As the "oversubscribed king" of Hong Kong stocks this year, the nearly 2000 times oversubscribed fully reflects the market'sStar GroupI'm looking forward to it. And today finally ushered in the moment of listing of this property stock.

Star opened 5.77% lower today, opening at HK $1.47 on its first day of trading, and then bucked the trend, offering HK $1.64, or 5.13%, as of 10:00. In its debut on the stock market, this small-cap property stock withstood the pressure of the recent sharp fall in the global stock market.

The time, the place and the people are in harmony, setting a new record of overpurchase.

Hong Kong stocks have hit the new market since 2020, and Societe Generale, the first property service company listed this year, won this year's record of "oversubscribed king" with a multiple of 1414 times oversubscribed. This title was subsequently won by the second newly listed property stock, Luoxing Group, which was nearly 2000 times oversubscribed in only five days of IPO time, freezing funds by more than 31.6 billion, setting a new record for oversubscription of new shares since 2019. The property stocks listed this year have successively received the title of "overbought king", which fully reflects that the current property management sector is not the most popular in the Hong Kong stock market, only more popular.

Star Group has been oversubscribed on a large scale, thanks to the coordination of multiple factors in the right time, the right place and the harmony of people.

The so-called "time of day" means that the supply of new shares in the market this year is to a certain extent less than in the past. Affected by the epidemic situation of COVID-19 since the beginning of the yearHKExHong Kong-listed IPO companies are required to disclose the impact of COVID-19 's epidemic on enterprises and detailed plans to eliminate the impact in the IPO documents. Enterprises in the listing process need to further supplement listing materials, thus delaying the progress of listing. When the supply of new shares decreases, investors naturally focus on fewer new shares in the market.

The so-called "geographical location" is the rich return that the property management plate brings to investors, which makes property stocks particularly favored by investors. For the whole of 2019, 20 mainland property stocks listed in Hong Kong rose by an average of 45.82% for the whole year. Six Hong Kong stock property service enterprises doubled in 2019, of whichNew city service、Yongsheng living service及Kaisa is beautiful.The share prices of the three companies have basically tripled. Property service enterprises take into account both growth and certainty, the property sector is still strong under the epidemic, which has enhanced the confidence of investors in the industry.

The so-called "people's harmony" means that the enterprise itself gives investors full confidence in the pricing of new shares and capital operation. On the one hand, the cap valuation of this offering is only 14.5 times, while the average valuation of property stocks in the Hong Kong stock market is 30-40 times. On the other hand, the IPO pricing of Xing Xing is significantly lower than the average level of the plate. On the other hand, Xing Xing Group has introducedHenderson Properties (00012.HK)Chairman and managing director Li Jiajie's Successful Lotus Limited, a cornerstone investor, subscribed for HK $21 million, or about 14.5 per cent of the offering shares. The introduction of well-known cornerstone investors has further enhanced the market's confidence in the company's future share price.

The popularity of new shares is affected by many factors, such as the supply and demand of new shares market, capital operation, company texture, company pricing and so on. The future trend of enterprises should be implemented in the long-term fundamentals. What are the fundamentals of the star group?

The current scale is small and is expected to double in the next two years.

Star Group was established in 2003 to provide property management services for properties developed by Hongkun Group. The company's business covers residential, commercial properties, office buildings, multi-functional buildings, government and other public facilities, industrial parks, highway service stations, parks, hospitals and schools.

According to the company's prospectus, as of the end of August 2019, the Star Group has an area of 5.2 million square meters under management, including 24 residential properties and 17 non-residential properties. Among the listed property service enterprises, this volume is only larger than that of Societe Generale, which was listed not long ago, and is far lower than the average area of listed property enterprises.

Note: Poly property has been excluded,Country Garden Service、Elegant living service及Greentown serviceThe area under management of the four companies is significantly higher than that of other enterprises; the statistical caliber is the data disclosed in the semi-annual report of each enterprise in 2019.

Almost all the management projects of Mixing Group come from the parent company Hongkun Group. During the period from 2016 to August 31, 2019, the income floor area managed by the Star Group from the Hongkun Group is 2.9 million square meters, 3.7 million square meters, 4.5 million square meters, 4.8 million square meters and 5.2 million square meters, accounting for 100,100, 99.1, 99.1 and 99 percent of the total management area of the Star Group, respectively.

As the company basically only undertakes projects from the parent company, its future management scale is highly predictable. According to the prospectus, Hongkun Group will deliver a total gross floor area of about 600000 square meters and 5.4 million square meters to Juxing Group under the contract in 2020 and 2021 respectively. It can be expected that by relying solely on endogenous growth, the managed area of Mixing Group will reach more than 11 million square meters in 2021, and the management scale will more than double that of the current one.

The level of gross profit margin is stable, and the future performance may be back on track.

The company's business involves eight cities in the Beijing-Tianjin-Hebei region, Hainan Province, Hubei Province and Shaanxi Province, but the company's business projects are mainly concentrated in the Beijing-Tianjin-Hebei region, which is highly overlapped with the property area developed by the parent company Hongkun Group. The income generated by the property in the Beijing-Tianjin-Hebei region accounts for about 90% of the company's total income. As the source of the project is stable and the regional distribution of the project is concentrated, the gross profit margin of Luoxing Group is relatively high and stable over the years.

From 2016 to the end of August 2019, the gross profit margin of the company providing property management services for Hongkun Group was about 39.3%, 43.2%, 36.9% and 43.6%, respectively. Only in 2018, due to the increase in labor costs caused by brand upgrading, there was a significant decline, and the rest of the year maintained a level of about 40%, which was higher than the average gross profit margin of 26% of listed companies.

The gross profit margin of the property developers' related services and value-added services of the star group also maintained a stable level of 14% and 61% respectively.

The high-quality and stable project of the parent company is the main reason why the gross profit margin of Luoxing Group remains high and does not change much. In the absence of large-scale third-party extension, the profitability of Luoxing Group is strong and its performance is highly related to the progress of the parent company's transformation of the area under management.

From 2016 to the end of August 2019, the revenue of Mixing Group was about 117 million yuan, 192 million yuan, 251 million yuan and 175 million yuan respectively, with a growth rate of 64.42%, 31.12% and 10.76%, respectively. In terms of net profit, it was 17.55 million yuan, 35.57 million yuan and 37.22 million yuan respectively from 2016 to 2018, with year-on-year increases of 102.67%, 4.42% and-22% respectively. The company's operating income and net profit decreased significantly in the past 18 years, and even showed negative profit growth at the end of August 19. The main reason for this phenomenon is that the progress of project transformation of the company in 2018 and 2019 is slower than in previous years. Under the lower scale base, the slowdown of scale growth will lead to significant changes in performance.

As discussed above, as the area delivered by Hongkun Group to Juxing Group in the next two years is relatively certain and the company's performance is highly related to scale growth, it is expected that the size of Hongkun Group will grow by at least 15% in 2020 and more than 90% in 2021. Its performance will return to the track of growth in the next two years.

Strategic planning is clear, but long-term implementation is more challenging.

Star Group's dependence on the parent company is close to 100%. According to its current development path, the future prospect mainly depends on the development of Hongkun Group's development business on the one hand, and whether it can be further expanded through the merger and acquisition strategy on the other hand.

For the future development, Juxing Group has a clear strategic plan. In the future, the company's goal is to enter areas with high population density and consumption power. According to the prospectus, the company has plans to enter five cities, namely, Shanghai, Taiyuan, Foshan, Zhengzhou and Wuxi. 65 per cent (about HK $64.4 million) of the net proceeds from the listing will be used for the regional expansion of its target cities.

According to the company's calculation of the growth in the scale of property management in the target city, it is expected to maintain a compound growth rate of 5.8% in the next decade. In the next five years, the compound growth rate of managed property area in Beijing and Tianjin is about 3.1% and 4.4% respectively, and the future growth prospect of target cities is better than that of Beijing-Tianjin-Hebei region. About 90% of the company's property service income comes from the Beijing-Tianjin-Hebei region, and marching into high-growth new areas can effectively hedge against the risk of a slowdown in the Beijing-Tianjin-Hebei region in the future.

On the specific expansion plan, the company mainly has two paths. On the one hand, rely on the support of the parent company. Hongkun Group has at least one property development project in each of the five target cities to tie in with the company's future expansion. Therefore, the company can enter the local property management market by providing property management services to the properties developed by Hongkun Group.

Another important expansion path is the acquisition of local property management companies in target cities. Through acquisition, we can use the brands, experience and resources of local property companies to open new markets in a relatively short period of time.

Although the company has formulated a clear strategic plan, carefully selected the target market and made detailed calculations, there are still many challenges in the implementation of its two development paths in the future.

On the one hand, the current overall policy of the real estate industry is stricter, small and medium-sized housing enterprises have greater financial pressure, facing the dilemma of slowing down the progress of expansion or even being squeezed by large real estate enterprises in the future. According to Ke'erui 's "2019 TOP200 ranking of Chinese Real Estate Enterprises", Hongkun Group has a cumulative sales amount of 16.25 billion yuan, ranking 121st. With the current size and size of Hongkun Group, it is no small challenge to maintain considerable growth under the double squeeze of capital constraints and competition from large real estate enterprises in the future.

On the other hand, the current property M & A has gradually become a seller's market, and there are fewer and fewer high-quality M & A targets. The target of high-quality M & A needs to have a certain brand power, its own expansion ability and good profitability, but at present, most of the high-quality enterprises seek listing themselves and will not become the target of M & A. From the buyer's point of view, at present, there are many property companies with abundant cash looking for the subject of M & A, and the company will face fierce competition in the M & A market.

Of course, all kinds of industries in China are facing full competition. Compared with the development industry, the property management industry is still in a golden track, but the process of industry integration is accelerating. Eating big fish and eating small fish is the norm of the industry at present and in the future. The targeted strategic planning of Luoxing Group allows us to see the possibility that a small property service enterprise can maintain sustained growth in the future. It will take time to verify how the company will develop in the future, and we believe that the executive ability of management will be the decisive factor in this process. (source: gram Ruiwu tube)