Viewpoint real estate networkThe "three red lines" areEvergrandeHang the hoop spell, but also forced out Evergrande's full potential, one of the typical debt reduction is to split assets, in order to achieve the goal.
Now this approach will usher in the first actual case. After Evergrande put HK $23.5 billion into the property market, Evergrande Property Services officially introduced it to the capital market. According to previous statements by Evergrande management, once the split is completed, Evergrande's net debt ratio will fall by 19 per cent.
The time schedule is very fast. War Investment was introduced in mid-August, and in early September it was still saying that it was spinning off and listing property management companies with the Hong Kong Securities and Futures Commission,HKExCommunicate actively and hope to complete the listing of the property this year. By the end of September, the prospectus had appeared on the page of the HKEx's new listing application.
On the evening of September 29th, China Evergrande Group Group announced that it planned to spin off Evergrande Property Services to be listed on the main board of the Hong Kong Stock Exchange. Immediately following the announcement, the prospectus of Evergrande Property Services Group Co., Ltd. appeared on the page of the HKEx's new listing application.
Evergrande's intention to reduce the debt of the parent company through the listing of the spin-off property is very clear, but on the other hand, like most real estate enterprises, the divestment of the property is also hoping to achieve large-scale expansion with the help of capital. After all, this is the most promising link in the real estate industry nowadays.
In the prospectus, Evergrande Property Services said that the funds raised will be used for strategic acquisitions and investments, development of value-added services, upgrading of information systems and equipment, recruitment and training of talents, and for working capital and other general corporate purposes.
Growth is highly dependent on the parent company
The prospectus refers to Evergrande Property Services, one of the largest and fastest growing integrated property management service providers in China.
Data show that as of June 30, Evergrande Property Services had provided property management services, non-owner value-added services or community value-added services for 1354 projects, covering 22 provinces, five autonomous regions, four municipalities directly under the Central Government and more than 280cities in Hong Kong. the total area under management is about 254 million square meters, and the contracted area is 513 million square meters.
However, it should be noted that Evergrande Property Services's main management area and income come from Evergrande Group, and the management area and income contribution from independent third-party property developers are almost negligible.
According to the opinion real estate new media, from 2017 to 2019 and as of June 30, 2020, the area under management of Evergrande Property Services from Evergrande Group was 138 million square meters, 183 million square meters, 234 million square meters and 251 million square meters respectively, while those from Evergrande Group Joint Venture Company and joint ventures were 312000 square meters, 1.886 million square meters, 3.064 million square meters and 1.656 million square meters respectively.
In the above-mentioned year, the area under management from independent third-party property developers was only 200000 square meters, 401000 square meters, 822000 square meters and 1.024 million square meters.
As a result, Evergrande Property Services's income from related parties is almost 100 per cent, accounting for only 0.1 per cent, 0.1 per cent, 0.3 per cent and 0.5 per cent of income from independent third-party property developers from 2017 to 2019 and as of June 30, 2020.
Evergrande Property Services also said directly that during the track record period, the vast majority of the income from property management services came from the services provided by the properties developed by Evergrande Group. The income from providing property management services for the properties developed by Evergrande Group from 2017 to 2019 and as at June 30, 2019 and June 30, 2020 was 2.533 billion yuan, 3.426 billion yuan, 4.539 billion yuan, 2.121 billion yuan and 2.791 billion yuan respectively, accounting for 99.8%, 98.9%, 98.4%, 98.4% and 98.8% of the income from property management services, respectively.
Evergrande Property Services's business scale is expanding with the expansion of Evergrande Group. In addition, in the past, Evergrande Property Services won 100% of the new property management service contracts for properties developed by Evergrande Group, which ensured the growth of Evergrande Property Services's scale in the past.
Evergrande Property Services also wants to change this situation. In his business strategy, he proposes to expand the scale of property management business through multiple channels in order to consolidate its leading market position.
However, Rome was not built in a day, and it is not a short time to change it. Since June 30, 2020 and up to the last practicable date, Evergrande Property Services has entered into 46 new property management agreements with a total contract area of 13.4 million square metres. However, of the many agreements, only two were developed by third-party developers, with a total signed area of 500000 square meters.
It is worth mentioning that Evergrande Property Services just set up an external business development team in June 2020 and began to expand the scope of external business development through strategic acquisitions and investment in September.
In a short time, Evergrande Property Services has entered into an agreement to acquire five regional property management companies (which are engaged in the business of providing property management services for properties developed by independent third-party property developers), with a total area of 7.72 million square meters under management.
High increase in financial indicators
Based on the rapid growth of the scale of property management, Evergrande Property Services's past financial performance is also commendable.
According to the prospectus, Evergrande Property Services's income in 2017, 2018, 2019 and as of June 30, 2020 was 4.399 billion yuan, 5.903 billion yuan, 7.332 billion yuan and 4.563 billion yuan respectively. If you look at the business line, Evergrande Property Services's income mainly comes from property management services, followed by non-owner value-added services and community value-added services.
Among them, as of June 30, property management service income was 2.824 billion yuan, accounting for 61.9%; non-owner value-added service income was 1.231 billion yuan, accounting for 27%; and community value-added service income was 508 million yuan, accounting for 11.1%.
In terms of gross profit, Evergrande Property Services recorded 433 million yuan, 723 million yuan and 1.755 billion yuan respectively in 2017, 2018 and 2019, that is, a compound annual growth rate of 101.4% from 2017 to 2019. Gross profit increased further by 118.1% from 797 million yuan in the six months ended June 30, 2019 to 1.738 billion yuan in the same period in 2020.
In terms of total profit and comprehensive income, Evergrande recorded $107 million, $239 million and $931 million respectively in 2017, 2018 and 2019, that is, a compound annual growth rate of 195.5% from 2017 to 2019. Profits during the period increased further by 181.8% from 407 million yuan in the six months ended June 30, 2019 to 1.148 billion yuan in the same period in 2020.
Evergrande Property Services's gross profit margin has increased steadily in the past due to the economies of scale brought about by continued business growth, the substantial increase in gross profit margin for property management services and the continued implementation of cost control measures. In 2017, 2018, 2019 and the six months ended June 30, 2019 and 2020, Evergrande Property Services's gross profit margin was 9.8%, 12.2%, 23.9%, 23.0% and 38.1%, respectively.
In terms of business, the gross profit margin of Evergrande Property Services's property management services increased from 8.7% in 2017 to 9.1% in 2018, and further increased to 17.7% in 2019. And further increased from 16.8% in the six months ended June 30, 2019 to 33.6% in the six months ended June 30, 2020.
During the above performance period, the gross profit margins of Evergrande Property Services's non-owner value-added services were 5.0%, 11.1%, 28.4%, 27.8% and 37.3%, respectively, and those of community value-added services were 52.2%, 52.2%, 57.4%, 55.8% and 65.0%, respectively.
Like most property companies, Evergrande Property Services also has the factors favored by capital, that is, it has the characteristics of good cash flow, rapid expansion of light assets, weak cycle attributes, high growth and so on. Coupled with good financial data, Evergrande can spin off the property so quickly.
If the listing is successful, for Evergrande, financing to the public will increase the cash and capital reserves of the consolidated balance sheet and increase the financing cash flow of the cash flow statement.
What's more, it was acquired through the 28.061% equity stake of Evergrande Property Services, includingChinese home ownershipChen Kaiyun, wife of founder Liu Luanxiong,Tencent、Ali23.5 billion Hong Kong dollars from 14 strategic investors.