Company profile
First Service Holdings is a property management service provider founded in 1999. According to the comprehensive strength ranking of the China Index Institute, the company ranked 31st among China's top 100 property service enterprises in 2020. By the end of April 2020, the company was managing a construction area of 15 million square meters and a contracted construction area of 27 million square meters. Furthermore, the company listed First Property, which is mainly engaged in property management business, and First Home, which engages in green habitat solutions, in the New Third Board in May 2016 and March 2018, respectively, and were later delisted at the end of 2019.
Sino-Thai views
The market concentration of the top 100 property service companies continues to increase: according to data from the China Index Institute, the total floor area under management of China's overall property management companies increased from 17.5 billion square meters in 2015 to 21.2 billion square meters in 2019. The 2015-2019 compound growth rate was 6.3%. The compound annual growth rate of the top 100 property service companies during the same period was 15.8%. It is expected that the market share of the top 100 property service companies will increase from 43.7% in 2019 to 46.3% in 2024.
In terms of operating performance: In the 2017-2019 fiscal year and the first four months of 2020, the company's total revenue was RMB 380 million, RMB 500 million, RMB 620 million and RMB 220 million respectively. The share of property management revenue remained at around 40%, value-added services remained at 15%, and the rest of the revenue was green human settlements solutions; the projects obtained from Contemporary Real Estate Group (1107 HK) had a construction area of 5.6 million square meters, 6.8 million square meters, 8.7 million square meters and 9.7 million square meters respectively, accounting for 87.4% of the total revenue of property management services, respectively. 79.8%, 73.5% and 78.3%; gross margins were 32.5%, 33.3%, 34.8% and 33.2% respectively; subcontracting costs accounted for 25.1%, 26.9%, 27.9% and 28.0% of total sales costs, respectively; employee costs accounted for 38.8%, 36.8%, 37.8% and 30.9% of total revenue; net interest rates were 10.5%, 10.3%, 12.4% and 6.9%, respectively, down 1.3 percentage points in the first 4 months of 2020 due to increases in listing expenses and actual tax rates. The winning rate for property management projects obtained by the company from third party developers remained above 50.0%. By the end of April 2020, service contracts from third party developers included residential communities, commercial office buildings and government facilities in 28 cities in Shanghai, Tianjin, Jiangxi, Henan and Hunan regions.
In terms of valuation: Based on the global share capital of 1 billion after the public sale, the company's market value was HK$1,86—2.46 billion. In terms of valuation, the company's price-earnings ratio in 2019 was about 21.1-28 times, and the net market ratio was about 3.42-3.58 times, which is lower than the industry average. The price stabilizer this time was Haitong International. There were 5 projects in 2020, showing 2 rises, 1 drop and 2 levels on the first day.
The company's current management area, contract floor area, and net profit grew rapidly at compound annual growth rates of 38.9%, 50.2%, and 41.6% respectively in 2017-2019. We review that from 2019 to now, a total of 15 new shares have been issued in the same property management industry. Only one Times Neighborhood (9928 HK) broke out. We believe that the company's valuation is low, but the increase is limited. Investors are advised to pay attention to other new stocks that are about to be listed recently and are in the same property management industry. In summary, they were given 69 points and rated as “neutral”.
Risk warning: (1) market competition risk, (2) excessive reliance on contemporary real estate groups