Company profile
Star Group is a property management service provider providing comprehensive property management and related services to residential and non-residential properties in China. According to the cautionary report, according to the total floor area managed in 2018, the company ranks 21st in the property management market in Beijing and ninth in the property management market of subsidiaries of non-state-owned developers in Beijing, with a market share of about 0.7%. The company provides property management services in eight cities in Beijing-Tianjin-Hebei region, Hainan Province, Hubei Province and Shaanxi Province. The total gross floor area managed is about 4.9 million square meters, including 21 residential properties (a total of more than 39000 units) and 15 non-residential properties. The contract reserve construction area is about 3.22 million square meters, and 14 property projects will be managed in the future.
Sino-Thai viewpoint
The future development of China's property management industry is considerable, and the company relies on the future growth of Hongkun Group: according to the Burning knowledge Consulting report, the total construction area of properties under management in China is expected to increase from 21.7 billion square meters in 2018 to 34.5 billion square meters in 2023, with a compound annual growth rate of 9.7 percent. Hongkun Weiye, a member of Hongkun Group, is the leading property developer in Beijing-Tianjin-Hebei region and has been selected as one of the top 100 real estate development enterprises in China for seven consecutive years since 2013.
In terms of operating performance: in the fiscal year from 2016 to 2018 and as of September 30, 2019, the company's operating income was 120 million yuan, 190 million yuan, 250 million yuan and 180 million yuan respectively. Most of the company's property management service income comes from the properties developed by the management parent company Hongkun Group, of which the income from residential properties accounts for 68.9%, 64.1%, 60.4% and 60.2% of the total income, respectively. The gross profit margin is 32.7%, 35.4%, 32.5% and 37.6% respectively; the labor cost accounts for about 41.6%, 46.2%, 46.6% and 40.8% of the service cost respectively; and the net profit margin is 15.1%, 18.6%, 14.8% and 11.8%, respectively.
Valuation: based on 400m shares after the global public offering, the company's market capitalization is HK $528m to HK $632 million, which is lower than the average of Hong Kong equities. The 18-year price-to-earnings ratio is about 12.9-15.5 times, which is lower than the industry average; the price-to-book ratio is about 3.07-3. 22 times lower than the industry average. In terms of profitability, the 18-year ROE and ROA were 42.5% and 14.3% respectively, which are in the industry average. The company introduced Successful Lotus, an investment holding company wholly owned by Dr. Henderson Land Development (12 HK), as a cornerstone investor, subscribing for approximately HK $21 million. Sponsors in the past 2 years, a total of 6 projects, 5 up and 1 down. We counted a total of 9 property management IPOs listed in 2019, and only one overvalued neighborhood of the times (9928 HK) broke on the first day. We believe that although the size of the company is small, the valuation is in a reasonable range, with a rating of 66 points and a rating of "purchase".
Risk hints: (1) market competition risk, (2) industry policy impact, (3) business is mainly concentrated in Beijing-Tianjin-Hebei region.