China Property Management Firms' Fair Value Estimates Cut by 20%-49% on Lower Forecasts

We lower our fair value estimates for Country Garden Services, or CGS, to HKD 9.00 per share from HKD 17.50, and for Greentown Service Group, or GSG, to HKD 4.20 from HKD 5.20, given a more conservative outlook for their margins and revenue growth. CGS reported an 85% net profit decline for 2023 due to compressed gross profit and a write-off on receivables. While GSG outperformed with 11% bottom-line growth, operating margin also contracted amid provisions for financial assets. Given the slower cash collection from developers, we lift our receivable days assumptions for both firms. We also cut our midcycle operating margin forecasts on CGS to 7.8% from 12.2%, and on GSG to 7.7% from 8.0% ,amid rising competition and labor cost.