Company overview
Binjiang Service is a Chinese property management service provider, mainly focusing on high-end residential properties, mainly in Hangzhou, but also radiating to other Yangtze River Delta regions. According to the Central finger Academy, Binjiang Service ranks second in Hangzhou, fifth in Zhejiang Province and 10th in the Yangtze River Delta in terms of high-end property floor area in 2017.
As of August 2018, Binjiang Service is in charge of 68 properties with a total fee area of about 10.8 million square meters, of which 51 are residential and 17 are non-residential. The area to be delivered in stock (not included in the construction surface) is about 7.1 million square meters. The company mainly provides three major services:
(a) property management services. Refers to general property management services, such as security, cleaning, gardening, maintenance, maintenance, etc. The scope of services covers both domestic and non-domestic properties. Segment revenue accounts for about 65% of the company's total revenue and is the main source of income.
2) non-owner value-added services. The service targets are mainly developers, including the management of sales offices, maintenance of demonstration units, assistance in acceptance and so on, as well as other peripheral services, such as advertising in residential space.
(3) value-added services for owners. External value-added services for owners or tenants, including customized interior decoration, property agency services, etc.
Industry status and prospects
The company's main business locations are Hangzhou and other Yangtze River Delta regions. Binjiang Group, a related party (supplying more than 70% of Binjiang services in management and construction and more than 75% of property management service income) is also based on the strategy of "focusing on Hangzhou, ploughing Zhejiang and radiating East China". The sales of commercial housing in Zhejiang and Jiangsu are about 1.4 trillion yuan and 1.45 trillion yuan respectively in 2018, accounting for 9% and 10% of China's total sales. The per capita disposable annual income in the Yangtze River Delta is about 50000 yuan in 2017, with an urbanization rate of 71.4 percent, exceeding the national average (36000 yuan and 58.5 percent). There is a great demand for high-end property management, which is conducive to the development of Binjiang service.
The market share of the top 100 property management companies is only about 30%, and the industry leader is expected to benefit from the integrated dividend. The company ranks 32nd in China's property management industry and 10th in the high-end property market in the Yangtze River Delta. The company is also actively looking for extension development, with the share of property management services from independent third-party developers rising from 1.6% in 2015 to 24.3% in the first eight months of 2018. We believe that the company can benefit from the industry consolidation dividend in the long run.
Advantages and opportunities
It has a close relationship with the related party Binjiang Group (which is also controlled by Mr. Qi Jinxing and his family). Binjiang Group's commercial housing sales rose at a compound annual growth rate of 54% from 2015 to about 85 billion yuan in 2018 (full caliber, according to Kerry data), ranking 37th in the country. The rapid growth of related parties has become the main driving force to promote the profitability of Binjiang services.
The company focuses on the high-end property management market in the Yangtze River Delta. In addition to benefiting from the demand for high-end property management under the strong local economic development, we believe that the company's local brand (especially Hangzhou) brand ("Riverside House") will become an industry barrier. The company's customer satisfaction rate in Hangzhou ranked first from 2012 to 2016 and second in 2017.
Weakness and risk
The property management industry is one of the labor-intensive industries, and labor costs (plus subcontracting costs) account for more than 80% of the total sales cost of Binjiang services. The increase in minimum wage and labor costs will affect future profitability.
The company has a greater regional impact. About 80% of the revenue from management services comes from Hangzhou, and the remaining 20% comes from other cities in Zhejiang Province.
The sales rights and interests of the related party Binjiang Group remained at a low level, with 40%, 42% and 44% in 2016, 2017 and 2018 respectively. The risk of project promotion is high.
Investment valuation
Assuming the following price limit (HK $5.40 per share), excluding listing fees, the net profit as of August 2019 is about 60 million yuan, and the proportionate 2018 full-year static price-to-earnings ratio (fully diluted) is about 24 times, which is in the middle of the industry. Although the property management services division of the company has the highest revenue, the source of profit comes largely from non-owner value-added services, which is more affected by the market cycle, so it gives IPO a special rating of "5".