Investment rating is "Accumulate" with a TP of HK$13.09. We forecast A-Living’s 2022-2024F EPS to be RMB1.744/ RMB2.091/ RMB2.570. We derived our TP mainly by applying to PE, PEG and DCF valuation methodologies. Based on current market sentiment and the Company’s fundamentals, we believe A-Living’s appropriate share value should be worth HK$13.09, upside of 65.2% of the current price.
To cut business reliance further and approach market-oriented development (MOD). Contrary to market consensus, we believe that the Company can further cut business reliance on its parent and strategic partners and successfully pursue an MOD model, which implies that the downturn in real e sales will have limited impact on A-Living's business development.
Focus on industry beta (political/ policy risks) in the short run and the Company’s alpha (characteristics/ advantages) in the long run. (i) From an industry perspective, the market agrees that the valuation of the property management industry is very closely related to the PRC real estate industry but we believe it will be separated in the future. More importantly, we believe that the property management industry should gradually be separated from the real estate industry valuation mechanism, especially for leading companies with low business reliance on their parent companies; and (ii) from a company perspective, we believe that A-Living's property owners VAS growth potential was higher than market forecasts. The explicit reasons can be summarised as follows: (1) strong brand reputation; (2) market bargaining power capability of third-party expansion; and (3) exceptional cost control capability among peers.
Catalysts: (1) Further executing M&As to enrich property owners VAS segment; and (2) easing of real estate liquidity crisis.