Events:
On August 13th, the company announced that it intends to introduce a strategic investment of HK $23.5 billion for its property management company to enhance the professional level of property management and support the growth and development of Evergrande Property Services. A total of 14 strategic investors have been introduced this time. Including China Evergrande Group's major shareholder Chen Kaiyun, Huatai International's Dawan area Investment Co., Ltd., and Sequoia Capital's SCC Growth VI 2020 B L.P, CC Eagle Investments Limited of CITIC Capital, YF Evergreat PropertyLimited of Yunfeng Fund, Image Frame Investment (HK) Limited of Tencent, Tai Chi Fund, ABCI Global Opportunities SPC-ABCI China Rising PrivateEquity 3 Segregated Portfolio of Agricultural Bank of China International, Elite Explorer Limited of Everbright Holdings, Well Smart Developments Limited of Chow Tai Fook Jewellery and TreasurePitcher Limited of Lishi International, etc. Upon completion of the transaction, the property management company will be 28.061% owned by strategic investors and 71.939% owned by Evergrande Group.
Comments:
The introduction of war investment to prepare for listing: the property management industry is in a period of scale expansion and accelerated integration, many real estate companies choose to spin off and list property management enterprises to raise funds for M & An integration. Property management companies listed in the first half of 2020 include Zhengrong Service, Hongyang Service, Jianye New Life, Financial Street property, etc.; currently, property management companies applying for listing include Hejing leisurely living, Shimao Service, Jinke Wisdom Service, Xingsheng Commercial, Outstanding Commercial Enterprise, Sunac Services and so on. Evergrande Group introduced strategic investment for its property management company this time, which not only reserves sufficient funds for the company's business development, but also optimizes the company's shareholder structure, improves the company's brand image, and prepares for listing.
Evergrande Jinbi property is a leader in the industry: Jinbi property, a property management company of Evergrande Group, was ranked fifth among the top 100 property service enterprises by the China Index Institute in 2020. Evergrande Jinbi property mainly provides property management services for residential and non-residential properties, non-owner value-added services and community value-added services. In 2019, the income of the property sector was 4.38 billion yuan, an increase of 7.6% over the same period last year.
Sufficient land reserves and good sales recovery: by the end of 2019, the company's total land storage is 293 million square meters, covering 237 cities, a total of 876 projects, which is the guarantee for the follow-up development of the property management company. China Evergrande Group's contract sales volume and area in July were 50.3 billion yuan and 5.39 million square meters respectively, an increase of 24.4 percent and 40.4 percent respectively over the same period last year, and sales recovered well. From January to July, the cumulative contract sales volume and area were 399.1 billion yuan and 4402 square meters respectively, an increase of 23.9 percent and 46.6 percent respectively over the same period in 2019. The company's sales target for 2020 is 650 billion yuan, which has been completed by 61.4%.
Split property management releases the value of the housing enterprise: on July 31, China Evergrande Group announced that the property management business may be spun off and listed independently. The company's property management business accounted for 0.92% of the total revenue in 2019. At present, the property management company enjoys a higher market valuation, and the split is conducive to the release of the company's value. The introduction of strategic investors also replenishes the company's cash and improves its financial position. The company now trades at 14.6 times core net profit in 2019, with a dividend yield of more than 3 per cent.
Risk tips: macroeconomic growth slows; industry regulation and control policies tighten; liquidity tightens; company sales fall short of expectations; RMB depreciates.