Company overview
Financial Street property is an integrated property management service provider, mainly to manage commercial projects. According to the middle finger institute, in terms of the company's comprehensive strength, it ranks 16th among the top 100 property service enterprises in China in 2020.
Superior enterprise: financial Street Group, is a large state-owned enterprise, the major shareholder is Beijing Xicheng District SASAC. Its business is multi-source, covering government key projects, real estate development, finance, property operation and management, culture, education, health care and other industries. The group earnestly fulfilled its social responsibility, steadily promoted the construction of key government projects, and led the construction of the core functional areas of Xicheng District, such as Beijing Financial Street, Xidan Business District, Desheng Science and Technology Park, Tianqiao Performing Arts District, etc. Financial Street Holdings is its real estate listing platform.
Brother company: financial Street Holdings, listed in Shenzhen in 2000 (stock code: 000402), is a large-scale development and operation holding company with commercial real estate as its main business. Adhere to the regional strategy of "deeply ploughing the central cities of the five urban agglomerations and expanding the satellite cities around the one-hour traffic circle of the central cities of the five urban agglomerations". Layout in Beijing, Tianjin, Shanghai, Suzhou, Wuxi, Foshan, Chongqing, Chengdu, Wuhan and other cities. By the end of 2019, Financial Street Holdings has entered 16 key cities in the five major urban agglomerations, with a total land storage of about 17.5 million square meters (about 14 million square meters corresponding to equity planning).
In 2019, the sales contract of Financial Street Holdings is about 31.9 billion yuan, with a sales contract area of 1.18 million square meters. Among them, the sales contract for residential projects is about 26.6 billion yuan, with a sales area of about 1.04 million square meters, and the sales contract for commercial projects is about 5.3 billion yuan, with a sales area of about 140000 square meters. According to Carey's total sales in 2019, it ranks 82nd in the country.
As of 2019, Finance Street property provides property management and related services for a total of 144property projects across the country, involving a total floor area of about 19.9 million square meters, of which about 40 per cent is located in Beijing. About 63% in terms of income come from Beijing. The company focuses on non-residential project management, accounting for about 75.9% of revenue in 2019, of which office buildings account for 51.1% of the company's main source of income. Revenue from projects affiliated to the Financial Street Group accounted for 66.4%.
The company mainly provides four major services:
1) basic property management. Accounted for 77.9% of total income in 2019; II) living services. Accounting for 19.7% of total revenue in 2019, including parking lot management services, sales and display unit management services, customized cleaning, security, maintenance and maintenance services, and interior decoration management services, etc.
III) Rental service. 0.6% of total revenue in 2019
IV) Catering service. Accounted for 1.8% of total revenue in 2019.
Industry status and prospects
According to the analysis of the Central finger Institute, by the end of 2019, Chinese properties had about 23.9 billion square meters of management floor, of which the top 100 accounted for about 43.5 per cent. With the comparative advantage of head enterprises in resource integration.
In addition, property management services are labour-intensive industries, involving a large number of workers, such as security, cleaning and maintenance personnel.
The minimum monthly wage is constantly increasing. In the absence of economies of scale, small and medium-sized developers will choose to sell their property companies to large property management companies, or select other large property management companies for their newly developed property projects as service operators. The Matthew effect will continue.
In the environment of fierce market competition, the profit level of basic property management services is expected to decline, and the development of value-added services will be the key to the success of enterprises in the future. It is beneficial for real estate enterprises with multiple formats to introduce different kinds of value-added services into the property management sector, so as to improve the overall profitability.
Advantages and opportunities
As a leading brand in North China (especially Beijing) and even the whole of China, Financial Street is well-known in the industry. It was honored as "leading Enterprise of Office property Management in China in 2020", "Top 100 leading Enterprise in Service quality of property Service in China in 2020" and "leading Enterprise of property Service with Chinese characteristics-Commercial property Management Service in 2020".
As of December 2019, the company's office building is about 6.4 million square meters in management area, ranking fourth among the top 100 property service enterprises in Beijing, Tianjin and Hebei in 2020, accounting for 32.1% of the total construction area.
The layout of 16 key cities in China has been completed, and the property management business has been extended to six regions (namely, North, Southwest, East, South, Northeast and Central China). As of December 2019, the company's well-known financial management centers that provide property management and related services include Chongqing Jiangbeizui City, Nanjing City, Huai'an Financial Center, Tianjin World Financial Center and Shanghai Hongkou District Financial Street Helen Center.
Weakness and risk
The company's gross profit margin in 2019 is 19.2%, which belongs to the lower and middle level in the industry, which is mainly restricted by the low value-added service ratio of commercial property, and the value-added service format of commercial office property is not much.
The company's revenue from value-added services in 2019 (we include food and beverage services in value-added services) is about 210 million yuan, with a gross profit margin of 16.8% and a gross profit margin of 36 million yuan respectively. Segment revenue and gross profit of value-added services accounted for about 21% and 18.8% of the total respectively.
The property management industry is one of the labor-intensive industries, and labor costs (plus subcontracting costs) account for about 82% of the company's sales and service costs. The increase in minimum wage and labor costs will affect future profitability.
Sales growth in Financial Street is relatively stable, and the company's natural growth rate is expected to be lower than that of its peers.
Investment valuation
We expect the acceleration of mergers and acquisitions in the industry, the property management industry is repeating the development process of the real estate industry, the degree of concentration continues to increase, and the industry integration will accelerate. However, the company is mainly office property management, and the future growth will be lower than that of the same industry. Coupled with the low development of value-added services in commercial buildings, we believe that there should be pricing in the format.
The property sector is relatively hot, assuming the above line pricing (HK $7.56 per share), we expect the company to price-to-earnings ratio of about 18 times 2020. Although the valuation is lower than that of the same industry, considering that the sales of Financial Street Holdings are relatively stable, which drags down the future growth rate of Financial Street properties, we think the valuation is reasonable, but there is not much room for short-term growth.
There are not many commercial property management companies listed in Hong Kong, and with the background of state-owned enterprises, there will be a certain amount of capital after listing.
Considering the above, we give the company a special IPO rating of 6 points.