L recent situation of the industry

Country Garden Services Holdings raised HK $8 billion through a rights issue. On November 18, 2021, Country Garden Services Holdings announced that 150 million new shares would be allotted at HK $53.35 per share. The total proceeds from the placing and the net proceeds (after deducting related expenses and professional fees) are estimated to be approximately HK $8.003 billion and HK $8.002 billion respectively. The placement funds are mainly used for future potential M & An investment, business writing services, business management services, urban services and life services and other new business development, refinancing and company working capital.

l This week's point of view

For Country Garden Services Holdings's placement of new shares, we are neutral and optimistic as a whole.

On the one hand, affected by the continued decline in the fundamentals of the real estate development industry and the relatively strict real estate regulatory policy, investors feel more strongly about the whole real estate plate, which is a drag. The property management plate has also been under pressure since the end of June, and the share prices of most companies in the plate are facing a serious pullback, so we think that at a time when the overall pressure on the property management plate and the valuation multiple of the property management company are at an all-time low. Country Garden Services Holdings placing new shares will not only cause greater downward pressure on his own stock price, but also have a negative impact on other companies in the industry. From the stock price trend after Country Garden Services Holdings's placement, we can also see that investors' overall understanding of this placement is negative. After all, Country Garden Services Holdings has accumulated more than HK $31 billion in nearly a year, which even exceeds the market value of most property management companies. In addition, considering that the main purpose of refinancing is to collect mergers and acquisitions, investors will also worry about the large impairment of goodwill and the risk of successful merger and acquisition integration.

However, on the other hand, the current period can indeed be called the golden period of M & An integration in the property management industry, and the core basis is mainly based on two points.

First, subject to serious liquidity pressure, the vast majority of real estate developers have varying degrees of capital demand, especially some highly leveraged private real estate enterprises, such as R & F, Evergrande, pattern year, Blu-ray, Kaisa, etc., so at this time, these real estate enterprises have an urgent need to dispose of their assets in order to recover funds, and property management companies are rare high-quality assets of real estate enterprises. Being sold at present is also a more realistic choice, which leads to a large number of property management companies becoming potential targets for sale, that is, a substantial increase in the number of M & A targets at present.

Second, after a large number of mergers and acquisitions in the property management industry in the first half of the year, there are not many property management enterprises that still have strong funds and the strength to carry out large-scale mergers and acquisitions, that is, there are few buyers who are qualified and have the strength to carry out mergers and acquisitions. Based on this, the property management industry is currently in the buyer's market, and Country Garden Services Holdings can rely on his strong capital strength and refinancing ability to make timely use of the window of M & An integration in the industry to acquire other property management companies at reasonable or even low prices. it is good for one's own long-term development.

To sum up, different from the negative interpretation of the market, we are still optimistic about Country Garden Services Holdings's placement of new shares, but M & An is not the ultimate goal, and what deserves the most attention of investors should be whether Country Garden Services Holdings can successfully integrate M & A. and produce synergy and scale effects on the main business, thus essentially creating value for shareholders, which depends on continuous tracking and observation.

If after the completion of M & A, Country Garden Services Holdings does not have enough synergy with the target of M & A, economies of scale can not be reflected, but lead to an increase in management costs, then placing new shares and used for M & An is not a long-term interest for shareholders.

Therefore, although Country Garden Services Holdings's current placement of new shares can indeed seize the M & An opportunities in the industry, taking into account the impairment of goodwill and the risk of integration, we are neutral and optimistic as a whole. After all, M & An is only a means, and the real value creation is the fundamental goal.

l Investment suggestion

Maintain the previous recommendation: recommend investors to continue to pay attention to high-quality property management leading companies.

l Risk hint

Real estate adjustment policy continues to tighten beyond expectations