Sino Ocean delivered an in-line 2020 results with core earnings up 44% YoY to RMB250mn. Looking forward, management guided two major outlooks: 1) net profits may reach RMB800mn by 2023E (40% CAGR), which we think is achievable given the strong commercial pipeline, VAS growth to kick off and stable margin. 2) Commercial operation business will be added and we estimate this may bring additional RMB95mn GP (9% of total) in 2022E. As a result, we revise up 2022E earnings slightly by 4%. The Company is currently trading at 8x 2022E PE, a huge discount to the industry average and we think it may have some rerating after the announcement of commercial operation business.
Sino-Ocean Service posted an in-line 2020 results. The core net profits (excl. interest income from connected party and one-off expenses) in 2020 came at RMB250mn (+44% YoY), in line with our and consensus estimates. Total revenue grew 11% YoY to RMB2.0bn, mainly driven by fast growth in VAS to non-prop owners (+210% YoY)。 GP Margin expanded 4.7ppt YoY to 25.3% partly due to government subsidies (+2 ppt impacts)。 As a result, Core EPS grew 46% YoY to RMB0.28/share and the Company declared RMB0.055/share dividend, which is equivalent to 20% dividend payout ratio.
40% earnings CAGR in 2020-23E looks achievable: the Company guided to achieve RMB800mn net profits by 2023E, which implies 40% CAGR. We think it is achievable as 1) the contracted GFA would exceed 100mn sq m in 2021 as the Co. targets 40mn sq m in 2021 which implies +56% YoY. 2) Strong pipeline in commercial areas may boost its contribution from 28% to 35% in 2023E; 3) VAS growth may kick off this year from a low base; 4) Stable GP margin as higher contribution from commercial and VAS would offset the impact of one-off government subsidies.
Management confirmed to add commercial operation business: despite the timing and size remaining unknown, it is still positive that management commits to inject commercial operation business into its service arm. We think the injection will be in the form of signing contracts rather than acquisitions to avoid cash expenses. If we assume 10% commission on rental, this may bring RMB147mn revenue (4% of total) and RMB95mn GP (9%) by 2022E. Given that we are positive on the retail/rental recovery, this may become a mid-to- long term driver.
Earnings change: We revise up 2022E revenue by 7.5% to reflect higher growth of commercial PM and VAS and also increase net profits by 4.0%. As a result, we lift TP by 4% to HK$7.41/share by using the 2022E PE multiple of 12x (unchanged)。 Maintain Buy rating.