2021 attributable net profit expected to grow 30% YoY
　　We expect A-Living Services’ 2021 revenue to grow 39% YoY, and blended gross margin to fall about 1.5ppt YoY, as the proportion of revenue from value-added services （VAS） to non-property owners with high gross margin declined, and profit margin was under pressure. We expect the firm’s attributable net profit to grow 30% YoY, 6% lower than Bloomberg consensus.
　　Trends to watch
　　Scale expansion to be in line with development goals. We expect the firm’s new contracted GFA to reach about 140mn sqm. Specifically, M&As contributed new contracted GFA of about 58mn sqm （factoring in the consolidation of New CMIG PM and Shandong Honest Property, and disposal of Lanzhou Chengguan）。 Third-party bidding projects contributed new contracted GFA of about 70mn sqm, in line with the firm’s target set in early 2021, over 50% of which are non-residential projects. We expect the firm’s 2021 managed GFA to increase by about 100mn sqm to about 490mn sqm （up 30% YoY）， and over 35mn sqm to be converted by third-party bidding projects. We expect revenue from basic property management services to grow over 35% YoY, bolstered by the expansion of managed GFA.
　　VAS to property owners and city service projects continue to proceed. The firm enhanced its VAS to property owners such as housekeeping and child care, and it established independent departments for businesses such as brokerage services and home decoration. We expect the firm’s full-year revenue from this segment to surge by over 60% YoY. For city service projects, the firm consolidated some of the sanitation companies it acquired in early-2021 and continued to advance its organic expansion projects （the incremental annualized contract value was about Rmb220mn in 1H21）。 Overall, we expect the firm’s 2H21 revenue from city services to outperform that of 1H21 （Rmb159mn in 1H21）， with the contribution to total revenue rising to around 5%.
　　VAS to non-property owners may weigh on earnings growth. We expect the firm’s 2021 revenue from VAS to non-property owners to see only low single-digit growth YoY, lower than the firm’s growth target of 15-20% set in early-2021, as Agile, the firm’s parent company, saw its sales growth slow （Agile's 2H21 sales fell 23% YoY, 2021 full-year sales stayed largely flat YoY）。 We think the gross profit margin of this business may be under pressure. We believe that VAS to non-property owners may notably drag the firm’s overall 2021 profit growth as the gross profit of this segment accounted for about 25-30% of the firm’s total.
　　Valuation and recommendation
　　We lower our 2021 and 2022 attributable net profit forecasts 8% and 13% to Rmb2.28bn （up 30% YoY） and Rmb2.89bn （up 27% YoY） as volatility in the real estate development market weighed on the firm’s revenue and profit margin from VAS to non-property owners. We introduce 2023 earnings forecast, and expect attributable net profit to grow 25% YoY to Rmb3.60bn. We maintain an OUTPERFORM rating but cut TP 49% to HK$24.0, implying 10x 2022e P/E with 53% upside, as uncertainty over real estate development may drag the firm’s earnings. The stock is trading at 6.6x 2022e P/E and 5.3x 2023e P/E with dividend yields of 6.0% in 2022 and 7.5% in 2023.
　　Risks
　　Disappointing VAS to property owners, city services, and/or VAS to non-property owners.