Reset expectation

　　广联达(002410)

　　Glodon preliminary FY21 net profit beat our estimate on improving operatingleverage as SaaS migration is reaching a final stage. We expect Glodon FY21Ecosting/ construction management revenue to grow at +30%/ +25% YoY in spiteof weak property industry data. We think current valuation has not reflected thelong-term benefits brought by SaaS, including less fluctuation to propertybusiness cycle and significant free cash flow improvement. Maintain BUY.

　　FY21 net profit to beat on better operating leverage. Glodon reportedpreliminary FY21 net profit to range between RMB650-700mn (+96.7-111.9%YoY). Mid-point of net profit guidance is 18% above our prior estimate, drivenby better operating leverage as SaaS migration is reaching a final stage. Weexpect Glodon FY21 revenue/ operating profit to grow at +31%/ +76% YoYreaching RMB5,250mn/ RMB716mn respectively (OPM +3.5 pct pts to 13.6%).

　　High costing SaaS retention helps cash flow. After 5 years of SaaStransformation (since 2017), Glodon’s costing SaaS migration will completeby the end of 2022E. We like Glodon over MYC (909 HK) given 1) higher userstickiness and 2) lower exposure to property developers. Glodon SaaS ischarged based on no. of cost estimator users, vs. MYC CRM SaaS chargesbased on no. of property sales offices. Also, Glodon’s exposure to propertydevelopers is lower at 10% of costing revenue. These have resulted in a betterfree cash flow (FCF margin Glodon: 36% vs. MYC: 21% in FY20). We estimateGlodon’s FY21 costing revenue to grow at +30% YoY to RMB3.7bn.

　　Construction management business ramping up from low base. AlthoughChina real estate GFA newly started in 2021 was down by -12% YoY, weexpect Glodon’s construction management business to achieve strongrevenue growth of +25% YoY to RMB1.2bn as it ramps up from low base (TAM:RMB50bn, assuming 500k new construction projects in China annually xdigitalization input RMB100k per project). In 9M21, construction managementbusiness grew at +29% YoY.

　　Maintain BUY. We raised FY21E net profit by 20% but we kept FY22-23Eearnings largely unchanged. Glodon is trading at 1-SD below its 3-year mean.We think current valuation has not reflected the cash flow improvementbrought by SaaS. Maintain BUY with new target price of RMB80.55 (priorRMB91.72), based on lowered 15x (prior 18x) FY22E EV/sales to reflecthigher uncertainty in construction management if macro weakness persists.