Events:

On June 29th, the company announced that it intends to acquire 80% of Shanghai Shenqin property with a cash price of 498 million yuan. Shanghai Shenqin property has been ploughing deeply in the field of public construction in Shanghai for many years, mainly government property. Through the channel ploughing and management model to replicate the radiation to the public property, school property and other types. 2) in order to expand the depth and breadth of the company's format and regional layout, the net proceeds from IPO, which is used to seek strategic acquisitions and investment opportunities, will be increased from HK $1.75 billion to HK $2.45 billion.

Main points of investment

Maintain the buy rating with a target price of HK $11.80: we expect the company's operating income to be 38.2 and 6.73 billion yuan, respectively, up 152.0% and 76.0% year-on-year, and its core net profit to be 7.1 yuan and 1.22 billion yuan, respectively, up 101.4% and 72.5% respectively. We believe that the strong executive force of the management of the company, the sufficient reserves of Hexing Pacific, the strong external expansion ability of the acquired company and the strong incentive to the original core management of the acquired company, the company is expected to maintain rapid growth. Maintain the "buy" of the company

The rating, with a target price of HK $11.80, corresponds to 2021 PE, which is 17 times as much as 29max in 2022.

40% of the management has strong executive ability, and 40% of the additional acquisition targets have been achieved. In January 2021, after the company announced the acquisition of Cedar Zhaopin, the tube area was increased to 130 million square meters. On this basis, the company raised its 2021 management area target to 200 million square meters. In the additional 70 million square meters added to the tube area, the M & A target is 4500 million square meters. By the end of 2020, Shanghai Shenqin property has more than 120 projects under management, covering an area of about 1800 million square meters. With strong execution, the management of the company has achieved 40% of the additional acquisition target for the whole year.

Complementary format, deep ploughing: by the end of 2020, the company's area in the Yangtze River Delta is only 6.42 million square meters, accounting for 16% of the total area. After the acquisition of Cedar Zhaopin and Shanghai Shenqin property, the company's project scale and project density in the Yangtze River Delta have been greatly increased. In addition, the company's layout in Shanghai is mainly commercial, office and residential, and this acquisition will strengthen the company's public property service capacity in Shanghai. Shanghai Shenqin property is also expected to rely on the company's platform and resources to expand in other cities in the Yangtze River Delta.

Sufficient incentives to retain the core management team: the company acquires 80% of Shanghai Shenqin property, while the remaining 20% still belongs to the company's founder, Min Xiaoping. In order to ensure the stability of the core management, the company proposes to share the higher excess profits to Min Xiaoping, giving 70% of the excess profits exceeding the 8% year-on-year growth to Min Xiaoping. The founder's industry status and network resources are conducive to the sustainable development of Shanghai Shenqin property, and using incentives to lock in the core management is also conducive to the smooth transition and integration after the acquisition of Shanghai Shenqin property.

There is plenty of cash flow to support the full-year acquisition target: by the end of 2020, the company had 2.96 billion yuan in cash on hand. Since 2021, the company has received mergers and acquisitions together with Cedar Zhaopin and Shanghai Shenqin Properties, with a total cash consideration of 1.81 billion yuan, taking into account the transaction structure of the company's acquisition by installments and the operating condition of the net cash inflow from operations. it is estimated that there is at least 1.4 billion yuan in cash on hand, which is enough to support the remaining 2700 million M & A target.

Risk tips: business expansion and acquisitions are not as expected; commercial project operations are not as expected; collection rates and occupancy rates are not as expected; value-added business expansion is not as expected.