Downgrade to "Neutral" with TP of HK$7.20. We forecast the Company’s 2023F-2025F EPS to be RMB1.512, RMB1.716 and RMB1.938, respectively, which represents CAGR of 14.4% during 2022-2025F. We expect A-Living to deliver stable but relatively lackluster growth in the next few years. On the other hand, we believe that market concerns on its related-party risks remain. We downgrade our investment rating to "Neutral", with TP at HK$7.20, implying 4.2x 2023F PE multiple.
　　Resilient growth in non-cyclical business. A-Living’s non-cyclical business revenue maintained resilient, with YoY growth at 21.7% in 2022. However, due to thinner margin and large impairment loss from trade receivables, A-Living’s 2022 attributable net profit recorded YoY decline of 20.3% at RMB1,840 mn. We expect A-Living’s non-cyclical business to maintain relatively stable growth of 10%-15% per year in the next few years, considering 1) its solid managed GFA growth; and 2) better growth from the 2C and 2B VAS services.
　　Concerns on related-party risks remain. We believe that A-Living’s related-party risks remain as the major market concern from the second half of last year. By end of 2022, A-Living’s short-term accounts receivables reached RMB10.4 bn, which almost doubled from that at the end of 2021. Unless we see much more improvement in its parent’s balance sheet, the overhang will not be fully removed. In addition, the change in dividend policy with no final dividend for 2022 also deepened concerns on the Company’s cash management.
　　Upside factors: 1) Improvement in profitability; 2) faster growth in property owners VAS and city services; and 3) liquidity improvement from its parent.
　　Downside risks: 1) Slower growth in GFA expansion; 2) large impairment loss from accounts receivables; and 3) labor cost hikes.