Solid growth driven by notable efficiency gains
GreentownService’s 1H25 net profit (NP) rose 22.6% YoY and core operating profit (=GP-SG&A) lifted 25.3% YoY, far exceeding the 15% full-year guidance set by management earlier. During the period, revenue grew 6.1% YoY, with resilient core PM biz (+10.2% YoY) driven by strong third-party expansion (especially non-residential projects). Non-owner VAS flat grew 0.6% YoY, while owner VAS dipped 6% YoY on partial business deconsolidation. The company’s efforts on optimizing project portfolio and improving efficiency led to decent margin improvement (GP/core OP margin +0.5/1.8 ppts YoY), and the trend is likely to sustain in the full year, in our view.
Basic PM delivered solid growth with margin improvement
Segment revenue increased 10% YoY, mainly driven by: 1) 11% YoY managed-GFA growth despite higher termination rate (1H25: 2.4% vs. 1H24: 1.6%); GFA of third-party projects up 12% YoY and non-residential projects up 16% YoY; 2) Avg. PM fee increased to RMB 3.21/sqm/month in 1H25 (vs. RMB 3.20 in 1H24), benefiting from continuous pulling out of low-quality projects (avg. termination rate of 4% in 2023-24) and higher fee rates for newly contracted projects. These efforts brought 0.4 ppts YoY GP margin improvement in 1H25 despite industry-wide margin pressure. We believe these factors will partially offset the negative impacts from intensifying competition and PM fee caps, supporting the margin outlook of the segment.
Improving efficiency yields strong results
The company’s ongoing efficiency initiatives delivered notable results in 1H25, with SG&A ratio declining 1.3 ppts YoY to 7.9% (from 9.2% in 1H24). This drove 25.3% YoY growth in core OP and a 1.8ppt improvement in core OP margin to 11.6%. Despite heavy impairment of receivables (+34% YoY), NP still grew 22.6% YoY, with NP margin expanding 0.8 ppts to 6.6% in 1H25.
FY25 guidance unchanged
FY25 targets: 1) core OP growth >15%; 2) double-digit basic PM revenue growth; 3) 0.5 ppts GP margin expansion; 4) annualized revenue of new contract >RMB 4.0 bn. We see pressure in new contract wins (only RMB 1.52 bn, 38% secured in 1H25), while we think core OP growth may exceed guidance by maintaining 1H25’s momentum.
Maintain BUY
We raise TP by 8% to HK$6.61 (22x 2025E P/E), reflecting earnings upgrades partially offset by lower valuation multiple. Target multiple was reduced from 25x to 22x to reflect deteriorating industry conditions (intensified competition, PM fee caps and potential mandatory social security payment). Risks: 1) weak third-party expansion; 2) greater-than-expected gross margin pressure; and 3) decline in developer-related business.
