Poly Property Services’ (PPS) 2024 revenue grew 8.5% YoY to RMB16.3bn, in line with our estimation. Revenue from basic property management increased by 15% YoY, in line with our estimation, pointing to continued healthy growth for the core business. Community VAS and non-community VAS revenues declined by 6.4% YoY and 3.9% YoY, respectively, also largely in line with our estimation. Gross margin narrowed by 1.3ppts to 18.3%, 0.6ppt below our estimation, with non-community VAS gross margin recording the largest decline by 2.7ppts. Basic property management gross margin only edged down by 0.3ppt. SG&A as % of revenue reduced by 1.3ppts, 1.1ppts better than our estimation. Net profit grew by 6.8% YoY to RMB1.47bn, in line with our estimation and 2.6% below market consensus. OCF was 1.5x net profit. Dividend payout ratio reached 50%, 10ppts higher than 2023 and what we and the market estimated. Management guided for gradual increase in payout ratio ahead, as they see some M&A opportunities arise with normalising valuation. We cut our TP by 11.7% considering slower growth ahead. We like PPS’ decent core business growth, stable margin, decent cash flow, and unique competitiveness in the non-residential segment. Maintain BUY rating.
Key Factors for Rating
New annualised contract value from third parties amounted to RMB3.005bn in 2024, higher than 2023’s RMB2.97bn, making PPS one of the very few names without a decline in third-party expansion in 2024. New contract value from commercial and offices grew by 17.9% YoY to RMB1.114bn, accounting for 37% of new contract value (2023: 32%), while that from public projects grew by 9.5% YoY to RMB1.64bn, accounting for 55% of new conatract value (2023: 50%).
Trade receivables increased by 19.5% YoY, faster than revenue growth. Overall cash collection rate declined by 1.5ppts. Residential segment is the main area with a decline of cash collection, while cash collect from commercial and public segments improved by 0.2ppt and 1.5ppts, respectively. This is a pattern that we have observed in some other leading SOEs as well, showing that high quality commercial and public projects actually are more resilient in terms of cash collection under economic uncertainty compared to residential projects. We think this benefits PPS given its unique competitiveness in the non-residential segment which would help it obtain high quality projects in these segments.
Key Risks for Rating
Competition for non-residential segment may intensify as more SOEs enter.
Valuation
We narrowed our target 2025E P/E from 17x to 15x to reflect slower growth ahead. The stock currently trades at 10.3x 2025E P/E, and offers 4.9% 2025E dividend yield, which we think is undemanding, given PPS’ stable margin, decent cash flow, and unique competitiveness in the non-residential segment.
Community VAS
Community VAS revenue declined by 3.9% YoY, partly due to PPS’ continued effort to refocus on more sustainable and competitive business lines, and partially due to asset management businesses such as property brokerage and housing decoration being affected by property market correction. Outside of asset management sub- segment, revenue from living service sub segment was actually flat. In terms of sales of good, PPS’s refocusing on certain products such as water is paying off as revenue from sales of good increased by 1.8% YoY. Self-operating housing keeping business is also seeing encouraging growth and profitability.