Company profile:
Hehong Service is a well-known market participant in China's property management industry, providing property management services, community-related services and property developers related services for more than 16 years. According to the data of China Index Research Institute, according to the comprehensive strength of property management in China, the company ranks 44th in the "Top 100 property Service Enterprises in China in 2019". By the end of 2018, the company has managed 34 property management projects in 11 cities in China, with a total contracted construction area of 8.2 million square meters and a total fee management floor area of 6.3 million square meters.
Sino-Thai point of view:
China's property management industry is fragmented and highly competitive: according to the China Index Research Institute, with the acceleration of urbanization in China and the continuous increase of per capita disposable income, the fee management of the top 100 property service enterprises to manage the building area and the number of properties are growing rapidly. The average income of the top 100 property service enterprises increased from 360 million yuan in 2014 to 890 million yuan in 2018, with a compound annual growth rate of 25.5%. In 2019, major market participants in China's property management industry include Country Garden Holdings Holdings Limited (2007.HK) and Greentown Services Group Limited (2869.HK), each with a market share of about 0.9 per cent and 0.8 per cent respectively in terms of fee management floor space. In terms of fee management floor area in 2018, the market share of the top 100 property service enterprises is about 38.9%, while that of the company is only 0.03%. The industry is scattered and the competition is fierce.
In terms of operating performance: from 2016 to 2018, the operating income of Hehong Services was RMB 170 million, RMB 200 million and RMB 220 million respectively, of which nearly 70% came from property management services. The gross profit margin is 29.9%, 33.7% and 359% respectively. The increase is mainly due to (1) the increase in the floor area of fee management due to the rising average rates of property management services and the management of more properties. (2) providing value-added services to the increasing number of property management projects and making profits by providing electricity collection services for commercial property owners in more property management projects. The net interest rate was 11.08%, 11.16% and 7.52% respectively, and the decline in 2018 was due to listing expenses. excluding this expense, the adjusted net interest rate was about 12.7%, an increase of 1.6 percentage points over the same period last year.
Valuation: based on 400 million shares after the global public offering, the company's market capitalization is HK $512-624 million, which is lower than that of its Hong Kong counterparts. The company's price-to-earnings ratio is about 26.7-32.5 times, slightly higher than the industry average, and the price-to-book ratio is about 2.84-3.0 times, lower than the industry average. In terms of profitability, the 18-year ROE and ROA were 20.5% and 6.8% respectively, lower than the industry average. Combining the company's industry status, performance and valuation, we give it a score of 61, with a rating of "neutral".
Risk tips: (1) Market competition risk