Greentown Service Outgrew Country Garden Services in Earnings; 27% Valuation Cut for the Latter

We keep our fair value estimate for Greentown Service Group at HKD 4.20 but cut Country Garden Services’ to HKD 6.60 from HKD 9.00, given the latter’s underperformance in earnings growth for first half 2024. While GSG delivered a robust 31.0% year-on-year operating profit growth, CGS’ operating profit saw a 22.3% drop due to more headwinds in margins of property management and developer-related services. CGS’ receivable days in the first half also rose to 206 from 185 as of December 2023, but GSG’s days remained lower at 127, given its higher-quality developer clients. We raise our 2024 operating profit estimate for GSG by 12% while maintaining most of our long-term assumptions. Conversely, we cut our midcycle operating margin forecast on CGS by 180 basis points to 6.0% as we do not foresee a major turnaround in its profitability. Given the prolonged liquidity strains on most developers, we also revised our steady-state receivable days assumption on CGS up to 260 days from 240.