COPH’s 2023 revenue grew by 19.7% YoY to RMB13.1bn, 7.9% and 9.9% below BOCI and market estimation. While most segments’ revenue fell short of our estimation, VAS to residents revenue surged 70.9% YoY and beat our estimation by 5.3%. However, the diversified revenue from VAS to residents narrowed the segment’s gross margin by 12.3ppts to 26.1%, 5.9ppts below our estimation. Partially offset by the expansion of property management gross margin by 1.6ppts to 15% (beating our estimation by 0.3ppt), overall gross margin remained at 15.9%, slightly lower than our estimation at 16%. Thanks to a 3.3% YoY decline in SG&A expenses, core net profit grew 22.3% YoY to RMB1.38bn, missing BOCI and market estimation by 6.3% and 7.6%, respectively. Dividend payout ratio was maintained at 30%. We cut our 2024-25E core EPS by 11.2-12.3%, given slower growth of property management and VAS to non-residents segments. We like COPH’s strong third-party expansion capability. Maintain BUY rating.
　　Key Factors for Rating
　　Third-party newly contracted area in 2023 reached 109.2m sqm, 32.8% higher than 2022. Among that, 40.6% was industrial parks, 38.8% was residential, 8.4% was commercial & offices, while the rest are mainly public projects. New GFA under management reached 81.2m sqm, 34.7% higher than 2022. Among that, 70.6% was from third-party, compared to 55.7% for 2022. Total GFA under management grew 25.4% YoY to 401.5m sqm, among which GFA from third- party accounted for 40.5%, up from 32.8% in 2022. Non-residential GFA accounted for 30.1% of total GFA under management by end-2023, up from 24.5% by end-2022.
　　Residents VAS revenue surged by 70.9% YoY to RMB1.29bn in 2023, as the company diversified the segment’s business and provided more home service and business service operations, which as a sub segment saw its revenue surged by 110.8% YoY, making COPH less reliable on property rental and sales businesses. However, as a result, residents VAS gross margin narrowed by 12.3ppts to 26.1%, and the segment’s gross profit grew by 16.1% YoY.
　　Key Risks for Rating
　　Increase in non-residents VAS business may lead to worse cash collection.
　　Valuation
　　We rolled our P/E valuation to 2025E, and lowered target P/E from 17x to 15x given slower growth. As a result, we cut our TP by 8.5% to HK$9.44. The stock currently trades at 7.3x 2025E P/E and offers 4.3% 2025E dividend yield. We think such valuation is undemanding, given COPH’s superior third-party expansion capability, and over 16% 23-25E earnings CAGR.