Greentown Service Group’s Decent 2021 Results Show Stable Operations Amid Heavy Sector Headwinds

No-moat Greentown Service Group, or GSG, reported decent full year 2021 results, which should illustrate continued stable operating performance and consistent growth. This is reflective of the property management services sector, which demonstrates resilience despite heavy headwinds in residential pre-sales. Revenue for 2021 of CNY 12.6 billion mirrors our estimate, growing 24% year on year. However, with slightly lower-than-expected gross margin at 18.5%, compared with our estimate of 19.4%, 2021 earnings of CNY 846 million were up 19% year on year, lower than our expectations. This is attributable to lower gross profit margin for community living services on higher costs of continuous adjustment product structure and consulting services on higher competition--which we expect to continue. On the back of net cash and ample cash holdings of CNY 4.3 billion, the company maintained total dividend of HKD 0.20 per share compared with the year before. We input lower gross margin assumptions and reduce our fair value estimate to HKD 10.50 from HKD 12.20 per share. 2021 gross floor area under management grew by 21% year on year to 304 million square meters, which underpinned the overall results. Management targets consistent growth to continue for 2022, on the back of scale growth by widening coverage and deepening density and penetration of services, while maintaining focus on quality of services.