Back to Evergrande, property leader set sail
1) History and Vision: Evergrande Property Services is a professional property management company affiliated to Evergrande Group. Evergrande Property Services was founded in 2020, registered in the Cayman Islands, the main operating property management company is Guangzhou Jinbi property. Evergrande Property Services always adheres to the service concept of "intimate service, sincere companionship", takes the owner's demand as the orientation, takes the owner's satisfaction as the goal, and adheres to "large-scale development, standardized operation, professional service and intelligent management". Strive to create a happy community with the most residential value and humanistic value in China. 2) shareholders: in August 2020, Evergrande property introduced strategic investors such as Sequoia Capital, CITIC Capital, Yunfeng Fund and Tencent. As of January 8, 2021, the largest shareholder of the company is CEGHoldings, with 59.04% of the equity. Mr. Xu Jiayin is the actual controller of the company. 3) Industry status: according to the Carey ranking, China Evergrande Group has been at the top of the list of Chinese property developers in terms of sales for three consecutive years since 2017. By the end of 2019, Evergrande Property Services is the third largest property management company in China, and the fourth largest property management company in China, which is 5.6 times the average value of China's top 100 property service enterprises. In 2019, the company had an income of 7.337 billion yuan and a net profit of 930 million yuan, with a compound growth rate of 29.1% and 195.5% respectively from 2017 to 2019. The net profit growth rate is the highest among China's top 20 property service enterprises.
Rapid endogenous growth and large space for external expansion
At the end of 2019, Evergrande Property Services managed an area of 238 million square meters, with a contracted area of 505 million square meters, with a compound growth rate of 31.12% from 2017 to 2019. By the first half of 2020, the company had an area of 254 million square meters under management and a contracted area of 513 million square meters, of which 98.9% came from Evergrande Group and 1.1% from associates and third-party developers. 1) Deep ploughing the core metropolitan area: the company has realized the national layout. In 2019, the proportion of the company's managed area in East China, North China, Northwest, South China, Southwest, Central China and Northeast China is 29.18%, 9.7%, 4.6%, 16.79%, 15.54%, 16.80% and 10.39%, respectively. Among them, the growth rate of tube area in South China, East China and Southwest China is remarkable, with year-on-year growth rates of 38.14%, 28.14% and 26.71% respectively in 2019. In the future, the company will continue to maintain the deep ploughing of the core metropolitan area, maintain the leading brand advantage and expand the scale of the company. 2) the top priority of the residential industry and the active development of non-residential: the company manages a diverse portfolio of properties, including mid-and high-end residential properties, commercial properties, theme parks, industrial parks, recreational projects, characteristic towns and schools. As of June 30, 2020, the company has signed 1354 projects, including 252 million square meters of residential and 2.66 million square meters of non-residential assets. 3) most of it comes from Evergrande Group, and the third party is expected to become a new growth point: 99.6% of the company's managed area comes from Evergrande, and the third party accounts for relatively small, but fast growth. The company expects to expand 360 million square meters of managed area for the whole of 2021, and the third-party expansion is expected to become the new annual high point of management area growth.
The gross profit of basic property management is stable, and the potential of value-added services is promising.
In 2019, the company achieved 7.333 billion yuan in revenue, with a gross profit margin of 23.9% and an operating profit margin of 17.2%.
Among them, the basic property management service mainly provides the company with services such as housekeeping, order maintenance, cleaning and greening, etc. The revenue of this business is 4.612 billion yuan, an increase of 33.13% over the same period last year, accounting for 62.90% of the total income, and the gross profit margin is 17.7%. Non-owner value-added services are mainly value-added services provided by the company to real estate developers at different stages of property development and delivery process. the business achieved 2.148 billion yuan in revenue, an increase of 2.1% over the same period last year, accounting for 29.29% of the total revenue, with a gross profit margin of 28.4%. Community value-added services mainly include community group buying, parking space rental, housekeeping and other services, with an income of 573 million yuan, an increase of 70.83% over the same period last year, accounting for 7.81% of the total income, and a gross profit margin of 57% of community value-added services. in the future, the company is expected to further tap the potential of high-margin community value-added services and expand in second-hand housing, insurance brokerage and other areas.
Investment suggestion: the company is the national property leader, backed by Evergrande Group, the endogenous scale is growing rapidly, the external expansion space is large, the company's basic property management gross profit margin is stable, value-added services are diverse and the potential is promising. We believe that the company will usher in a period of rapid development after capitalization in the next three years. we estimate that the company's operating income from 2020 to 2022 will be 10.372 billion yuan, 19.491 billion yuan and 26.723 billion yuan, and its net profit will be 2.481 billion yuan, 4.515 billion yuan and 6.20 billion yuan, corresponding to 0.23,0.42,0.57 yuan for EPS. Reference to comparable company valuation and taking into account the company's rapid growth period in the next few years For the first time, it is given a "buy" rating, which translates to HK $1 = 0.8346 RMB, with a target price of HK $31.40.
Risk tips: property payment is not as expected, extension is not up to expectations, and rising costs affect profits.
