We downgrade Greentown Management’s (the "Company") investment rating to "Neutral" and set TP at HK$2.80 by applying 5.0x 2024F PER. We revised down forecasts on Greentown Management's (the "Company") 2024F-2026F EPS by 14.4%/ 23.0%/ 30.9% to RMB0.526/ RMB0.595/ RMB0.657, respectively. Considering the slowdown growth, and the Company's profit and cash collection pressure in the short term, we downgrade our investment rating to "Neutral".
　　1H2024 results missed our expectations. Greentown Management disclosed a relatively disappointing 1H2024 results, with slowdown growth and squeezed margin. 1H2024 revenue and shareholders' net profit grew by 7.8% YoY and 5.8% YoY, respectively, which both were below our expectations. Gross profit margin declined by 0.5 ppts YoY to 51.5% in 1H2024, mainly due to fierce competition and lower fees in government project management. The Company declared no interim dividend for this year.
　　Slowdown of the industry growth is an overhang. The Company downsized its new contracts scale in 1H2024, which was also in line with the slowdown of the industry growth. In 1H2024, the Company's project management fee for newly-contracted projects was RMB4,190 mn, which was much lower than that of RMB5,120 mn in 1H2023 (down by 18.1% YoY). According to the China Index Academy, the total newly-contracted GFA of project management in China was 73.25 mn sq.m. in 1H2024, only up by 3.0% YoY. If excluding the consulting services or agency sales business, we believe there was a shrinkage in the scale of traditional project management in 1H2024. We expect the continuous property sales slump to pose a negative impact on the project management industry. Moreover, "changing commercial properties into social housing" should also be a drag factor on the Company's business in government project management in the short term.
　　Management reshuffle also raised market concern. Before the Company's 1H2024 results disclosure, Greentown Management announced the resignation of Mr. Li Jun (李军), who is one of the key persons and founding members of the Company. We believe this should cause market concern about the Company's future strategy and execution ability. The concern should last for a while until there is some concrete achievements reached by the new management.
　　Upside risks: 1) Quick conversion of contracted GFA into GFA under management from urban investment enterprises, AMCs and financial institutions; and 2) improvement in profitability due to recovery of property sector.
　　Downside risks: 1) Slower market growth; 2) slower GFA delivery from　distressed projects; and 3) default risk from project owners.