Summary of the report
Company overview
Zhengrong Service is a property management service provider, mainly in the Yangtze River Delta and Hercynian.
And Zhengrong Real Estate (6158.HK) is a brother company, and Mr. ou Zongrong also indirectly holds a controlling stake.
Zhengrong Real Estate is mainly in the Yangtze River Delta and Hercynian, with a layout all over China. By the end of 2019, the land storage area was about 26 million square meters, and the ratio of land reserves to rights and interests was about 55%, mainly for cooperative development projects. Zhengrong's sales in 2019 is about 130 billion yuan, ranking 23rd in the country.
As of 2019, Zhengrong Service has a management area of about 23 million square meters, 48% of which are developed by Zhengrong Real Estate.
Of the 23 million square meters of managed projects, 64 per cent are residential and 36 per cent are non-residential (government buildings, office buildings, industrial parks and schools).
According to the comprehensive strength of the middle finger academy, Zhengrong ranks 22nd among the top 2019 Chinese property service enterprises. According to Yihan think tank, Zhengrong was ranked as one of the top 10 growing community service providers in 2019 in 2019.
The company mainly provides three major services:
(a) property management services. Mainly basic property management services, the company's main source of income, 2019 branch income of about 340 million yuan, accounting for 47.8% of the total revenue in 2019; 2) community value-added services. Including home living services, parking space management, rental assistance and public area value-added services, the segment income in 2019 is about 110 million yuan, accounting for 15.6% of the total income in 2019; 3) non-owner value-added services. The pre-planning and design consulting services for development projects mainly provided to real estate developers, the revenue of the division in 2019 is about 260 million yuan, accounting for 36.6% of the total revenue in 2019.
In terms of profitability, the overall gross profit margin in 2019 was 34.1%. Property management service division gross profit is 23.1%, which belongs to the middle level of the industry. Community value-added services are 67.2% and non-owner value-added services are 34.5%.
Industry status and prospects
According to the analysis of the Central finger Institute, by the end of 2019, Chinese properties had about 23.9 billion square meters of management floor, of which the top 100 accounted for about 43.5 per cent. The average number of properties managed by the top 100 property service enterprises increased from 154 in 2015 to 212 in 2019, with a compound annual growth rate of 8.3%. With the comparative advantage of head enterprises in resource integration.
In 2019, about 80% of the property management service income of the top 100 property service enterprises comes from their affiliated real estate groups; the average management area is 47.4 million square meters, of which about 60% is developed by their affiliated real estate groups. However, with the increase in the scale of management, the incremental contribution from related real estate group projects will be less and less. The extension ability of property companies is becoming more and more important.
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 continue.
In the environment of fierce market competition, the profit level of basic property management services is expected to decline, and the development of value-added services will be the key to the success of enterprises in the future. It is beneficial for real estate enterprises with multiple formats to introduce different kinds of value-added services into the property management sector, so as to improve the overall profitability.
Advantages and opportunities
In the revenue structure, the community value-added services segment accounted for about 16% of the total revenue in 2019, and the segment gross profit accounted for about 31% of the total gross profit in 2019. The proportion of community value-added services is higher than that of the same industry.
The company is mainly in the Yangtze River Delta, which is one of the most prosperous and active areas in China's economic development. as the intersection of "Belt and Road Initiative" and "Yangtze River Economic Belt", it plays an important role in the national economy. In order to strengthen coordination and linkage among cities and make economic development the next city, the integration of the Yangtze River Delta was once again emphasized and announced by General Secretary Xi Jinping in 2018, supporting the development of regional integration in the Yangtze River Delta and rising to a national strategy. In the same year, it was written into the government work report by Premier Li Keqiang of the State Council, focusing on implementing the new concept of development, building a modern economic system, and promoting deepening reform from a higher starting point.
Weakness and risk
The property management industry is one of the labor-intensive industries, and labor costs are a major part of the cost of sales and administrative expenses. It accounts for about 59% of the company's total cost of sales. In addition, the company outsourced a number of service functions to subcontractors, such as security, cleaning and maintenance services, accounting for about 23% of the cost of sales. The increase in minimum wage and labor costs will affect future profitability.
The scale of the tube is relatively small, about 23 million square meters by the end of 2019. The contract area is about 37 million square meters, the scale is small, and there may be concessions on the valuation.
