service has outsourced a substantial majority of its security

services to sub-contractors since July 2015, while continuously investing in automation

technologies to reduce labour costs.

Other segments, like consultancy services and community living services, are likely to

maintain their relatively high margins. Given their rapid expansion,

particularly in community living services, we believe the overall GPM will continue to

expand in 2017E and 2018E, reaching 20.0% and 20.6% respectively, up from 19.2%

in 2016.

Total contract value: 97.6% booked

on a lump-sum basis

Figure 6: Gross Profit by Segment (Unit: RMB m)

Source: Company, CGIS Research

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211

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100

150

200

250

300

350

FY2013 FY2014 FY2015 FY2016

Property services Consulting services Community living services

GPM for property services has

been expanding for years

8

(4) Well-positioned in Dynamic regions in Eastern China

Since it is based in Hangzhou, the main revenue and services area of Greentown

Service is the economically vibrant eastern China area. As at the end of 2016, more

than 71% of its revenue, as well as contracted GFA under management, came from the

Yangtze River Delta.

Source: Company, CGIS Research estimates

Figure 7: Gross Profit Margin by Segment

Figure 8: Revenue by Region

Source: Company, CGIS Research estimates

Revenue (Unit: RMB'000) FY2013 FY2014 FY2015 FY2016

Hangzhou (excluding Yuhang) 525,222 639,601 832,276 992,492

Yuhang 84,562 116,590 166,962 241,690

Ningbo 154,731 195,277 232,067 269,691

Yangtze River Delta (excluding Hangzhou and Ningbo) 470,329 677,325 921,104 1,165,112

Bohai Economic Rim 234,820 291,651 384,125 508,141

Pearl River Delta Business Region 69,673 104,011 132,428 193,746

Other Regions 136,788 185,851 263,267 359,570

Total 1,730,162 2,259,372 2,932,229 3,730,442

Total GFA from Eastern China 1,234,844 1,628,793 2,152,409 2,668,985

% from Eastern China 71.4% 72.1% 73.4% 71.5%

>71% revenue from the Yangtze

River Delta in 2016

5.60%8.60%

10.20% 10.90% 11.18% 11.45%

36.40% 35.90%33.90%

35.50% 35.50% 35.50%

45.80% 46.70% 47.50%

43.50%45.88% 46.08%

14.5%16.5%

18.2% 19.2% 19.9% 20.5%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E

GPM - Property services GPM - Consulting services

GPM - Community living services Overall

9

The high concentration in richer regions of China allows the Company to charge higher

management fees than its industry peers. According to the China Index Academy, the

average property management fee for Greentown’s residential properties was

RMB2.73 per sq.m./month, 32% higher than the average level in other cities surveyed

by the Academy. Although the Company has been expanding in other

regions, particularly the Bohai Economic Rim region, eastern China will still be the

focus of the Company, where it is easier for it to achieve economies of scale.

(5) An Independent Player with Progressively Fewer Ties

with Greentown China

Contrary to what some investors may think, Greentown Service is actually much more independent than many other property management companies and we note that the client concentration risk is low.

Since Greentown Service and Greentown China shared a common founding team and Greentown Service originally served as the developer’s property management company, they have had a close relationship. But as Greentown Service became more mature, Company management decided to run the business more independently and secure more business from third-party developers.

Up to 2015, less than 22% of the contracted GFA under management was built by Greentown China. This ratio should continue to go down as a higher proportion of projects are secured from third-party developers.

Source: Company, CGIS Research estimates

Figure 9: Contracted GFA under Management by Region

Unit: '000 sq.m FY2013 FY2014 FY2015 FY2016

Hangzhou (excluding Yuhang) 11,645 12,301 15,441 20,935

Yuhang 4,365 4,788 6,862 6,943

Ningbo 5,238 6,219 7,163 8,732

Yangtze River Delta (excluding Hangzhou and Ningbo) 18,468 24,719 29,248 38,924

Bohai Economic Rim 5,984 7,567 9,473 11,151

Pearl River Delta Business Region 2,327 2,552 3,975 5,786

Other Regions 6,700 7,743 10,637 12,729

Total 54,727 65,889 82,799 105,200

Total GFA from Eastern China 39,716 48,027 58,714 75,534

% from Eastern China 72.6% 72.9% 70.9% 71.8%

Unit: '000 sq.m. FY2013 FY2014 FY2015

Independent real estate developers 40,158 49,220 64,598

Greentown China 14,569 16,668 18,201

54,727 65,888 82,799

%

Independent real estate developers 73.38% 74.70% 78.02%

Greentown China 26.62% 25.30% 21.98%

Figure 10: Contracted GFA under Management by Real Estate Developers

Source: Company, CGIS Research

Greentown’s management fees are

32% higher than average

Contracted GFA in 2015:

<22% built by Greentown China

10

(6) Expansion with The Help of a Quality Brand Name and

Sound Financials

As a newly listed company in July 2016, we expect the Company’s expansion

to accelerate starting from 2017E with the help of better financials and a quality brand

name.

Better Financials: Greentown Service raised net proceeds of HK$1,472m in 12 July

2016, and 49% of the proceeds (HK$721m) will be used for acquisitions. We expect

that around HK$442m will be used to acquire property management companies, while

HK$280m will be used to acquire companies related to value-added services.

In fact, the fundamentals could allow the Company to afford multiple acquisitions going

forward. As at the end of 2016, the Company held net cash of RMB2,182m even

after multiple investments. We believe this huge war chest could support the

Company's corporate action for few years ahead with no deterioration in the financials.

Strong Brand Name: In addition to its huge cash reserves on hand, Greentown

Service is well-perceived by many property owners and business organizations, as

reflected in the annual rankings prepared by the China Index Academy. This has

helped the Company to secure business partners and increases the likelihood of the

Company’s expanding through acquisitions. We believe its status as a leading listed

property management company will help Greentown expand qualitatively.

Historically, Greentown Service has been successful in attracting state-owned property

developers as business partners and acquiring state-owned property management

companies. State-owned companies are generally more stringent in selecting bidders

and partners than privately-owned companies are to ensure sound business practices

and compliance.

HK$721m will be used for

acquisitions

Figure 11: List of Recent Acquisitions/Investments Made by Greentown Service

Source: Company, CGIS Research

Date Company Chinese Name Nature Method Stake

Dec-16 Jiangxi Gantie 江西贛鐵 State-owned Joint Venture 51%

Jilin Tianshun 吉林天順 Privately-owned Acquisition 70%

Oct-16 Zhejiang Yinrun 浙江銀潤 Privately-owned Acquisition 60%

Anhui Shengan 安徽盛安 Privately-owned Acquisition 49%

Sep-16 Chongqing Liangjiang 重慶兩江 State-owned Joint Venture 51%

Haining Hongxiang 海寧鴻翔 Privately-owned Joint Venture 60%

Aug-16 Zheyuan Property Management 浙元物業管理 State-owned Acquisition 40%

Xiangtan Chengfa 湘潭市城發 State-owned Joint Venture 51%

Jan-16 Jinan High-tech 濟南高新 State-owned Associates 51%

...funded by RMB2.2bn net cash

Greentown Service is favoured by

SOEs

11

We expect Greentown to continue to attract powerful partners, allowing its contracted

GFA under management to expand more efficiently. A prominent example would be the

strategic cooperation with Zhongchu Real Estate, a central SOE and a subsidiary of

CMST Development [600787.CH]. This strategic cooperation would strengthen its

business in the Bohai region.

Financials

Earnings Should Remained Exciting in 2017E

We estimate that the Company’s financial performance will remain solid in 2017E, as it

has a solid project pipeline on hand. Revenue is expected to grow 28.4% YoY and

25.3% YoY in 2017E and 2018E, respectively, while net profit should grow at a faster

rate of 39.3% YoY in 2017E and then revert to 24.6% YoY in 2018E. Therefore, we

forecast that the net profit margin for Greentown Service will improve from 7.7% in

2016 to 8.4% in 2017E.

The main reasons for the expected margin improvement in 2017E are (1) that finance

costs are expected to drop to zero, as Greentown Service repaid all its bank loans

after the IPO; and (2) that no listing expenses will be incurred go forward. In 2016,

listing expenses were RMB25m, or around 6.13% of EBIT.

Despite the impressive net profit growth of 37.1% in 2017E, we expect EPS growth to

be limited to 19.2% YoY in 2017E, as the weighted average number of shares for

calculating EPS will be bumped up in 2017E. EPS growth will resume in 2018E and

forward (30.7% in 2018E).

Cash Rich, Stable Dividend Policy Expected

The Company is cash rich, and we expect the net cash position to be maintained even

after several acquisitions in the near term. Cash flow generated from

operating activities is expected to be maintained at a high level of RMB513m in 2017E

and higher going forward as the scale of business grows. We also expect the Compa-

ny to have no need to finance acquisitions with debt.

Greentown Service stated in its IPO prospectus that the dividend payout ratio would be

not lower than 25%, and the actual payout ratio in 2016 was 29.4%. Given the strong

cash flow, we do not see any problem for the Company to maintain a 30% payout ratio

going forward.

We expect net profit growth of

39.3% in 2017E

...although there are exceptional

items

The payout ratio is likely to remain

at 30%

12

Based on our 2017 EPS forecast of RMB0.14, Greentown Service is currently trading

at 21.0x 2017 PER. Given that Greentown Service is likely to maintain its earnings

growth momentum in 2017E and 2018E, and that the Company is a frequently traded

stock under Shenzhen-Hong Kong Stock Connect, we believe the 25x 2017E multiple

target is justifiable. Our corresponding target price is HK$4.05. We initiate with a BUY

rating.

Our valuation for Greentown Service using 2017E PER multiples is the highest of the

three leading listed companies in the sector, but we believe this is justified for several

reasons: (1) better fundamentals in the near term, as we expect 40.3% YoY growth in

net profit in 2017E and 30.7% EPS growth in 2018E; (2) better transparency in

operations data and disclosure; and (3) better trading volume and liquidity. In fact,

Greentown Service has been one of the mostly popular stocks with Southbound

investors since the launch of SZ-HK Stock Connect in March 2017.

Valuation

2.00

2.20

2.40

2.60

2.80

3.00

3.20

3.40

3.60

11

/7/2

01

6

18

/10/2

016

25

/1/2

01

7

4/5

/2017

HKD

20x

19x

18x

17x

16x

Source: Bloomberg, CGIS Research

Figure 12: PER Band

13

Uncertainty about the New Business Model

Although Greentown Service started developing its O2O platform in 2014 and will

launch more services in 2017, it may take longer than expected for new business to

kick in. Greentown Service is also not a first mover in launching O2O platforms and

various services, so it may not capture the first-mover advantage in securing exclusive

business partners, as an example.

Lower Revenue Growth outside the Yangtze River Delta

Greentown Service is dedicating more resources to regions outside the Yangtze River

Delta, particularly in the Bohai Rim Region. However, the management fees charged in

this region are lower than those in the Yangtze River Delta and may pose a risk to the

Company's overall revenue growth and margins.

Uncertainty about Acquisitions

While the Company is holding a large pile of cash for acquisitions, the direction and

impact of potential acquisitions are uncertain, especially for companies related to value

-added services. Also, since acquiring smaller property management companies is

getting more expensive, it may take longer than expected to fulfill its acquisition target.

Investment Risks

14

Company Background & Shareholding Structure The history of Greentown Service can be traced back to October 1998, when its first operating subsidiary, Greentown Property Management, was established to provide property management services to Greentown China [3900.HK].

Mr. Song Weiping, the Company’s founder and one of the controlling shareholders, was Chairman of Greentown China from January 1995 to March 2015, and has been Co-Chairman from March 2015 to the present.

Figure 13 shows the shareholding structure. In short, as of 31 December 2016, Greentown Service can be said to be mainly owned by the founders of Greentown China (36.72%), the Chairlady of the Company (20.26%) and senior management (10.8%).

Greentown Service also introduced three cornerstone investors during its IPO: Greentown China (5%), China Orient Asset Management (4.3%), and Zhejiang Silicon Paradise Asset Management (3.5%).

Appendix

Li Hairong 李海榮

(Chairlady)20%

Senior Management

11%

Public Investors19%Cornerstone

Investors13%

Orchid Garden Investment

37%

Shou Bainian 壽柏年

40%

Song Weiping 宋衛平

39%

Xia Yibo 夏一波

21%

Figure 13: Shareholding Structure of Greentown Service (Left) and

Orchid Garden Investment (Right), as of 31 December 2016

Source: Company, CGIS Research

15

Selected Executives and Senior Management

Ms. Li Hairong (李海榮), has been the Chairlady and an Executive Director since No-

vember 27, 2015. From June 1997 to September 1998, Ms. Li held various positions in

Greentown Property Group Co., Ltd. (綠城房地產集團有限公司), including Vice General

Manager, Executive Vice General Manager and Executive General Manager. She

joined Greentown Service in October 1998 and has been responsible for the

development strategy and strategic planning of the Company, as well as for making

decisions related to material operational matters. Ms. Li has been the Chairlady of

Greentown Property Management since October 1998, and was also its General

Manager from October 1998 to February 2011, where she was responsible primarily for

overall management and daily operations. She also served as Executive General

Manager of Greentown Holdings from January 2006 to October 2015.

Mr. Yang Zhangfa (楊掌法). Mr. Yang, aged 44, has been an Executive Director and

the CEO since November 27, 2015. He is responsible for the overall business

operations and daily management of Greentown Service, making decisions for material

operational matters, participating in Board decisions, and implementing the resolutions

of the Board. Mr. Yang joined Greentown Service in February 2002 and has served in

various positions in Greentown Property Management. .

Mr. Wu Zhihua (吳志華). Mr Wu, aged 37, has been an Executive Director and the

Chief Operating Officer since November 27, 2015. He is responsible for management work relating to the overall operations of Greentown Service and for management of Administration and Human Resources. Before joining the Company, Mr. Wu worked in

Zhejiang Guesthouse Co., Ltd. (浙江賓館有限公司) from July 2002 to June 2003. Mr.

Wu joined Greentown Service in June 2003.

Mr. Ho, Kenneth Kai Chung (何啟忠). Mr Ho, aged 50, has been the Chief Financial

Officer of the Company since August 4, 2015 and a Joint Company Secretary since November 27, 2015. He is responsible for Finance and Accounting, and for company secretarial matters of Greentown Service. Before joining Greentown Service in August 2015, Mr. Ho worked in various financial institutes. He has been a Director of Guoqin

Greentown (Beijing) Asset Management Co., Ltd. (國 勤 綠 城 （ 北 京 ）

資產管理有限公司), one of the Company’s subsidiaries, since September 2015.

Appendix

Executive Director & Chairlady

Executive Director & CEO

Executive Director & COO

CFO

6

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