Olympic Park Health was spun off from the Olympic Garden Group (3883) in 2019 and is its merged subsidiary company. The management scale of Olympic Garden Health is about 1500 million square meters by the end of 2019. In the first half of 2020, it successfully acquired Le Life Services and incorporated its management area of 2260 million square meters. Together with the delivery of Olympic Garden Group and other external mergers and acquisitions during the year, we expect that the management scale of Olympic Park Health will exceed 4500 million square meters by the end of 2020. In addition, by the end of 2019, the company is managing 17 commercial projects, and the higher gross profit margin effectively drives the overall profitability of the company. The average gross profit margin of Olympic Park Health in 2015-19 is about 34%, which is much higher than that of the same industry. Driven by M & A factors, we believe that the company's revenue and net profit growth in 2020-21 will maintain above the industry average. The company is small and based on the principle of caution, we give the company a target valuation of 0.8 times PEG. The target price is HK $11.5 per share, which is the first to give a "buy" rating to Olympic Park Health.
Summary of the report
Mergers and acquisitions bring high growth. Olympic Park Health has managed about 1500 million square meters by the end of 2019, and more than 90 percent of the projects come from the parent company, Aoyuan Group. By the end of 2019, the Olympic Park Group has a total land reserve of about 4500 million square meters (including the outstanding portion), which can support the healthy short-term future growth of the Olympic Park. In addition, Olympian Health successfully acquired Le Life Service in the first half of 2020, resulting in an additional management area of 2260 million square meters. Coupled with the delivery of about 8 million square meters of projects by the parent company Aoyuan Group and other external mergers and acquisitions, we expect that the management scale of Aoyuan Health will exceed 4500 million square meters by the end of 2020.
Two-wheel drive: residential business management. The average gross profit margin of Olympic Park Health in 2015-19 is about 34%, which is much higher than that of the same industry.
The profitability of the company is high, and the business management sector is one of the main reasons. Thanks to the higher unit price of commercial property management fees and the characteristics of diversified income, the average gross profit margin of the company's business management services sector is about 40%, which is higher than that of ordinary residential projects. By the end of 2019, the company is managing 17 commercial projects and aims to manage 30-35 by 2022, of which the number of outbound shopping malls will account for about half. Business management will continue to play a role in improving the company's profitability.
Develop large-scale health industry. The income from community value-added services in the Olympic Park accounts for about 10% of the property management service division, and the proportion of value-added services is temporarily lower than that of the same industry. However, in order to strengthen the diversified development of business formats and lay the foundation for the future development of value-added services, the company starts with medical beauty, health care and traditional Chinese medicine, and adds commercial formats as software to the hardware of residential communities and shopping malls. The ratio of the company's value-added services is expected to increase in the future, which will have a positive effect on profitability and net profit growth.
Give a "buy" rating for the first time. The 21-year forecast price-to-earnings ratio of the Olympic Park Health 2020max is about 21 times / 14 times, which is lower than the average level of the industry, and the overall average of the sector as a whole is about 35 times / 25 times the 21-year earnings ratio. With the success of Olympian Health's acquisition of Le Life, the scale of management has increased significantly, and the valuation discount compared with the industry will be narrowed. Driven by M & A factors, we believe that the company's revenue and net profit growth in 2020-21 will maintain a high level in the industry. The company is currently small, and we give the company a target valuation of 0.8 times PEG based on the principle of caution. The target price is HK $11.5 per share, which is the first to give a "buy" rating to Olympic Park Health.
Risk hint: the competition in the outbound market of M & An is becoming more and more fierce, and the ratio of community value-added services is low.