During the past couple of years, COPH, a name with relatively less experience in third-party expansion and community VAS, has proved its capabilities in these areas. We believe COPH has delivered astonishing results in third-party expansion and VAS growth in 2023, which continues to help it achieve its 30% growth CAGR during the 14th five year plan. For 2023E, we estimate COPH’s revenue to grow by 24.1% YoY to RMB15.7bn, and estimate its gross margin and core net margin to maintain at 16% and 10.4%, respectively, similar to 2022. As such, we estimate its core net profit to grow by 24.6% YoY to RMB1,636m. We see COPH’s 8.6x 2024E P/E as attractive, and maintain BUY rating.
　　Key Factors for Rating
　　During 1H23, COPH’s newly contracted area from third party amounted to 58.18m sqm, representing 40.7% YoY growth over 1H22’s 41.35m sqm. We believe such momentum continued during 2H23, and estimate that annual new contracted area in FY23 would reach at least 100m sqm, representing at least 21% YoY growth over FY22’s 82.59m sqm, even under very conservative assumptions. Within the expected 100m sqm newly contracted GFA, we expect over 40% to be industrial parks, and around 38% to be residential projects. Within newly contracted residential GFA, we expect over 40% are existing projects, which is a similar ratio as last year. COPH has continued to show its competitiveness in the existing residential segment. In terms of GFA under management, we expect the number to increase from end-2022’s 320m sqm and end-1H23’s 363.3m sqm to over 400m sqm.
　　COPH’s VAS revenue surged 45.3% YoY in 1H23, thanks to the ramp up of engineering service under non-residential VAS, and the strong rebound of residential VAS after COVID-19. For FY23E, we estimate 43% YoY VAS revenue growth.
　　We expect account receivable growth to exceed revenue growth in FY23, mainly due to the ramp up of engineering service, which is with longer account receivable cycle. As such, we estimate 2023E operating cash flow to be lower than net profit (RMB1,636m), but still positive at RMB1,070m.
　　Key Risks for Rating
　　Non-residential VAS still expanding, may subject to risks in property market.
　　Valuation
　　Our target price at HK$10.32 is set with 17x 2024E P/E. The stock currently trades at 8.6x 2024E P/E, which we think is attractive, given 18.8% 2023-25E earnings CAGR, COPH’s visible pipeline from related party, and its continued strong performance in third-party expansion.