Operation profile of the company:
Hejing leisurely living is an integrated property management service provider, managing properties including residential and commercial properties. According to Jones Lang LaSalle, in 2019, in terms of management and construction, the company ranked seventh in China's business operation service industry and fifth in Greater Bay area.
As of April 2020, the company has a total management area of about 22.15 million square meters, including 18.88 million square meters for residential projects and 3.27 million square meters for commercial projects.
The company is mainly in Dawan area of South China, which accounts for about 52% of the total management area of residential property management services and about 56% of the total management area of commercial property management services.
Financial profile of the company:
The company's total revenue in 2019 and the first April of 2020 were $1.125 billion and $428 million respectively. Among them
Residential property management services are 759 million yuan and 293 million yuan, accounting for 67% and 69% of the total revenue.
The commercial property management operation service is 366 million yuan and 135 million yuan, accounting for 33% and 31% of the total revenue.
The company's gross profit was $420 million in 2019 and $168 million in the first four months of 2020. Among them
Residential property management services are 261 million yuan and 104 million yuan, accounting for 62% and 62% of the total gross profit.
Commercial property management operation services are 159 million yuan and 63 million yuan, accounting for 38% and 38% of the total gross profit.
The company's overall gross profit margin was 37.3% in 2019 and 39.2% in the first April of 2020. Among them
Residential property management services are 34.4% and 35.6% respectively.
Commercial property management operation services are 43.4% and 47.2%.
The company's net interest rate was 16.4% in 2019 and 17.8% in the first April of 2020.
Brief introduction of related real estate companies:
Hop King leisurely living is spun off from Hop King Pacific (1813 HK). The shareholders of Hop King Pacific will be allocated in kind. After the spin-off, Hop King Yohuo will not be a subsidiary of Hop King Pacific, but will become a brother company.
As of April 2020, projects developed by Hop King Pacific and its joint ventures accounted for about 79% and 73% of the total construction area of Hejing leisurely residential and commercial properties.
Hexing Pacific's sales in 2019 and the first three quarters of 2020 were 86.1 billion yuan and 65.9 billion yuan respectively, ranking 41st and 40th among the top 100 housing companies in terms of full-caliber sales according to Carey data.
As of June 2020, Hejing Pacific Group has a total of 165projects, with a total land reserve of about 24.75 million square meters and rights and interests of about 16.36 million square meters. The total salable value is about 510 billion yuan.
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.
Advantages and opportunities
According to Jones Lang LaSalle, in 2019, according to the total management of commercial projects, Hejing leisurely ranked seventh in China and fifth in the Great Bay area. In addition, according to Jones Lang LaSalle, the company ranked sixth among Chinese commercial project management companies in 2019 in terms of total revenue. Reflects the market position of Hejing leisurely in commercial project management, especially in the Greater Bay area.
Hejing leisurely business management projects are mainly grade A shopping malls and office buildings in Guangzhou, Shanghai and other big bay areas and hot cities in the Yangtze River Delta, with good brand effect.
Its affiliated real estate company, Hejing Pacific Group, is a large property developer and occupies a leading position in the Greater Bay area. Hejing Pacific Group ploughs its business in the Great Bay area and the Yangtze River Delta region, focusing on first-tier, new first-tier and second-tier cities. As of June 2020, the total construction area of the land reserve is about 24.75 million square meters. Lay a solid foundation for the leisurely expansion of Hejing.
Guangdong-Hong Kong-Macau Greater Bay Area is located at the forefront of coastal opening up, takes the Pan-Pearl River Delta region as the vast hinterland of development, and plays an important role in the construction of "Belt and Road Initiative". In terms of economic strength, the economic development level of the Great Bay area has always been ahead of the whole country, with a complete industrial system, obvious cluster advantages and strong economic complementarity. Nine cities in the Pearl River Delta have been initially formed with strategic emerging industries as the forerunner, in which Shenzhen, as a special economic zone, is positioned as a national economic center city and a national innovative city. As a brand enterprise in Dawan area, the company has benefited from the development of Dawan area for a long time.
In addition, the Group has a lot of layout in the Yangtze River Delta, which is one of the most prosperous and active regions in China's economic development. as the intersection of "Belt and Road Initiative" and the "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. The company has also benefited from the development of the Yangtze River Delta region in the long run.
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. Labor costs and subcontracting costs together account for a significant part of the company's sales costs, and the increase in minimum wage and labor costs will affect future profitability.
Labor and subcontracting costs accounted for 69.6%, 70.6%, 73.4% and 77.6% of the total cost of sales in 2017-19 and the first April of 2020, respectively. The proportion is increasing year by year.
Investment valuation
Although the overall growth of the property sector in the first half of the year is relatively high, it mainly comes from the contribution of new projects in the second half of 2019, and there is less delivery in the first half of 2020, so the performance growth is lower than the previous year. Arbitrage selling pressure occurs after the performance. In the future, we think that value-added services are the key, and property companies that can nurture community value-added services will outperform their peers. In the residential property management services sector, Hexing's community value-added services account for the upper-middle level of the industry, which mainly benefits from the vigorous development of property agency services in 2019, and other formats need to be developed in the future.
Backed by Hejing Pacific Group, sales will be about 100 billion yuan in 2020, ranking 40th among the top 100 housing enterprises. With more than ten years of listing history, the market fully understands the background of the group.
The leisurely commercial property management and operation services sector is a bright spot, focusing on high-end commerce and located in hot cities in the Greater Bay area and the Yangtze River Delta, benefiting from its real economic development in the long run.
Assuming the above line pricing (HK $8.13 per share) and the full exercise of the over-allotment option, we expect the company to be trading at a price-to-earnings ratio of approximately 42 times earnings in 2020 / 21, which is slightly higher than the peer average.
In the form of physical distribution, the company fully distributes Hejing leisurely to the original Hop King Pacific shareholders on a pro rata basis. It is estimated that more investors in the market will sell Hejing leisurely as arbitrage first, and the stock price performance is more volatile at the initial stage of listing. In addition, the outstanding business enterprise service (6989 HK), which is also a business management company, had an average opening performance on the first day, which affected the business management company market in the short term.
Considering the above, we give the company a special IPO rating of 5 points.
Hillhouse Capital, Snow Lake Capital, Castrol International, Oro Capital and other well-known institutions as cornerstone investors, endorse the stock price.
It is suggested that investors can gradually increase their holdings after the listing of the company until the price is stable.
