We estimate Poly Property Services’ (PPS) 2024E revenue to grow by 9.0% to RMB16.4bn, and its 2024E core net profit to grow by 4.8% to RMB1.46bn. We cut our 2024E revenue by 1.5% mainly due to lower estimation for community VAS revenue, affected by slower economic growth which we also expect to affect gross margin. As such, we cut our 2024E core EPS by 3.9%, and lower our TP to HK$51.71. Meanwhile, we expect basic property management revenue growth to reach the 15% target. We estimate operating cash flow (OCF) to be 1-1.5x net profit.
　　Given PPS’ decent cash flow, strong support from parent company, and unique competitiveness in non-residential segment, we maintain BUY rating for the stock.
　　Key Factors for Rating
　　While PPS’ new third-party annualised contract value in 1H24 declined from 1H23’s RMB1.39bn to RMB1.20bn, part of the reason was the delay of the bidding process of some key projects. Thanks to PPS’ successful bidding of some of these projects, we expect FY24’s new annualised contract value to reach a similar amount as 2023’s RMB29.7bn. Another reason for relatively slower third-party expansion in 1H24 was PPS’ deliberate effort to improve quality of new projects, which is a trend we expect to have continued in 2H24.
　　Similar to 1H24, we expect new contract value from key economic regions to increase from 2023’s under 70% to over 70% in FY24; we also expect project with over RMB10m annualised contract value to account for over 60% of all new projects, up from under 60% in 2023. In terms of project mix of third- party expansion, we expect just over 50% to be public, just over 10% to be residential, and the rest to be commercial and offices. We also expect continued increase of contribution from SOEs.
　　We expect FY24E OCF to be decent, at around 1-1.5x of net profit. We expect YoY growth of trade receivables to outpace revenue, which would be offset by strong prepayment from quality customers. Based on our channel check, the faster trade receivable growth mainly came from lower cash collection of individual residential customers, while cash collection rate from large public and commercial customers maintained at a similar level as 2023.
　　We estimate 2024E community VAS revenue to decline by 3.2% YoY, mainly due to subdued carpark agency sales. We also expect housekeeping and advertisement to have received some impact from economic pressure.
　　Key Risks for Rating
　　Economic pressure may continue to lead to lower cash collection rate
　　Valuation
　　Our TP at HK$51.71 is based on 17x 2025E P/E. The stock currently trades at 10.3x 2025E P/E, which we think is undemanding, given its decent cash flow, strong support from parent company, and unique competitiveness in non- residential segment.