Property management services are leading the way, with steady growth. The compound annual growth rate of the company's managed area in 2017-2020 was 29.43%, and the compound annual growth rate of contract area was 20%. As of February 28, 2021, the number of property projects under management by the company was 2,792, covering 310 cities across the country, serving 3.1 million households. The area under management was further increased to about 3 million square meters, and the contracted area increased to 565 million square meters.
Backed by China Evergrande, it has sufficient follow-up strength. From 2017 to 2019, China Evergrande's sales area grew at an average compound annual rate of 7.8%. The average annual compound growth rate of completed area was 30.6%. As of 2020H1, Evergrande Group's cumulative land storage area was 240.0 million square meters.
The acquisition of Ningbo Yatai is a powerful complement to the non-residential business format. On January 29, 2021, Evergrande Property acquired 100% of the shares of Ningbo Yatai Hotel Property Service Co., Ltd. for a total consideration of RMB 1.5 billion, adding more than 80 million square meters of management area, covering residential, office buildings, urban complexes, large industrial parks, etc., and took the first step in high-quality mergers, acquisitions, and outbound development, strongly complementing the non-residential sector.
Value-added services for owners expand the track and diversify development. The compound annual growth rate of value-added services for landlords from 2017 to 2020 was 71.4%. Compared to 2019, 2020 increased 120.6% year-on-year to 1264.1 million yuan. The high growth is mainly due to the rapid growth of community management services, which is due to the company's vigorous development of parking space rental services. We believe that the continuous development of small racetracks (such as parking space rental services, community group purchases, etc.) has made it possible for community value-added services to break through the limitations imposed by management scale and achieve faster growth.
Basic property management is highly certain, and its operating performance ranks first in the industry. Judging from the project data, if you count the acquired area in January 2021, Evergrande Property's management scale exceeded 300 million square meters, ranking first. The company's contracted floor area/construction area under management is 2.0 times, second only to Country Garden Services and Greentown Services. It has abundant reserves, and there is strong certainty that revenue growth from basic property management services will increase. Judging from profit margins, Evergrande Property's basic property management, value-added services for non-owners, and value-added services for communities are all at a high level among comparable companies. Evergrande Properties' 2020 H1 consolidated gross margin was 38.1%, slightly higher than Country Garden Service's 37.2%; net profit margin was 4.1 percentage points ahead of second-ranked Country Garden Service, reaching 25.1%.
Investment advice: “better than the market” rating. We expect the company's EPS for 2021-2022 to be RMB 0.41 and RMB 0.60 respectively. As of March 29, 2021, the company closed at RMB 13.02 (HK$15.48), corresponding to PE of 31.70 times and 21.61 times in 2021 and 2022. Comparable companies' average PE levels were 54.32 times and 37.69 times, respectively. We gave the company 45-50XPE in 2021, a reasonable value range of RMB 18.48-20.53 (HK$21.97-24.41), giving the company an “superior market” rating.
Risk warning: The expansion of management scale falls short of expectations; the expansion of value-added services falls short of expectations; labor costs are rising too fast. Exchange rate: HKD 1 = RMB 0.841. The full text is in RMB without special description.
