After Fancy year Holdings (01777) spun off its property management company Caisheng (01778) to list in Hong Kong in 2014, Hong Kong stocks ushered in a wave of listings of mainland property management companies. and emerged Country Garden Services Holdings (06098), elegant living Services (03319), Greentown Services (02869) and other stocks that bring rich returns to investors.

Because of this, investors expect more and more high-quality property management companies to be able to enter Hong Kong stocks.

Zhitong Financial APP noted that time China Holdings (01233) issued an announcement on September 9th that the company proposed to spin off its subsidiary time Neighbourhood shares and list them independently on the main board of the Stock Exchange through distribution and global offering (including priority offering) of time Neighbourhood shares. The independent listing of time Neighbourhood shares on the main board of the Stock Exchange constitutes the company's divestment of time Neighbourhood in accordance with the 15th application guidelines. The SEHK has confirmed that the company can carry out the proposed spin-off. On the same day, time Neighbourhood submitted its listing application to the Stock Exchange.

So, can this property management company, which is backed by time China, have the potential to bring rich returns to investors in the secondary market like other excellent property management companies?

Rapid growth in performance and low dependence of business on parent group

According to the time neighborhood prospectus, the company's business is mainly divided into four parts: property management services, non-owner value-added services, community value-added services and other professional services. As of June 30, 2019, the time neighborhood has 210 projects under management, including property management projects (including residential areas, industrial parks, commercial properties and offices, multi-functional complexes, government buildings, public facilities, airports and educational institutions, and municipal sanitation projects) located in 15 cities in China, with a total construction area of more than 42.7 million square meters.

During the track record period, the performance of the time neighborhood grew rapidly, with income up from 373 million yuan in 2016 (the same below).

It increased to 696 million yuan in 2018, with a compound annual growth rate of 36.6%, and the company's revenue increased by 48.1% to 456 million yuan in the first half of 2019. From 2016 to 2018, the time neighborhood net interest rate increased from 20.1 million yuan to 64.2 million yuan in 2018, with a compound annual growth rate of 78.8 percent. The company's net profit reached 41.8 million yuan in the first half of 2019, an increase of 50.7 percent over the same period last year.

It is worth noting that the performance of the time neighborhood has grown rapidly in the past, but the company is not highly dependent on the parent group. According to the prospectus, the company's biggest customer is time China Group, which provides property management services, value-added services to non-owners and community value-added services. From 2016 to 2018 and the first half of 2019, the company's income from providing services to time China Group was 120 million yuan, 121 million yuan, 216 million yuan and 122 million yuan respectively, accounting for 32.3%, 23.4%, 31.1% and 26.8% of the company's total revenue, respectively. In the same period, the company's income from providing services to the company's top five customers was 126 million yuan, 137 million yuan, 238 million yuan and 133 million yuan respectively, accounting for 34.0%, 26.4%, 34.2% and 29.4% of the company's total revenue, respectively.

In August 2016, Guangzhou Times property Management, a subsidiary of time Neighbourhood, bought a 70 per cent equity stake in Junan Elevator with a total consideration of 26.052 million yuan.

In February 2019, Guangzhou time property Management entered into an equity transfer agreement with an independent third party, Guangzhou Guangyong State-owned assets Management Co., Ltd., Guangzhou time property Management acquired all equity interests held by Guangzhou Guangyong in Guangzhou Dongkang for a total consideration of 45.27 million yuan.

In order to expand the scale of the company's business in Foshan, Guangzhou time property Management entered into an equity transfer agreement with Foshan Guinan Investment Co., Ltd and Foshan Yixin, an independent third party, in April 2019, Guangzhou time property Management acquired the entire equity interest held by Foshan Guinan in Foshan City at a maximum consideration of 1.8491 million yuan. Time neighborhood said in its prospectus that the acquisition is expected to be completed by the end of September 2019, and as of the last practicable date, Foshan Yixin is engaged in providing property management services and other value-added services in Foshan.

The debt is high and the sustainable ability of "hematopoiesis" of business activities remains to be tested.

It can be seen that the development model of the neighborhood of the times is the same as that of other large property management companies, that is, providing management services for the parent company and extension mergers and acquisitions. However, in the process of development, the time neighborhood adopted a highly leveraged model, with the company's adjusted asset-liability ratio above 90% from 2016 to 2018 and still as high as 82.6% in the first half of 2019.

In this case, if the company's business activities can not continue to "hematopoiesis" will face heavy debt repayment pressure. Judging from the past cash flow performance, the net cash flow of the time neighborhood's business activities was 4.383 million yuan in 2016 and 23.307 million yuan in 2017, showing tepid performance. Although the company ushered in a "highlight moment" such as a net cash inflow of 1.115 billion yuan from operating activities in 2018, the net cash flow of the company's investment activities also reached 1.543 billion yuan.

By the end of the first half of 2019, the net cash flow from the company's investment activities reached 109 million yuan, but the net cash flow used by operating activities was 847 million yuan, plus the net cash flow used by the company's financing activities was 139 million yuan. The cash and cash equivalents of the time neighborhood decreased significantly to 304 million yuan at the end of the first half of 2019.

On the one hand, with a high debt ratio and a sharp contraction of funds on the account, it should be difficult for the neighbors of the times to expand their business territory through mergers and acquisitions that require a large amount of capital investment in the future, which may be one of the reasons why the company seeks to go public.

It seems that the neighborhood of the times still needs the help of the parent group in order to maintain no lower performance growth than in the past. Zhitong Financial APP learned that in the first half of 2019, time China achieved contract sales of 31.23 billion yuan, an increase of 20.1% over the same period last year, and a sales area of 2.064 million square meters, an increase of 36.8% over the same period last year. China is still one of the top 100 real estate enterprises with rapid growth in performance.

However, time China achieved only 41.6% of its annual sales target of 75 billion yuan in the first half of the year, down 5.4% from 46% in the same period last year. The latest sales figures from time China show that cumulative contract sales (joint venture project sales) for the eight months ended Aug. 31, 2019, were about 43.14 billion yuan, down to 17.8% from the first half of the year. In August, the amount of contract sales (joint venture project sales) in time China was about 6.328 billion yuan, an increase of 14.3% over the same period last year. This means that in the four months from September to December, time China will have to achieve an average monthly sales of about 8 billion yuan in order to achieve the set sales target.

In the context of urban price restrictions and financing tightening, it is still a question mark whether time China can achieve its full-year sales target. It is unknown how much benefit China will bring to the performance growth of its neighbors in the future.