13 Feb 2017 Securities Analysis (Equity)...2017/12/12 · properties in 88 mainland cities. The...

13 Feb 2017

Securities Analysis (Equity)

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE

Target Price HK$3.42 Up/downside +25.7% Current price HK$2.72 Samson Man, CFA (852) 3900 0853 [email protected] Huang Chengyu (852) 3761 8773 [email protected] China Property Servicing

Mkt. Cap. (HK$mn) 7,556 Avg. 3mth t/o (HK$mn) 3.71 52W High/Low (HK$) 3.28/1.99 Total Issued Shares (mn) 2,778 Source: Bloomberg

Shareholding Structure Orchid Garden 36.7% Li Hairong 20.3% Other management 10.8% Greentown China 5.0% Free float 27.2% Source: HKEx Share performance Absolute Relative 1-mth 1.5% -1.9% 3-mth -2.9% -7.0% 6-mth -9.7% -13.3% Source: Bloomberg

Price performance

Source: Bloomberg

Auditor: KPMG Web-site: www.lvchengfuwu.com

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Jul 16 Oct 16 Jan 17

HK$

Greentown Service (2869 HK)

Capture high management fee

Initiate with BUY. Greentown Service is a leading high-end residential property

management service company in China. We estimate net profit to be Rmb377mn in

2017. We select 8 property services listed companies as peers. In average, they are

trading at 16.7x 17E PE with standard deviation of 5.7x. We believe the Company

deserves to have a premium valuation due to its brand name and earnings growth.

With 22.4x 17E PE (i.e. mean + 1 standard deviation of peer group average), our

Target Price is HK$3.42. Initiate with BUY.

A premium property management company. The Company provides services in

three segments: property management services, property consulting services and

community value-added services. It differentiates itself from others by providing

residents with access to a broad products and services portfolio that addresses the

evolving day-to-day and life-style needs. “Happy Greentown” mobile application

has made significant progress since its launch. Registration users of “Happy

Greentown” mobile application had reached 251,936 in 184,273 registered

households in 494 residential communities as at Jun 2016.

High management fee. As of 30 Jun 2016, Greentown Service managed 686

properties in 88 mainland cities. The Company’s contracted GFA reached 91.4mn

sqm in 1H16, up from 82.8mn sqm 6 months ago and undelivered GFA reached

99.0mn sqm as at Jun 2016. It charged about Rmb3.06 per sqm as average monthly

property management fees for all properties in 1H16.

An industry leader with reputable brand. We believe the competitive advantage

of Greentown Service lies on its long history of industry leader experience as well

as its quality service that result in a good brand name, which can attract business

and charge a high service fee. Furthermore, the Company launched “Happy

Greentown” app in 2014 that made the Company a pioneer in “smart community”

project. Lastly, the Company focuses on standardizing property management

services to improve efficiency, service quality and overall customer satisfaction.

Robust earnings growth. We forecast contracted GFA to grow from 82.8mn sqm

in 2015 to 100mn sqm, 120mn sqm and 140mn sqm in 2016-18, respectively. We

also forecast total revenue to be Rmb3,833mn, Rmb4,890mn and Rmb6,043mn in

2016-18, respectively, representing a CAGR of 27.5%. Gross margin is expected to

have improvement due to economies of scale and we forecast gross margin to be

18.9%, 19.2% and 19.6% in 2016-18, respectively. Therefore, we project net profit

to be Rmb279mn, Rmb377mn and Rmb478mn in 2016-18, respectively.

Earnings summary (YE Dec 31) FY14A FY15A FY16E FY17E FY18E Turnover (Rmb mn) 2,205 2,919 3,833 4,890 6,043 Net Income (Rmb mn) 149 198 279 377 478 EPS (Rmb) N.A. 0.099 0.101 0.136 0.172 EPS CHG (%) N.A. N.A. 2.1 34.7 26.5 PE (x) N.A. 27.5 26.9 20.0 15.8 PB (x) N.A. 41.2 4.6 3.9 3.3 Yield (%) 0.0 4.2 0.9 1.3 1.6 ROE (%) 72.2 149.8 16.8 19.3 20.6 Net gearing (%) Net cash Net cash Net cash Net cash Net cash Source: Company, CMBIS estimates

BUY (Initiation)

mailto:[email protected]

mailto:[email protected]

13 Feb 2017

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE

Table of Contents

Company background ...................................................................................................................................... 3

The business ......................................................................................................................................................... 4

Competitive advantage ................................................................................................................................. 13

Business strategy ............................................................................................................................................ 15

SWOT Analysis ................................................................................................................................................. 18

Financial analysis ............................................................................................................................................ 19

Financial statements ...................................................................................................................................... 23

Valuation ............................................................................................................................................................. 25

Key risks .............................................................................................................................................................. 26

Appendix 1: Milestones ................................................................................................................................ 27

Appendix 2: Management profile ............................................................................................................. 29

13 Feb 2017

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Company background

Introduction

Greentown Service is a leading high-end residential property management service company

in China with a diversified service portfolio. The Company provides services in three

segments: property management services, property consulting services and community

value-added services. It differentiates itself from others by providing residents with access to

a broad products and services portfolio that addresses the evolving day-to-day and life-style

needs. Greentown Service launched “smart community” project in Sep 2014 and was

recognized as an industry leader for developing the “smart community” project. Furthermore,

“Happy Greentown” mobile application, which forms part of “smart community” project, has

made significant progress since its launch. Registration users of “Happy Greentown” mobile

application had reached 251,936 in 184,273 registered households in 494 residential

communities as at Jun 2016.

History

In Oct 1998, Greentown Property Management was established to provide property

management services to Greentown China (3900 HK, NR). Song Weiping is the founder and

one of the controlling shareholders. In Nov 2014, Greentown Service was incorporated in the

Cayman Islands and became the offshore holding company as a result of the reorganization.

After a series of acquisition and disposal of subsidiaries as well as shares transfers, the

Company prepared a Global Offering of new shares in Jun 2016. The offer price is HK$1.99

per share and the Company raised HK$1,439mn through this Global Offering on the Stock

Exchange of Hong Kong.

Shareholders structure

The Company went to public in Jun 2016. During IPO, it introduced 3 cornerstone investors,

namely: Greentown China, China Orient Asset Management and Zhejiang Silicon Paradise

Asset Management. They subscribed 138.9mn, 97.0mn and 117.0mn new shares and

represented about 5.0%, 3.5% and 4.2% of total outstanding shares.

Figure 1: Shareholders structure

Source: Company, CMBIS

20.28%

Mass Wisdom

Greentown Service(2869.HK)

Lilac International Investment

Orchid Garden Investment

Loyal Rich

36.72% 10.80%

27.2%

Osmanthus GardenInvestment

Other public shareholders

Greentown China(3900.HK)

5%

100%

Lily InternationalInvestment

ShenaLan InternationalInvestment

Pre-IPO Trustee

100%

Ms. Li Hairong Senior Management

Mr. Song Weiping

Mr. ShouBainian

Ms. Xia Yibo

100%100%100% 100% 100%

40% 39% 21%

13 Feb 2017


The business

Overview

Greentown Service is a leading high-end residential property management service provider

in the PRC with a diversified service portfolio. According to China Index Academy,

Greentown Service ranked first among property management companies in terms of

customer satisfaction among all Top Hundred Property Management Companies in 2015

Greentown Service differentiates itself from other property management service providers

by providing their residents with access to a broad products and services portfolio that

addresses the evolving everyday and life-style needs.

Currently Greentown Service’s service portfolio comprises three main segments:

1) Property management services: Greentown Service provides a range of property management services for both (i)residential communities and (ii)non-residential properties, including security, cleaning, gardening, and repair and maintenance services, which the Company refers to collectively as “standard” property management services.

2) Property consulting services: Greentown Service offers consulting services to real estate developers and local property management companies to address various needs that arise during each major stage throughout the course of property development projects, capitalizing on the Company’s brand equity and expertise.

3) Community value-added services: Greentown Service provides property owners and residents with access to an extensive array of daily necessities complemented by a wide assortment of life-style products and services through a variety of channels. Value-added services include community products and services, home living services and community space services.

Figure 2: Business model of Greentown Service

Source: Company

13 Feb 2017


Figure 3: Revenue breakdown Figure 4: Gross profit breakdown

Source: Company Source: Company

Figure 5: Gross profit margin

Source: Company

Around 90% of Greentown Service’s revenues were generated from properties located in the

three major economic zones in China, namely, the Yangtze River Delta, the Bohai Economic

Rim and the Pearl River Delta. The population density and per capita disposable income are

higher in these economic zones than in most other regions in the PRC.

Figure 6: Business in geographic presence

Source: Company Note: Discontinued operations is not included

Property management business

Greentown Service’s “standard” property management services include security, cleaning,

gardening, and repair and maintenance services. The portfolio of managed properties

comprises (i) residential communities, with a focus on high-end residential communities and

(ii) non-residential properties including office buildings, industrial parks and public facilities.

For nearly all properties Greentown Service managed, the Company charges management

fees on a lump sum basis, which are paid annually, semi-annually or quarterly over the terms

% of

contracted

GFA

% of total

revenue

% of

contracted

GFA

% of total

revenue

% of

contracted

GFA

% of total

revenue

% of

contracted GFA

% of total

revenue

Hangzhou 21.3% 30.4% 18.7% 28.3% 18.6% 28.4% 18.7% 29.1%

YuHang 8.0% 4.9% 7.3% 5.2% 8.3% 5.7% 7.6% 6.3%

Ningbo 9.6% 8.9% 9.4% 8.6% 8.7% 7.9% 8.3% 6.9%

Yangtze River Delta 33.7% 27.2% 37.5% 30.0% 35.3% 31.4% 35.6% 29.2%

Bohai Economic Rim 10.9% 13.6% 11.5% 12.9% 11.4% 13.1% 11.6% 13.6%

Pearl River Delta 4.3% 4.0% 3.9% 4.6% 4.8% 4.5% 4.7% 5.3%

Others 12.2% 7.9% 11.8% 8.2% 12.8% 9.0% 13.5% 9.6%

Total 100% 97% 100% 98% 100% 100% 100% 100%

1H20162013 2014 2015

13 Feb 2017


of property management agreements. Although preliminary property management

agreements and property management agreements require the customers to pay

management fees upfront at the beginning of each billing cycle, the Company generally

allows customers to pay the fees at any time during the billing cycle. In line with the market

practice, Greentown Service typically increases efforts to collect overdue management fees

at the end of each calendar year for management fees payable annually and at the end of

each half year or quarter for management fees payable semi-annually or quarterly,

respectively.

Contracted GFA

As of 30 Jun 2016, Greentown Service managed 686 properties across 23 provinces,

municipalities and autonomous regions, covering 88 cities in China. The Company’s

contracted GFA reached 91.4mn sqm, up from 82.8mn sqm at the end of 2015, an increase of

8.6mn sqm or 11% in 6 months period.

Figure 7: Contracted GFA

Source: Company

Figure 8: Geographic breakdown of contracted GFA

Source: Company

Revenue-bearing GFA

Greentown Service does not charge management service fees for the common areas of

managed properties. Financial position and results of operations are affected by the amount

of revenue-bearing GFA, which is generally proportional to contracted GFA under

management. Revenue-bearing GFA of the managed properties for which Greentown Service

charges management fees on a lump sum basis amounted to 42.0mn sqm, 50.1mn sqm and

63.7mn sqm as of 31 Dec 2013, 2014 and 2015, respectively, accounting for approximately

76.7%, 76.0% and 76.9% of contracted GFA of the managed properties.

Undelivered GFA

Undelivered GFA is GFA of properties that are not ready to be delivered yet, as a result of

which Greentown Service has not started collecting property management fees. The

Company’s undelivered GFA has increased to 99.0mn sqm at the end of 1H2016, up from

89.1mn sqm at the end of 2015.

Contracted

GFA

(mn sqm)

No. of

managed

properties

Contracted

GFA

(mn sqm)

No. of

managed

properties

Contracted

GFA

(mn sqm)

No. of

managed

properties

Contracted

GFA

(mn sqm)

No. of

managed

properties

Hangzhou 11.6 135 12.3 146 15.4 175 17.1 N/A

YuHang 4.4 31 4.8 34 6.9 42 6.9 N/A

Ningbo 5.2 36 6.2 44 7.2 50 7.6 N/A

Yangtze River Delta 18.5 150 24.7 189 29.2 215 32.5 N/A

Bohai Economic Rim 6.0 49 7.6 52 9.5 66 10.6 N/A

Pearl River Delta 2.3 15 2.6 17 4.0 23 4.3 N/A

Others 6.7 44 7.7 50 10.6 66 12.3 N/A

Total 54.7 460 65.9 532 82.8 637 91.4 686

2013 2014 2015 1H2016

13 Feb 2017


Figure 9: Undelivered GFA

Source: Company

Business with Greentown China

Greentown Service has developed a mature business model operating independently from

the property development businesses of Greentown China and its consolidated subsidiaries.

During 2013-2015, the percentage of contracted GFA from independent real estate

developers and property management revenue generated from independent real estate

developers continued to increase. Over 70% of contracted GFA under management and

property management revenue were contributed by independent real estate developers.

Figure 10: Contracted GFA and property management service breakdown

Source: Company Note*: Includes the GFA under the property management agreements entered into with property owners’ associations of the properties developed by Greentown China.

Pricing of property management service fee

Nearly all properties Greentown Service managed are charged under lump sum basis, and

average property management fees for all properties amounted to approximately Rmb2.69

per sqm/month, Rmb2.94 per sqm/month, Rmb3.06 per sqm/month, Rmb3.06 per

sqm/month in 2013, 2014, 2015and 1H2016 respectively.

A property management agreement typically has a fixed term ranging from one to three

years. Greentown Service may negotiate with property owners to raise the property

management fees when renewing expiring property management service agreements to

maintain profit margin in response to enhancements in the standard or scope of property

management services or increases in costs. In 2013, 2014 and 2015, Greentown Service’s

renewal rates with respect to property management agreements were 95.6%, 98.9% and

96.9%, respectively.

Figure 11: Pricing basis

Source: Company

% of

Contracted

GFA

% of property

management

service

revenue

% of

Contracted

GFA

% of property

management

service

revenue

% of

Contracted GFA

% of property

management

service

revenue

Independent real estate developers 73.4% 71.2% 74.7% 72.1% 78.0% 74.7%Greentown China 26.6% 28.8% 25.3% 27.9% 22.0% 25.3%

Total 100% 100% 100% 100% 100% 100%

2013 2014 2015

% of

property

management

revenue

% of

contracted

GFA

% of

property

management

revenue

% of

contracted

GFA

% of

property

management

revenue

% of

contracted

GFA

% of property

management

revenue

% of

contracted

GFA

Lump sum basis 99.8% 98.4% 99.9% 97.8% 99.9% 98.2% 99.9% 98.1%

Commission basis 0.2% 1.6% 0.1% 2.2% 0.1% 1.8% 0.1% 1.9%

Total 100% 100% 100% 100% 100% 100% 100% 100%

2013 2014 2015 1H2016

13 Feb 2017


Figure 12: Average property management service fee

Source: Company

Revenue from property management service

Greentown Service generates most of its revenue from property management service.

Revenue from property management services amounted to Rmb1,224mm, Rmb1,624mn,

and Rmb2,091mn in 2013-15, respectively, representing a CAGR of 30.7% during 2013-2015.

Revenue generated from residential communities accounted for72.5% in 2013 and increased

to 74.7% in 2015. In 1H16, revenue generated from residential communities accounted for

82%, 4.7ppt increase yoy.

Gross profit margin improved from 5.6% in 2013 to 10.2% in 2015. In 1H16, revenue

generated from property management service amounted to Rmb1178mn, up 29.4% yoy, and

gross profit margin improved 0.7ppt yoy to 10.4%.

Figure 13: Revenue breakdown for property management service

Source: Company

Figure 14: Gross margin for property management service

Source: Company

New Engagements

Greentown Service actively seeks opportunities for new property management engagements

in geographic markets with relatively dense populations and strong spending power, such as

cities located in the Yangtze River Delta or Bohai Economic Rim. The Company also expands

into new geographic markets such as cities located in the Pearl River Delta. Once the

Company has established a presence in a new geographic market, it expects to grow its

penetration rate in the market by increasing contracted GFA and number of managed

properties within the market.

In 2013-15, Greentown Service’s bidding success rate, which is calculated as the number of

public biddings won in a relevant year divided by the total number of public biddings in

which the Company participated in the same year, was approximately 83.1%, 76.8% and

13 Feb 2017


85.4%, respectively. Also Greentown Service has won all of the public biddings with respect

to projects developed by Greentown China.

In addition to public bidding, Greentown Service is also open to selectively acquiring regional

property management companies with attractive property management portfolios for a

reasonable consideration. The Company believes acquisition is an efficient manner to grow

property management portfolio, especially in new geographic markets. On 4 Aug 2016,

Greentown Service announced it has completed its acquisition of 40% equity interest in

Zhejiang Zheyuan Property Management Co., Ltd. (浙江浙元物業管理有限公司) which is

principally engaged in property management, housing agency services, hotel management,

exhibition services, housekeeping services and sales of general merchandise.

Property consulting services

Greentown Service offers a wide range of property consulting services to address the issues

arising during each major stage of a property development project. Consulting service

segment operates mainly in two sub-segments:

1) Property under construction services, which comprise display unit management services and construction site security services; and

2) Management consulting services, which comprise property development consulting services provided during the project development stages, and property management consulting services after the delivery of properties

Figure 15: Revenue for property consulting services

Source: Company

Figure 16: Gross profit breakdown for property consulting services

Source: Company

Figure 17: Gross margin for property consulting services

Source: Company

13 Feb 2017


Property under construction services

During the construction period of property development, Greentown Service provides

security services at construction sites and charges a fixed fee. When real estate developers

set up display units, Greentown Service deploys staff to display units and offers cleaning,

security and maintenance services for a fixed service fee.

Figure 18: Number of projects - Property under construction

Source: Company

Management consulting services

Management consulting services are a cooperation model in which Greentown Service helps

real estate developers and management companies achieve growth by replicating Greentown

Service’s management philosophy and successful operation models and implementing

standardized processes in clients’ businesses. Management consulting services include

Property Development Consulting Services during project development period and Property

Management Consulting Services after the property is delivered.

Property Development Consulting Services: Property development consulting services

primarily comprise project planning advisory services, design management consulting

services, construction management consulting services and marketing management

consulting services. Offering property development consulting services to real estate

developers enables Greentown Service to gain early access to property development projects

and establish business relationships with real estate developers and provides the Company

with a competitive advantage in competing against other property management service

providers for new property management engagements.

Property Management Consulting Services: Greentown Service dispatches an on-site team of

four to five advisors, comprising managerial as well as technical personnel, to each of the

properties managed by the clients to oversee its daily operations. The team then implements

Greentown Service’s management systems and philosophies into clients’ day-to-day

operations and eventually upgrades their service quality.

Figure 19: Number of projects - Management consulting

Source: Company

Greentown Alliance Program

In 2H2016, Greentown Service launched “Greentown Alliance” (綠城聯盟) program to

enhance services among real estate developers and local property management companies

that are exiting customers of the Company’s property management consulting services.

Before the program is launched, only the residents of Greentown Service managed

communities are eligible to use “Happy Greentown” (幸福綠城) mobile application. The

“Happy Greentown” APP enables residents to access the various benefits, such as browsing

and purchasing certain community products and services online. But now by joining the

Greentown Alliance Programme, residents and owners of the projects managed by property

companies in the alliance will also gain access to the “Happy Greentown” APP and other

smart service facilities, while Greentown Service can charge a management fee or add to the

existing consulting fee that are being charged.

2013 2014 2015 1H2016

Number of projects of the period 199 227 212 300

Average revenue per project (Rmb mn) 1.4 1.7 2.2 N/A

2013 2014 2015 1H2016

Number of projects of the period 167 180 170 172

Average revenue per project (Rmb mn) 0.31 0.34 0.44 N/A

13 Feb 2017


Community value-added services

In 2007, Greentown Service started conducting research in preparation of the launch of

“smart community” project when the Company originated the concept of a “community-

based life service system,” which is an earlier model of community value-added services. In

2009, Greentown Service launched community value-added services when it started

providing residents with certain home living services, such as property repair and

maintenance and housekeeping services. In Sep 2014, the Company launched “Happy

Greentown” mobile application as part of “smart community” project in selected residential

communities. Today Greentown Service’s community value-added services comprise three

sub-segments: 1) community products and services, 2) home living services, and 3)

community space services.

Figure 20: Business breakdown for community value-added services

Source: Company

Figure 21: Revenue breakdown for community value-added services

Source: Company

Figure 22: Gross Profit breakdown for community value-added services

Source: Company

Figure 23: Gross profit margin for community value-added services

Source: Company

Community products and services

Community products and services include life-style products and services and property value

management services.

Life-style products and services: Greentown Service generally offers a wide range of products

and services to residents including groceries, turnkey furnishing services, transport services,

and cultural and educational services. Residents can access to these products and services

through property management offices, service hotline or “Happy Greentown” mobile

application. The company generates revenue by direct sale of products and services, or

collecting commission from third party merchants enrolled in smart community network.

13 Feb 2017


Property Value Management Services: Greentown Service has commenced housing leaseback

program since Aug 2014. The Company assists the owners of vacant units in managed

communities by finding tenants. In some cases, Greentown Service acts as the owners’ agent

in leasing the units to tenants and charges a commission. In all other cases, the Company

leases the units from the owners and subleases the units to tenants. To further extract the

business opportunity of property rental, Greentown Service set up a JV with UoKo.com, a

Chinese online apartment rental site, in Sep 2015 by holding 40% equity interest. The

Company expects to capitalize on UoKo’s experience in property rental and maximize the

commercial value of the vacant units for the property owners and create an additional

revenue stream for the Company.

Greentown Service also offers sales agency services for primary real estate transactions and

brokerage services for secondary real estate transactions through its subsidiary Greentown

Housing Replacement (綠城置換). At the end of 2016, the number of Greentown Housing

Replacement stores has reached 70.

Home living services

House living services include property repair and maintenance, housekeeping services, and

healthcare and recreation. All home living services are offered and sold offline.

Community space services

Common areas belong to the properties’ owners or developers. Greentown Service assists

the owners and developers in leasing out the advertisement spaces and charges a

management fee. The Company also provides advertisement design, production and

publication services to customers.

Happy Greentown mobile APP

In Sep 2014, Greentown Service launched the mobile application “Happy Greentown” to

selected communities the Company managed. This is the platform that connects property

management services, community value-added services and other products and services

offering with residents. The Company believes through the increased usage of the

application, it would enhance the interaction with residents, extend service offering, and

more importantly lift the operating efficiency by reducing manpower in the process through

direct, internet linkage. Customers can purchase services and products through “Happy

Greentown”, and hence improve the revenue generated from value-added service.

Figure 24: Display of Happy Greentown APP

Source: Apple Store

13 Feb 2017


Competitive advantage

A property management company with reputable brand

“Greentown Service” brand is an industry-leading brand in high-end property management

service industry. According to China Index Academy, Greentown Service ranked first among

property management companies in terms of customer satisfaction among all Top Hundred

Property Management Companies in 2015. In fact, customers seek the Company’s services

not only because of the brand reputation, but because of its top quality services. We believe

top quality services would promote Greentown Service’s brand name that would expand its

business. Furthermore, top quality services and reputable brand help the Company maintain

a high renewal rate. Generally speaking, management contract is proposed two months

before its expiration. In 2013-15, renewal rate of existing property management agreement

reached 95.6%, 98.9% and 96.9%, respectively.

The industry-leading brand and reputation for providing premium, high-quality services

allow Greentown Service to charge premium prices. The average monthly property

management fee for Greentown Service’s residential properties was Rmb2.63 per sqm and

Rmb 2.73 per sqm in 2014 and 2015, respectively. Compared with the survey conducted by

China Index Academy, the average monthly property management fee for residential

properties in the surveyed cities was Rmb2.06 per sqm and Rmb 2.07 per sqm in 2014 and

2015, respectively. In other words, management fee of Greentown Service received was

about 27.7% and 31.9% higher than the average in 2014 and 2015, respectively.

Industry-leading scale developed over 18-year history

Being one of the first property management services providers in China, Greentown Service

established its first operating subsidiary providing property management services in 1998 in

Hangzhou. Its property management services have achieved industry-leading scale after 18

years of steady growth. The Company ranked third in terms of scale of operations among the

Top Hundred Property Management Companies in 2015. The industry leading position is

demonstrated by the portfolio size and geographic breadth of the managed properties.

As of 30 Jun 2016, Greentown Service managed 686 properties across 23 provinces,

municipalities and autonomous regions, covering 88 cities in China. The Company’s

contracted GFA reached 91.4mn sqm, up from 82.8mn sqm at the end of 2015, an increase of

8.6mn sqm or 11% in 6 months period. The Company’s undelivered GFA has increased to

99.0mn sqm at the end of 1H2016, up from 89.1mn sqm at the end of 2015. According to

China Index Academy in 2015, the Top Hundred Property Management Companies in China

on average managed about 154 delivered properties with a total GFA of 23.6mn sqm As a

result, Greentown Service’s portfolio size would enable the Company enjoy economies of

scale effect.

A first mover in “Happy Greentown” mobile application

Greentown Services was among the first to embrace the idea of a “smart community” when it

originated the concept of a “community-based life service system” in 2007. “Smart

community” provides residents with services that are more convenient, efficient and cost-

effective using internet and digital technologies play a vital part. “Smart community” project

has expanded offering of community value-added services and increased efficiency in

providing services and reduced reliance on labour by utilizing smart technologies at its

managed communities. The Company is the only property management company among the

19 companies designated by the Ministry of Housing and Urban-Rural Development of PRC

(MOHURD) to operate the national “smart community” pilot program. It also applied to

13 Feb 2017


MOHURD for a research project to draft standards for “smart community” operations and

related services and received approval from MOHURD for this research project. This

initiative demonstrates its leadership status in the PRC property management industry in

developing smart communities.

In Sep 2014, Greentown Services launched “smart community” project in selected residential

communities making it one of the early pioneers that provide “smart community” services.

This transforms the Company from a provider of standard property management services to

a community products and services provider offering everyday and life-style services. The

offering of community products and services has enabled the Company to increase its

engagement level with property owners and residents and diversify the spending channels of

property owners and residents.

Standardized operations incorporating IT design to increase scalability

and profitability

Greentown Services focuses on streamlining and standardizing property management

services to improve operational efficiency, service quality and overall customer satisfaction

while allowing flexibility to respond to local market demands to create opportunities for

scalability and profit maximization. Standardization the operations allows the Company to

more effectively replicate the operations in new markets and with new customers, thereby

developing a scalable business model. The standardized processes also help ensure the

delivery of consistent premium quality services across markets and promote simpler, faster

and standardized interactions with customers, thereby enhancing customer satisfaction and

loyalty as well as market awareness of “Greentown Service” brand.

The Company utilizes advanced and optimized information technology in the operations to

improve efficiency in providing services, reduce reliance on labour and expand the scope of

service offerings, all of which directly help maximize the profitability. For example, the

Company replaced traditional package receiving services with self-developed “smart

package receipt and delivery system”, which reduced time-consuming and labour-intensive,

often paper-based, processes associated with recording, managing the storage and ensuring

the safekeeping of packages. As a result, operating costs can be reduced.

13 Feb 2017


Business strategy

Focus on high-end property management market

Greentown Service will continue to focus on high-end residential properties in geographic

markets with relatively high population densities and consumer spending power. The

Company will take the following measures to expand operating scale:

1) Increase penetration in existing geographic markets. Greentown Service will expand

its market penetration in existing markets, especially cities in the Yangtze River Delta

and Bohai Economic Rim, by increasing contracted GFA under management and the

number of managed properties through i) organic growth; ii) acquiring regional

property management companies; iii) cooperating and/or forming project companies

with real estate developers and iv) entering into strategic cooperation agreements with

selected real estate developers.

2) Expand into new geographic markets. Greentown Service will expand into new

geographic markets, such as the first-and second-tier cities in the Pearl River Delta, by

acquiring majority or minority equity interests in existing property management

companies or setting up subsidiaries.

3) Raise property management fee rates. The Company wishes to seek raises in property

management fee rates to improve profit margin.

4) Upgrade Management Consulting Services to “Greentown Alliance” Services.

Greentown Service plans to launch “Greentown Alliance” program to address what it

believes is growing demand for enhanced services among developers and local property

management companies that are existing customers of its property management

consulting services.

Strengthen the promotion of “smart community” project

The Company deploys “smart community” project at all its managed residential communities.

Leveraging information technology, Greentown Service expects “smart community” project

to facilitate the interaction among property owners and residents of its managed properties,

improve operational efficiency and customers’ satisfaction rates. The Company wishes the

technology tools of “smart community” project to serve as an information platform enabling

it to analyze the data collected from users. By building a “smart community” that integrates

hardward and software, Greentown Service plans to develop a platform comprising

community services, social networking and e-commerce and ultimately create an ecosystem

for property owners, residents and property management service providers to interact

efficiently.

The Company will adopt the following steps to expand and develop “smart community”

project:

1) Continue to expand the user base for “Happy Greentown” mobile application and

increase the users’ level of engagement. Greentown Service hopes to increase the

number of registered users for and the usage of “Happy Greentown” mobile application

by expanding the coverage of “Happy Greentown” mobile application to all its managed

residential communities and “Greentown Alliance” network, increasing the

functionalities of its mobile application and hosting a series of promotion activities to

attract more traffic.

13 Feb 2017


2) Increase the variety of community value-added services. Greentown Service plans to

build on the reliability and safety of existing service offering and consolidate resources

to expand service offering to improve user experience and convenience. It will set up

community service centers and financial service centers at all of its managed

communities and continue to develop health service centers, cultural and education

centers and recreation centers.

3) Implement “smart property management” platform and “smart hardware

management” platform. Greentown Service’s “smart property management” platform

and “smart hardware management” platform aim to connect the smart property

management facilities and equipment at its managed properties (such as the

surveillance cameras at the entry points, reception areas, water pump room and power

distribution room). The “smart property management” and “smart hardware

management” platforms will increase the level of convenience for the residents, increase

their satisfaction level, improve service efficiency, reduce reliance on labour and lower

operating costs.

Strengthen corporate culture by providing professional human

resources support

Property management business is a human business. In order to sustain its success,

Greentown Service will continue maintaining a professional and dedicated team of

management and employees who are committed to the core values of the Company. The

following measures will be adopted.

1) Share business philosophies with its employees. To help its employees identify and

understand the core values, Greentown Service will promote interaction between

management and employees and encourage management team to share their

experiences in implementing the Company’s business philosophies with other

employees.

2) Promote employee development. Greentown Service’s employee training programs

primarily consist of new hire training, on-the-job training and training for newly

promoted employees. In particular, specialized training and post-training assessments

are provided to all employees when they join the Company, are promoted, or are

transferred to a new position. The Company also expects to continue to provide career

development opportunities to its employees and promote internally, which helps retain

key employees and future leader candidates.

3) Optimize employee remuneration system. The Company will optimize its employee

remuneration system and provide its employees with competitive remuneration. It

expects to implement a performance appraisal system and tie remuneration to the

feedback received from property owners and residents of properties.

4) Promote partnership program. It will establish a partnership program including

employee partners and management partners. In its flat management model, senior

management and employees become the Company’s partners by participating in the

performance incentive program and share award scheme. By entering into these

partnerships and sharing profits and risks with the Company, its management and

employees become engaged entrepreneurs, and show greater initiative, creativity and

enthusiasm in their work.

13 Feb 2017


Pursue strategic acquisition, investment and alliance opportunities

The Company considers to acquire or invest in regional property management companies

with attractive property management portfolios. Its industry-leading brand provides

Greentown Service with attractive opportunities to expand its contracted property portfolio

through the acquisition of and strategic investments in other property management

companies. The acquisitions will provide efficient access to new geographic markets and

support the strategy to diversify and expand the operations. The Company may pursue

strategic alliance with, investments in and potential acquisitions of companies providing

community products and services that are complementary to the Company, including

opportunities that can help promote its brand to new customers, expand service offering,

improve information technology and enhance the functionalities of “Happy Greentown”

mobile application.

13 Feb 2017


SWOT Analysis

Strengths Weaknesses

Ranked first in terms of customer

satisfaction among property

management companies in China

Focus on high-end market with premium

management fee

First mover in “Happy Greentown”

mobile application

Standardized operation to improve

efficiency

Concentration on Yangtze River

Delta

Limited flexibility in charging

property management fees

Opportunities Threats

Exploring into new geographic markets

Pursue strategic acquisition, investment

and alliance opportunities

“Smart community” project provides big

data for future business development

Raising wage

Fierce competition especially from

the peers owned by the developers

Austerity measures curbing

property market may hurt the

demand for new home purchases

in future

Source: CMBIS

13 Feb 2017


Financial analysis

Projected revenue growth at a 28% CAGR next 3 years

Revenue grew by 32.4% to Rmb2,919mn in 2015 from Rmb2,205mn in 2014 because of an

increase in the revenue from property management services segment to Rmb2,091mn in

2015 from Rmb1,624mn in 2014. The growth in property management service segment was

driven by an increase in total revenue-bearing GFA from 50.1mn sqm as at Dec 2014 to

63.7mn sqm as at Dec 2015 as well as increases in monthly management fee rates from

Rmb2.94 per sqm in 2014 to Rmb3.06 per sqm in 2015.

Given an undelivered GFA of 89.1mn sqm as at Dec 2015 and future expansion, we forecast

contracted GFA to grow to 100mn sqm, 120mn sqm and 140mn sqm in 2016-18, respectively,

representing a CAGR of 19.9% in the corresponding period. Furthermore, we project average

property management fee to grow around 3-4% in coming years. Therefore, we expect

revenue from property management service segment to be Rmb2,704mn, Rmb3,398mn and

Rmb4,138mn in 2016-18, respectively. As a result, we forecast total revenue to be

Rmb3,833mn, Rmb4,890mn and Rmb6,043mn in 2016-18, respectively, representing a

CAGR of 27.5% in the corresponding period.

Figure 25: Total revenue

Source: Company, CMBIS estimates

Figure 26: Contracted GFA


Gross margin forecast to be 18-20% in 2016-18

Gross margin improved from 16.5% in 2014 to 18.2% in 2015. Overall gross margin is

affected by the factors affecting gross profit margins for each of business segments and

fluctuations in business mix. Generally speaking, gross margin for property management

services is lower than that for property consulting services and community value-added

services because of the more labour-intensive nature of property management services.

Cost of sales for Greentown Service primarily comprises staff costs, sub-contracting costs,

common area costs, business taxes and surcharges and office expenses. Staff costs and sub-

contracting costs are two major items in Greentown Service’s cost structure. They totally

accounted for 83.0% in 2014 and 81.8% in 2015 of total cost of sales. Staff costs were mainly

affected by the number of staff and change in the average amount of compensation. Staff

costs in cost of sales slightly decreased to Rmb1,152mn in 2015 from Rmb1,181mn in 2014,

or accounted for 64.1% and 48.2% of cost of sales in 2014 and 2015, respectively. The

decline was primarily arisen from a shift of staff costs relating to security guards to sub-

contracting fees as the Company began outsourcing a substantially amount of security

function to sub-contractors starting in Jul 2015. Sub-contracting costs is the fees the

2,205

2,919

3,833

4,890

6,043

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2014 2015 2016E 2017E 2018E

(Rmb mn)

66

83

100

120

140

0

20

40

60

80

100

120

140

160

2014 2015 2016E 2017E 2018E

(mn sqm)

13 Feb 2017


Company paid for services outsourced to sub-contractors, such as common area cleaning,

landscaping, public facility maintenance and security services. Sub-contracting costs

increased to Rmb801mn in 2015 from Rmb349mn in 2014. The increases in sub-contracting

costs were primarily attributable to the increase in contracted GFA under management and

the increase in the outsourcing of functions previously performed by Greentown Service’s

staff.

Looking forward, we expect cost structure would not change much as proportion of staff

costs and sub-contracting costs aggregately account for 82-84% of cost of sales. Gross

margin is expected to have a little improvement due to economies of scale and we forecast

gross margin to be 18.9%, 19.2% and 19.6% in 2016-18, respectively.

Figure 27: Cost of sales breakdown


SG&A expenses is expected to stabilize at 8.5% next 3 years

Total SG&A expenses increased to Rmb267mn in 2015 from Rmb175mn in 2014. The

increase was mainly driven by i) an increase in staff costs to Rmb125mn in 2015 from

Rmb98mn in 2014 due to increase in administrative staff headcount; ii) an increase in office

expenses to Rmb60mn in 2015 from Rmb42mn in 2014 because of the expenses incurred in

connection with some celebration events; iii) an increase in research expenses by Rmb5.5mn

in connection with a senior living research project and iv) the increase in expenses incurred

in connection with the listing in the amount of Rmb15mn. As a result, total SGA expenses to

total revenue ratio increased to 9.2% in 2015 from 8.0% in 2014.

In 2016, we forecast there would be about Rmb15mn listing expenses. If we exclude the

listing expenses, we forecast total SGA expenses to total revenue ratio would stabilize at

8.5% in 2016-18, which is the same level as 2015.

Figure 28: SG&A expenses breakdown


2014 2015 2016E 2017E 2018E

Staff costs 1,181 1,152 1,337 1,678 2,055

Sub-contracting costs 349 801 1,213 1,560 1,933

Common area costs 101 146 187 237 291

Business taxes and surchanges 116 140 177 225 277

Office expenses 67 65 93 115 136

Othes 28 84 103 134 165

Total 1,841 2,388 3,110 3,949 4,858

Gross margin 16.5% 18.2% 18.9% 19.2% 19.6%

2014 2015 2016E 2017E 2018E

Selling and marketing expenses 1 6 8 10 12

Administrative Expenses 146 214 274 350 432

Other operating expenses 24 29 42 54 66

Listing expenses 3 18 15 0 0

Total 175 267 339 413 511

SGA expenses to total revenue 8.0% 9.2% 8.8% 8.5% 8.5%

ex-listing expenses 7.8% 8.5% 8.5% 8.5% 8.5%

13 Feb 2017


Earnings growth at a CAGR of 34% next 3 years

Net profit advanced by 32.6% from Rmb149mn in 2014 to Rmb198mn in 2015. We forecast

net profit to be Rmb279mn, Rmb377mn and Rmb478mn in 2016-18, respectively,

representing a 34.2% CAGR in the period. In addition, net profit margin is forecasted to be

7.3%, 7.7% and 7.9% in 2016-18, respectively.

Figure 29: Net profit and margin


Healthy balance sheet with net cash

As at Jun 2016, cash on hand and borrowing amounted to Rmb749mn and Rmb230mn,

respectively. Greentown Service was in net cash position at this period. The Company raised

HK$1.5bn in Jul 2016 by public listing on HK Stock Exchange. According to the Prospectus,

the proceeds will be applied to the following usages:

1. 49% for acquisitions of property management companies and companies providing

value-added services;

2. 22% for developing and promoting “smart community” project and community products

and services;

3. 19% for loan repayment; and

4. 10% for working capital and general corporate purpose

After listing, we expect Greentown Service’s balance sheet becomes stronger. The Company

completed the acquisition of 40% stake in Zhejiang Zheyuan Property Management Co Ltd.

We forecast Capex to be Rmb85mn, Rmb68mn and Rmb54mn in 2016-18, respectively. So

Capex can be financed by operating cash flow and internal resources. We expect the

Company will remain as net cash position afterwards.

5%

6%

7%

8%

9%

0

100

200

300

400

500

600

2014 2015 2016E 2017E 2018E

(Rmb mn)

Net profit (RHS) Net Margin (LHS)

13 Feb 2017


Figure 30: Operating cash flow


Figure 31: Capex


333

511 525

763

903

0

100

200

300

400

500

600

700

800

900

1,000

2014 2015 2016E 2017E 2018E

(Rmb mn)

104

58

85

68

54

0

20

40

60

80

100

120

2014 2015 2016E 2017E 2018E

(Rmb mn)

13 Feb 2017


Financial statements

Income statement


Balance sheet


YE Dec 31 (Rmb mn) FY14A FY15A FY16E FY17E FY18E

Revenue 2,204.6 2,918.6 3,833.1 4,890.3 6,042.9

Property management services 1,623.6 2,090.9 2,703.8 3,398.1 4,137.7

Property consulting services 439.4 550.8 663.9 770.9 859.4

Community value-added services 141.6 277.0 465.3 721.3 1,045.8

Cost of sales (1,841.5) (2,387.7) (3,110.1) (3,949.3) (4,857.7)

Gross profit 363.1 530.9 723.0 941.0 1,185.2

Other income and gains 12.1 20.2 20.5 13.0 7.0

Selling and marketing expenses (1.4) (5.7) (7.7) (9.8) (12.1)

Administrative Expenses (146.2) (214.4) (274.2) (349.9) (432.3)

Other operating expenses (24.3) (29.1) (42.2) (53.8) (66.5)

Listing expenses (3.4) (18.2) (14.5) - -

EBIT 199.83 283.77 404.82 540.55 681.29

Finance costs, net (1.6) (7.1) (4.2) (1.8) 0.2

Associates (0.8) 1.5 (3.5) (2.5) (1.5)

Exceptional 1.1 (0.1) - - -

Pre-tax profit 198.6 278.1 397.1 536.3 680.0

Profits tax (48.7) (75.6) (111.2) (150.2) (190.4)

Minority interests (0.7) (4.7) (6.7) (9.1) (11.5)

Net profit 149.2 197.8 279.2 377.1 478.1

Adjusted profit 152.6 216.0 293.7 377.1 478.1


Non-current assets 233.9 265.0 289.8 261.1 251.5

Property, plant and equipment 33.6 63.6 214.8 181.1 167.5

Investment properties 24.1 0.0 0.0 0.0 0.0

Interest in associates 4.2 11.9 13.0 15.0 17.0

Interest in joint ventures 1.7 3.1 8.0 10.0 12.0

Other financial assets 0.2 0.0 0.0 0.0 0.0

Deferred tax assets 47.3 55.8 54.0 55.0 55.0

Prepayments for purchase of property,plant and equipment91.5 130.5 0.0 0.0 0.0

Trade and other receivables 31.3 0.0 0.0 0.0 0.0

Current assets 1,068.4 1,376.9 3,294.6 4,062.3 4,926.4

Other financial assets 134.0 28.2 0.0 0.0 0.0

Inventories 1.7 2.0 2.0 3.0 3.0

Trade and other receivables 437.7 420.0 551.3 703.4 869.2

Restricted bank balances 57.5 90.8 200.0 240.0 250.0

Cash and cash equivalents 437.4 835.9 2,541.2 3,115.9 3,804.2

Current liabilities 1,071.0 1,472.3 1,830.4 2,269.0 2,743.8

Bank loans 100.0 180.0 180.0 180.0 180.0

Receipts in advance 250.4 338.2 459.7 577.7 703.4

Trade and other payables 625.8 847.4 1,103.5 1,401.2 1,723.5

Current taxation 71.9 88.5 63.0 80.0 100.0

Provisions 23.0 18.1 24.3 30.1 36.9

Non-current liabilities 14.0 20.7 75.7 82.4 89.9

Interest-bearing borrowings 0.0 0.0 50.0 50.0 50.0

Deferred tax liabilities 0.0 2.5 6.0 8.0 10.0

Provisions 14.0 18.2 19.7 24.4 29.9

Total net assets 217.3 148.9 1,678.2 1,972.0 2,344.1

Minority Interest 10.6 16.8 18.0 20.0 22.0

Shareholders' equity 206.7 132.1 1,660.2 1,952.0 2,322.1

13 Feb 2017


Cash flow summary


Key ratios



EBIT 199.8 283.8 404.8 540.5 681.3

Depreciation and amortization 10.8 12.6 18.8 63.6 53.7

Change in working capital 94.3 256.6 136.9 222.7 272.2

Income tax paid (30.7) (65.0) (82.5) (109.9) (147.3)

Others 58.6 22.8 47.0 46.0 43.0

Net cash from operating activities 332.8 510.8 525.0 763.0 902.9

Capex (104.0) (57.8) (85.0) (68.0) (54.4)

Associated companies (8.1) (5.3) (14.0) (21.0) (28.0)

Other (52.0) 194.7 (17.0) (13.0) (26.0)

Net cash from investing activities (164.1) 131.7 (116.0) (102.0) (108.4)

Equity raised 0.0 0.0 1,312.0 0.0 0.0

Change of Debts 60.0 80.0 50.0 0.0 0.0

Dividend paid (86.4) (265.4) (55.8) (75.4) (95.6)

Others (4.3) (58.5) (9.7) (10.9) (10.9)

Net cash from financing activities (30.7) (244.0) 1,296.4 (86.3) (106.5)

Net change in cash 138.0 398.5 1,705.5 574.6 687.9

Cash at the beginning of the year 299.4 437.4 835.9 2,541.2 3,115.9

Exchange difference 0.0 (0.1) 0.0 0.0 0.0

Cash at the end of the year 437.4 835.9 2,541.4 3,115.9 3,803.8

Pledge cash 0.0 0.0 0.0 0.0 0.0

Cash at balance sheet 437.4 835.9 2,541.4 3,115.9 3,803.8

YE Dec 31 FY14A FY15A FY16E FY17E FY18E

Sales mixed (%)

Property management services 73.6 71.6 70.5 69.5 68.5

Property consulting services 19.9 18.9 17.3 15.8 14.2

Community value-added services 6.5 9.5 12.2 14.7 17.3

Total 100.0 100.0 100.0 100.0 100.0

Profit & loss ratios (%)

Gross margin 16.5 18.2 18.9 19.2 19.6

Pre-tax margin 9.0 9.5 10.4 11.0 11.3

Net margin 6.8 6.8 7.3 7.7 7.9

Core net margin 6.9 7.4 7.7 7.7 7.9

Effective tax rate 24.5 27.2 28.0 28.0 28.0

Growth (%)

Revenue 31.9 32.4 31.3 27.6 23.6

Gross profit 49.8 46.2 36.2 30.2 25.9

EBIT 80.8 42.0 42.7 33.5 26.0

Net profit 78.2 32.6 41.1 35.1 26.8

Core profit 82.3 41.6 36.0 28.4 26.8

Balance sheet ratios

Current ratio (x) 1.0 0.9 1.8 1.8 1.8

Trade receivables turnover days 72 53 53 53 53

Trade payables turnover days 124 130 130 130 130

Inventory turnover days 0.3 0.3 0.2 0.3 0.2

Net debt to total equity ratio (%) Net cash Net cash Net cash Net cash Net cash

Returns (%)

ROE 72.2 149.8 16.8 19.3 20.6

ROA 11.5 12.0 7.8 8.7 9.2

Per share data

EPS (Rmb) - 0.099 0.101 0.136 0.172

DPS (Rmb) - 0.115 0.025 0.034 0.043

BVPS (Rmb) - 0.066 0.598 0.703 0.836

13 Feb 2017


Valuation

There are only 5 property management companies listed on HK Stock Exchange, namely

Colour Life (1778 HK, NR), China Overseas Property (2669 HK, NR), Zhang Ao (1538 HK,

BUY), Clifford Modern Living (3686 HK, NR) and the Company. However, size of Clifford

Modern Living is small and is lack of the analyst coverage. So we have 4 HK listed property

service companies, 2 listed China property agents and 3 international property management

companies into our peer group. We believe their business operation and cycle are closely

related to the property market.

In average, peers are trading at 16.7x 17E PE while standard deviation is 5.7x. We believe

Greentown Service has a higher reputation and brand name as well as a 34% CAGR of

earnings forecast. It deserves to have a premium valuation. We apply a standard deviation

plus mean of 2017 PE (i.e. 22.4x) as the benchmark for valuation multiple.

We estimate net profit of Greentown Service to be Rmb377mn in 2017 or EPS to be

Rmb0.136. With 22.4x 17E PE, our Target Price is HK$3.42. Upside potential is 25.7%.

Initiate with BUY.

Figure 32: Peer group valuation for property service sector

Source: Bloomberg

Closing Market

Price Cap PE

Company Ticker (Local Curr) (US$ mn) 2015A 2016E 2017E

COLOUR LIFE SERV 1778 HK 5.09 656 27.5 17.7 13.8

ZHONG AO HOME GR 1538 HK 1.3 133 61.1 42.7 10.6

CHINA OVERSEAS P 2669 HK 1.43 606 40.2 26.5 20.7

SHENZHEN WORLD-A 002285 CH 7.16 2,131 22.6 25.6 17.6

LEJU HOLDING-ADR LEJU US 4.08 552 19.4 52.3 28.7

JONES LANG LASAL JLL US 106.75 4,827 12.4 15.3 13.4

CBRE GROUP INC-A CBG US 31.57 10,648 21.1 13.8 13.5

SAVILLS PLC SVS LN 811 907 17.3 12.7 12.3

GREENTOWN SERVIC 2869 HK 2.72 974 N.A. 24.6 19.6

Average 27.7 25.7 16.7

Standard deviation 15.8 13.6 5.7

13 Feb 2017


Key risks

Real estate market downturn

Greentown Service generates its major revenue through property management business line

and property consulting services business line. Both business lines are highly rely on the

number of newly developed properties, the delivery of new properties and the total

contracted GFA and number of residential properties the Company manage. Business result

of the Company will be affected by the performance of real estate market in China, especially

in Yangtze River Delta and Bohai Economic Rim, where the Company has high exposure.

China is experiencing economic slowdown in the recent years. If the real estate market in

China performs poorly, there will be a material adverse effect to the Company’s business,

financial position and results of operations.

Increase in staff costs and sub-contracting costs

Staff costs take up approximately 68.2%, 64.1% and 48.2% of cost of sales for the years

ended Dec 31, 2013, 2014 and 2015, respectively. The general level of compensation in the

regions where Greentown Service operate has been increasing in recent years, resulting in

upward pressure on staff costs and the fees paid to sub-contractors. If the Company is

unable to increase the level of property management fees sufficiently to pass the increases in

staff costs or sub-contracting costs onto customers, it may have an adverse effect on the

Company’s business, financial position and results of operations.

Concentration on Yangtze River Delta

A significant portion of Greentown Service’s operations are concentrated in Yangtze River

Delta, particularly in Hangzhou. As of Dec 31, 2013, 2014 and 2015, the total contracted GFA

under management of managed properties located in Yangtze River Delta represented

approximately 72.6%, 72.9% and 70.9% of the total contracted GFA. The Company expects

that Yangtze River Delta will continue to account for a significant portion of operations in the

near future. If the Yangtze River Delta experiences any adverse economic conditions or if the

local governmental authorities adopt regulations that place additional restrictions on

Greentown Service or on the property management industry in general, it may have an

adverse effect on the Company’s business, financial position and results of operations.

Regulatory environment and measures for the PRC property

management industry

Greentown Service’s operations are affected, and are expected to continue to be affected, by

the regulatory environment and measures affecting the PRC property management industry.

The fees that property management companies may charge in connection with property

management services are strictly regulated and supervised by relevant PRC authorities. The

relevant price administration department and construction administration department of

the State Council are jointly responsible for the supervision over and administration of the

fees charged in relation to property management services, and such fees may need to follow

government guidance prices. The government-imposed limits on fees, coupled with rising

labour and other operating costs, could have a negative impact on property management

companies’ earnings. Furthermore, local governments impose restrictions on the property

management fees charged for managing the remaining unsold units which could be at a

lower rate. The regulatory environment of the PRC property management industry may not

be stable and the PRC government regulations on fees and other matters concerning

property management industry may continue to have an adverse effect on Greentown

Service’s business, financial position and results of operations.

13 Feb 2017


Appendix 1: Milestones

Year Event

Oct-98 - Greentown Property Management was established in the PRC under the name of Zhejiang Greentown Property Management Company Limited (浙江綠城物業管理

有限公司) and started providing property management services since then.

2000 - Greentown Property Management started providing property consulting services.

2003 - Greentown Property Management started expanding its business operations across the PRC, particularly major first tier cities in the Yangtze River Delta and Bohai Economic Rim.

2007 - Greentown Property Management started providing community value-added service

2011 - In November 2011, Greentown Property Management was awarded by China Index Academy the first runner-up in the "2011 Top Hundred China Property Service Enterprises" (2011 年中國物業服務百強企業) and obtained the same

award for the four subsequent consecutive years from 2012 to 2015.

2013 - In July 2013, Greentown Property Management was recognised as one of the "Top Hundred Service Industry Key Enterprises in Zhejiang Province"(浙江省服務行業

百強企業) by the Zhejiang General Chamber of Commerce and the Zhejiang

Entrepreneurs Association and was awarded with the same title for the two subsequent years of 2014 and 2015.

2014 - Greentown Service Group Co. Ltd was incorporated on 24 Nov, 2014 in the Cayman Islands.

- In Sep 2014, Greentown Service launched the "smart community" project, including the "Happy Greentown" mobile application, the "smart property management" platform and the "smart hardware management" platform.

- Greentown Property Management was awarded the"2014 China Property Service Market Leading Branding Enterprise."(2014 年中國物業服務市場地位領軍品牌企

業)

13 Feb 2017


Year Event

2015 - In June 2015, Greentown Service was granted the following awards relating to the 2015 China Top Hundred Property Management Companies by China Index Academy: (a) China Top Hundred Property Management Company with the Most Satisfied Property Owners (中國物業服務百強滿意度領先企業) (Rank No.1);

(b) China Top Hundred Property Management in Overall Strength (中國物業服務

百強企業綜合實力) (Rank No.2);

(c) 2014-2015 Top Hundred Socially Responsible Companies (2014-2015 中國物

業服務年度百強社會責任感企業)(Rank No. 3);

(d) Leading China Featured Property Services Company (中國特色物業服務領先

企業); and

(e) Enterprise with corporate social responsibility (極具社會責任企業).

- Greentown Property Management was awarded the Gold Prize for Community Management in the 2015 China Blue Chip Real Estate Rankings (2015 年中國藍籌

地產企業榜單園區管理金獎) by the Economic Observer (《經濟觀察報》)

2016 - On 11 Jul, Greentown Service was listed on HKEX (Ticker: 2869) with share price

HK$1.99 - On 15 Nov, Greentown Service was selected as a constituent stock of Morgan

Stanley Capital International (MSCI) China Small Cap Index

Source: Company

13 Feb 2017


Appendix 2: Management profile

Board of Directors

Name Age Date of joining the Company

Existing Position Date of appointment as Director

Roles & Responsibilities

Ms. Li Hairong (李海榮)

59 Oct 1998 Chairlady and executive Director

24 Nov, 2014

Responsible for presiding over the Board, for the development strategy and strategic planning of the Company as well as for making decisions for material operational matters

Mr. Yang Zhangfa (楊掌法)

44 Feb 2002

Executive Director and chief executive officer

27 Nov, 2015

Responsible for the overall business operations and daily management of the Company, making decisions for material operational matters, participating in the Board decisions and implementing the resolutions of the Board

Mr. Wu Zhihua (吳志華)

37 Jun 2003

Executive Director and chief operating officer

27 Nov, 2015

Responsible for management works relating to the overall operation of the Company as well as for management of administrations and human resources

Mr. Chen Hao (陳浩)

46 May 2015 Executive Director 27 Nov, 2015

Responsible for the management of community products and services of the Company

Mr. Shou Bainian (壽柏年)

62 Sep 2000 Executive Director 27 Nov, 2015

Responsible for providing guidance and supervision regarding the business and operation of the Company

Ms. Xia Yibo (夏一波)

53 Sep 2002 Non-executive Director

27 Nov, 2015

Responsible for providing guidance and supervision regarding the business and operation of the Company

Mr. Tian Zaiwei (田在瑋)

67 Jun 2016 Independent non-executive Director

13 Jun, 2016

Responsible for supervising and providing independent judgment to Board

Continued on the next page

13 Feb 2017



Existing Position Date of appointment as Director

Roles & Responsibilities

Mr. Poon Chiu Kwok (潘昭國)


13 Jun, 2016


Mr. Wong Ka Yi (黃嘉宜)


13 Jun, 2016


Source: Company

13 Feb 2017


Members of senior management


Existing Position Date of appointment Roles & Responsibilities

Mr. Yang Zhangfa (楊掌法)

44 Feb 2002

Executive Director and chief executive officer

27 Nov, 2015

Responsible for the overall business operations and daily management of the Company, making decisions for material operational matters, participating in the Board decisions and implementing the resolutions of the Board

Mr. Wu Zhihua (吳志華)

37 Jun 2003

Executive Director and chief operating officer

27 Nov, 2015

Responsible for management works relating to the overall operation of the Company as well as for management of administrations and human resources

Ms. Fang Minqing (方敏青)

45 Aug 2000 Chief quality officer

27 Nov, 2015

Responsible for management and control of the quality of services as well as for management of customer relationship

Mr. Yuan Weidong (原衛東)

46 Nov 2014 Chief technology officer

27 Nov, 2015

Responsible for the coordination and operation of the "smart community" project of the Company

Mr. Ho, Kenneth Kai Chung (何啓忠)

50 Aug 2015

Chief financial officer and joint company secretary

27 Nov, 2015

Responsible for finance and accounting work and company secretarial matters of the Company

Ms. Fan Li (樊琍)

39 Mar 2002 Chief marketing officer

27 Nov, 2015 Responsible for the market development of the Company

Source: Company

13 Feb 2017


Disclosures & Disclaimers

Analyst Certification The research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report.

CMBIS Ratings BUY : Stock with potential return of over 15% over next 12 months HOLD : Stock with potential return of +15% to -10% over next 12 months SELL : Stock with potential loss of over 10% over next 12 months NOT RATED : Stock is not rated by CMBIS

CMB International Securities Limited Address: Units 1803-04, 18/F, Bank of America Tower, 12 Harcourt Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800

CMB International Securities Limited (“CMBIS”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly owned subsidiary of China Merchants Bank)

Important Disclosures There are risks involved in transacting in any securities. The information contained in this report may not be suitable for the purposes of all investors. CMBIS does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial position or special requirements. Past performance has no indication of future performance, and actual events may differ materially from that which is contained in the report. The value of, and returns from, any investments are uncertain and are not guaranteed and may fluctuate as a result of their dependence on the performance of underlying assets or other variable market factors. CMBIS recommends that investors should independently evaluate particular investments and strategies, and encourages investors to consult with a professional financial advisor in order to make their own investment decisions. This report or any information contained herein, have been prepared by the CMBIS, solely for the purpose of supplying information to the clients of CMBIS and/or its affiliate(s) to whom it is distributed. This report is not and should not be construed as an offer or solicitation to buy or sell any security or any interest in securities or enter into any transaction. Neither CMBIS nor any of its affiliates, shareholders, agents, consultants, directors, officers or employees shall be liable for any loss, damage or expense whatsoever, whether direct or consequential, incurred in relying on the information contained in this report. Anyone making use of the information contained in this report does so entirely at their own risk. The information and contents contained in this report are based on the analyses and interpretations of information believed to be publicly available and reliable. CMBIS has exerted every effort in its capacity to ensure, but not to guarantee, their accuracy, completeness, timeliness or correctness. CMBIS provides the information, advices and forecasts on an "AS IS" basis. The information and contents are subject to change without notice. CMBIS may issue other publications having information and/ or conclusions different from this report. These publications reflect different assumption, point-of-view and analytical methods when compiling. CMBIS may make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. A fellow subsidiary of CMBIS has an investment banking relationship with the company referred to in this report within the preceding 12 months. As a result, recipients should be aware that CMBIS may have a conflict of interest that could affect the objectivity of this report and CMBIS will not assume any responsibility in respect thereof. This report is for the use of intended recipients only and this publication, may not be reproduced, reprinted, sold, redistributed or published in whole or in part for any purpose without prior written consent of CMBIS. Additional information on recommended securities is available upon request. For recipients of this document in the United Kingdom This report has been provided only to persons falling within Article 11(3) of the UK Financial Services Act 1986(Investment Advertisements) (Exemption) (No.2) Order 1995, and may not be provided to any other person without the prior written consent of CMBIS. For recipients of this document in the United States This report is intended for distribution in the United States to "major US institutional investors", as defined in Rule 15a-6 under the US, Securities Exchange Act of 1934, and may not be furnished to any other person in the United States. Each major US, institutional investor that receives a copy of this research report by its acceptance hereof represents and agrees that it shall not distribute or provide this research report to any other person.

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