We cut our 2024E revenue by 3.7% to RMB18.6bn, representing 7.1% YoY growth, as we expect new contract value in 2024 to be less than previously targeted, and as Greentown Service (GS) continues to make strategic adjustments focusing on core sustainable and profitable community VAS businesses. Thanks to efforts by GS in the improving of efficiency, we estimate 2024E gross margin to improve by 0.3ppt to 17.1%, and SG&A as % of revenue to shrink by 0.5ppt. These are partially offset by more trade receivables impairment we estimated in order to be prudent. As a result, we estimate core net profit to grow by 9.6% YoY to RMB835m. There was an impairment loss on a business investment amounting to over RMB127m in 2023 which we excluded from core profit. Deducting this from 2023 earnings, the growth for 2024E is estimated to be 37.9% YoY. We estimate OCF to cover at least 1x net profit in 2024E, continuing to support a decent payout ratio of at least 50%. Maintain BUY rating on the stock.
　　Key Factors for Rating
　　We estimate new addition of annualised contract value in 2024 to be RMB3.5- 4.0bn, less than the RMB4bn target set at the beginning of the year. Part of the reason being intensified competition, and part of the reason is the company’s intentional move to improve project quality and concentration of projects. According to the management, they have reduced percentage of projects outside of the core cities. At the same time, for projects with less than RMB2m contract value, they would provide light asset consulting or platform service to the actual property management company. Among the newly added contract value, we estimate roughly 50% to be residential, relatively high among peers.
　　We expect 2024E operating cash flow to reach at least 1x net profit. Due to pressure from slower economic growth, the company did experience slightly slower collection on trade receivables incurred previously, which may translate to more impairment compared to 2023. However, thanks to efforts in collecting current receivables and pre-payments, we expect operating cash flow to remain similarly decent as in 2023. As a result, we also expect dividend payout ratio to maintain at 50% or above.
　　We expect no growth in community VAS segment, as the company continues to make strategic adjustments to focus on core sustainable and profitable businesses, reducing loss from segments such as education.
　　Key Risks for Rating
　　Cash collection rate may go down under economic pressure.
　　Valuation
　　We increased our target 2025E P/E from 13x to 15x, considering recent positive development in the overall property sector. The stock currently trades at 13.9x 2025E P/E, and offers 3.6% 2025E dividend yield, which we think is undemanding considering GS’ strong competitiveness in the residential segment, its cooperation with major SOE companies, and stable cash flow.