Company overview
Xinyuan Services is a Chinese property management service provider that has contracted to manage properties in more than 35 cities in China, including Zhengzhou, Jinan, Xi'an, Chengdu, Suzhou, Beijing and Shanghai. Comprehensive easy to live and other institutions, the company ranked 12th.
Xinyuan Real Estate Co Ltd (XIN US), the parent company of Xinyuan service, has sales of about 30 billion yuan in 2018, ranking 82nd in the country, mainly in central China. By the end of 2018, Xinyuan Real Estate Co Ltd had about 5.3 million square meters of soil storage, of which the project in Zhengzhou accounted for about 50 per cent.
As of March 2019, Xinyuan Services is in charge of 97 properties with a total charging area of about 15.8 million square meters, of which the total charging area of the project developed by Xinyuan Real Estate Co Ltd is about 11.74 million square meters. All properties developed by Xinyuan Real Estate Co Ltd Group are managed by Xinyuan Services.
The company mainly provides three major services:
(a) property management services. Refers to general property management services, including cleaning and hygiene, security, horticulture and facility maintenance services. The scope of services covers both domestic and non-domestic properties. Segment revenue accounts for about 66.6% of the company's total revenue in 2018, which is the main source of income.
2) value-added services. The service targets are mainly developers, owners and households, including public utility payment services, public area resource management, home life services, property cleaning and property delivery services.
III) pre-delivery and consulting services. For the value-added services of property developers, case management services, project planning, referral and management services for unsold properties, etc.
Industry status and prospects
According to Frost Sullivan's analysis, the market share of the top 100 property management companies is only about 24% in 2018, and concentration is expected to increase to 30.8% in 2023. Industry leaders are expected to benefit from integrated dividends. The company ranks 12th in the property management industry in China, and we believe that the company can benefit from the industry consolidation dividend in the long run.
In addition, property management services are labour-intensive industries, involving a large number of workers, such as security, cleaning and maintenance personnel.
The minimum monthly wage is constantly increasing. In the absence of economies of scale, small and medium-sized developers will choose to sell their property companies to large property management companies, or select other large property management companies for their newly developed property projects as service operators. The Matthew effect will become more and more obvious.
Advantages and opportunities
Has a close relationship with Xinyuan Real Estate Co Ltd. Xinyuan Real Estate Co Ltd soil storage is concentrated in Zhengzhou, Qingdao, Chengdu and other hot cities, and the local economic depth is strong. We believe that Xinyuan Services will develop value-added services to owners and households in the future, so as to enhance the company's profit growth momentum in the future.
The company is ranked in a higher position in the industry, which is conducive to the development of the company. The share of revenue from projects obtained by third-party developers also increased from 3.8% in 2016 to 15.7% in 2018, with a further increase of 12.7% in the first quarter of 2019.
The company has an experienced, professional and stable management team, and each senior management member has more than 10 years of industry experience. It is beneficial for the company to expand its business in the long term.
Weakness and risk
The property management industry is one of the labor-intensive industries, and labor costs (plus subcontracting costs) account for more than 70% of the company's total sales costs. The increase in minimum wage and labor costs will affect future profitability.
The company has a greater regional impact, with central China accounting for more than 70% of the contracted area.
The gross profit margin of the company is at a low level among the property management industry listed in Hong Kong, and the gross margin of the division of property management services is only 20.7% (2018), which needs to be improved.
Investment valuation
Assuming mid-range pricing (HK $2.54 per share) and excluding listing fees, net profit for the first quarter of 2019 is about 13.29 million yuan, with a pro rata full-year static price-earnings ratio of 2019 (fully diluted) of about 19 times, which is lower than the industry average. Although the company is small, considering that the company's profit comes largely from value-added services and consulting services, which is conducive to long-term development, it gives IPO a special rating of "7".