Hejing leisurely living Group is a high-quality shopping mall operator concentrated in first-and second-tier cities. It currently trades at a forward price-to-earnings ratio of about 16 times earnings for 22 years, with a compound annual growth rate of about 70% for three years. We believe that the current valuation does not fully reflect the value of its mall operations. Recently, major shareholders have been increasing their holdings in the market, and we believe that the increase in the share of store operations at the profit end in the future will lead to a revaluation.
Potential valuation catalyst: the increasing ratio of mall operation
We believe that high-quality mall operators should get a higher valuation than residential property management because (1) higher profitability and (2) more flexible pricing mechanism (easier to raise prices). This is mainly due to the scarcity of high-quality service operators, which leads to their bargaining power higher than that of residential operators. The number of the company's shopping malls / offices is expected to reach 12 in FY22, 13 in FY23, and 7 in 2019. With sufficient project reserves, we expect that the profit contribution of the business management business will further increase to 50% by 2022, compared with about 40% in 2019.
The siphon effect of large property tube listing will come to an end. "Community groups" may be the next theme for the industry. The recent weakness of stock prices is mainly due to (1) the listing of large property management companies has diverted funds from the sector, and we estimate that the amount of funds raised by property management stocks IPO accounts for about 30-35% of the liquidity of listed companies in recent months, and (2) the main reason is that its IPO is allocated through physical distribution, so the holdings of index funds will be passively "forced to sell". We estimate that the impact of both is over. From a positive point of view, we can see that recently, Internet giants (Tencent and BABA) and well-known funds (Hillhouse Capital, Sequoia Capital and Snow Lake Capital) have invested in newly listed property management companies and become their cornerstone investors). We believe that the offline traffic of property management companies is of great value to Internet giants, and it is expected to cooperate deeply in areas such as "community group buying" in the future, and this market is expected to become the next market on a scale of hundreds of billions.
Major shareholders are increasing their holdings in the company.
Mr. Kong Jianmin, a major shareholder, has continued to increase his holdings in the market over the past four trading days, increasing his holdings from 51.99% to 52.34% (HK $41 million, or HK $5.65 per share), reflecting his confidence in the company and strengthening investor confidence at the same time. After the physical spin-off, Mr. Kong directly owns the company, while most of his peers own the property management company through real estate developers. Under this structure, we believe that the future performance of the company is more direct to the interests of major shareholders.
Merger and acquisition promotes the rapid growth of the scale of management
According to media reports, Hexing Pacific Life plans to acquire five projects with a total construction area of about 50 million square meters. It is expected that 20 per cent of the area (about 10 million square meters) will be completed in fiscal year 20 and 80 per cent in fiscal year 21, compared with about 15 million square meters of residential area under management in 19 years. The company aims to double its size in fiscal year 20 and further double its size this year next year.
