China / Hong Kong Industry Focus
China Property Management Sector
Refer to important disclosures at the end of this report
DBS Group Research . Equity
Superior risk-return profile
•
Despite its defensive nature, property management
industry will see market size double by 2030, creating
tremendous growth opportunity
•
Earnings of leading players under our coverage to
grow at a decent average 3-year CAGR of 42%
•
Our in-depth analysis showed that CGS will stand out
for its strongest growth potential with superior
visibility; Colour Life (1778 HK) offers the best riskreward trading opportunity
Defensive industry with market size set to double in the next
15 years. We identified the property management sector as a
Recurring, Innovative-driven, Cash-rich and High growth
(R.I.C.H) industry that is defensive and has decent growth
potential. We estimate the industry’s current market size of
>Rmb450bn is set to grow at a decent CAGR of >5% up to
2030. This points to a doubling in market size within the next
15 years. The four leading players that we are initiating
coverage on are expected to achieve 3-year earnings CAGR of
42% on average based on modest assumptions on M&A, fee
increase and value-added services (VAS) growth. Faster-thanexpected M&A and margin enhancement from automation,
economies of scale and VAS would pose upside surprises to
our current estimates.
Country Garden Services (CGS) and Greentown Services (GTS)
ranked highest in terms of overall attributes under our inhouse scorecard. We have ranked the companies under our
coverage based on a combination of nine key attributes for
property management services and five key factors for valueadded services to gauge their overall strengths and
competitiveness in this sector. On an overall basis, we
identified CGS and GTS as having the best attributes, with
CGS scoring the strongest on the property management front
and GTS with the best growth potential in terms of VAS. This
is followed closely by A-Living and Colour Life.
Pick CGS and Colour Life after factoring in valuations. The
sector is trading at 19x/15x FY19/FY20F PE and has outpaced
HSI by 5% YTD. We believe the outperformance will likely
continue given the industry’s superior growth outlook and
high earnings visibility, particularly under the current volatile
and uncertain market environment. Our top pick is CGS given
its strongest growth potential as identified under our
scorecard that is bolded with superior visibility, together with
a more compelling valuation after its recent top-up placement
exercise. Colour Life offers the best risk-reward trading
opportunity given its discounted valuation to peers.
ed-TH JS/ sa-CS / AH
27 Feb 2019
HSI: 28,959
ANALYST
Jason LAM +852 36684179 jasonlamch@dbs.com
Danielle WANG CFA, +852 36684176 danielle_wang@dbs.com
Ken He CFA, +86 21 3896 8221 ken_he@dbs.com
Recommendation & valuation
Company Name
Country Garden Serv ices
Holdings*
(6098 HK)
Greentown Ser.Gp.*
(2869 HK)
A-Liv ing Serv ices 'H'*
(3319 HK)
Colour Life Serv ices Gp.*
(1778 HK)
T arget
Pric e
Pric e
L oc al$ L oc al$
Rec
Mkt
Cap
US$m
PE
19F
x
12.86
19.42
BUY
4373
25.9
7.30
8.65
BUY
2584
26.7
12.52
15.87
BUY
2127
16.0
4.92
6.63
BUY
833
9.1
Source: Thomson Reuters, *DBS Hong Kong (DBS HK), Bloomberg Finance
L.P.
Industry Focus
China Property Management Sector
Table of Contents
Investment summary
3
The property management business
6
A scalable market with decent growth potential
6
Major channels of growth for leading players
8
Stable margin outlook for the next 2-3 years with potential upside from supportive policies
10
The emergence of value-added services (VAS)
13
Frequently raised concerns on the sector
18
In-house scorecard
21
Valuations and financial comparisons
29
Appendix 1: Charging methods – Lump-sum vs Commission-based
32
Appendix 2: Incentive schemes in place
33
Stock Profiles
38
Country Garden Services Holdings (6098 HK)
38
Greentown Service Group (2869 HK)
45
A-Living Services (3319 HK)
51
Colour Life Services Group (1778 HK)
58
Page 2
Industry Focus
China Property Management Sector
Investment summary
A transforming R.I.C.H Industry
An industry undergoing transformation… Together with rapid
growth in the property development sector, China has
accumulated 12.1bn sm of residential and non-residential
completed properties in the past 15 years. But, with the
absence of good quality property management services, the
state of the properties (and thus values) have deteriorated at a
much faster pace compared to overseas cities. Currently, driven
by the increasing weight of properties represent within
household wealth led by higher property prices, together with
growing evidence that property management services can offer
additional value, property owners are increasingly willing to
spend on property management services as a way to preserve
property values. According to data compiled by Noah Research,
real estate as an asset class represents c.65% of private
household asset allocation in China (vs. 49%/34% in
USA/Japan). This, coupled with an increasing emphasis on
living standards, is now reshaping property management from
a service with limited pricing power towards a value-adding
service with room for management fee and profitability uplifts.
…with policy heading towards liberalisation. Against the
backdrop of China’s target to meet the population’s everth
growing need of a better life that was set during the 19
National People’s Congress held in late 2017, the property
management sector is now operating under an increasingly
supportive policy environment with the removal of entry
barriers, gradual step-ups in fee guidance, and the progressive
handover of SOE-managed facilities to privately-owned
property management services providers. Compared with other
emerging sectors like education and healthcare which are
increasingly regulated by the government, the property
management sector is seemingly faced with lower policy risks.
R - Recurring in nature. A key feature of this sector is its assetlight and long-term recurring business model. On one hand,
property management services are engaged via service
contracts with limited amount of assets required for
operations. On the other hand, typical property management
service contracts last for 3-5 years upon the formation of a
property owners association (or no definitive expiry date for
projects where property owners associations have yet to be
formed) with a pre-determined fixed management fee to be
received periodically. According to the China Index Academy
(CIA), average contract renewal rate for the Top 100 property
managers currently stood at a decent c.98% for the past four
years, alongside gradually improving cash collection ratio that
arrived at c.94% for the past three years. These point to the
strong recurring element of this industry. Coupled with a
scalable market size of c.Rmb450bn that is set to grow at c.5%
CAGR up to 2030, this sector is an attractive alternative for
investors seeking exposure on companies with a defensive
business profile.
I - Innovation and technology to offer additional growth
potential. Property management companies can use
technology and innovation to optimise operational efficiencies.
Through the use of cameras and other types of automation,
property managers can reduce their extensive exposure to
labour costs, which has been growing rapidly and even
exceeding management fee growth.
Technology also offers an opportunity for property managers
to better monetise their existing resources derived from
managing communities. With their proximity to
residential/commercial communities, in addition to offering
basic property management services, property managers are
well positioned to offer complimentary value-adding services
(VAS) to their managed communities. This is further facilitated
by the increasing use of online platforms/applications that is
enabling property managers to efficiently distribute these
services to their managed communities. Unlike basic property
management business, VAS in general commands higher
profitability with decent growth potential. This enables
property managers to establish a more diversified income
stream and enhance overall profitability.
China Property Management Sector structure
Source: DBS HK
C - Cash-rich. Most of the listed property managers are in net
cash positions thanks to their asset-light business models.
Together with the recurring income nature of the sector,
property managers’ performances are less sensitive to macroeconomic trends or monetary policies. Their cash-rich position
(together with support from the capital market for listed
players) also enables them to embark on M&As to grow at a
faster pace and/or promote efficiency and profitability through
investments into technology and innovation.
Page 3
Industry Focus
China Property Management Sector
China property management companies listed on the
HKSE
HK IPO
Y ear
Net % of IPO
Cash
of proc eeds proc eeds raised f or
L ist ing
raised planned
M &A
(Rmb mn) f or M &A (Rmb mn)
peers in the property management business despite its
currently scalable presence within the business segment.
Results of in-house scorecard
Companies
CGS
GTS
A-Living
Colour Life
Propert y
management
serv ices
(av g score)
V AS
(av g score)
Ov erall
score
1
3
2
4
2
1
4
3
3
4
6
7
Colour Life
Zhong Ao Home
China Ov erseas Property
Greentown Serv ices
Clifford Modern Liv ing
Riv erine China
A-Liv ing
Country Garden Serv ices
Ev er Sunshine Lifesty le
Serv ices
2014
2015
2015
2016
2016
2017
2018
2018
710.0
238.2
N/A
1,265.8
46.4
104.9
3,187.8
N/A
60%
60%
N/A
38%
30%
58%
65%
N/A
426.0
142.9
N/A
481.0
13.9
60.5
2,072.1
N/A
2018
595.2
39%
232.1
Trading at more attractive valuations
Kaisa Property
2018
288.9
50%
144.5
Valuations trading at more attractive levels, supported by
favourable fundamentals. The property management sector
underwent a correction triggered by market concerns regarding
potential impact from the new social security payment
arrangement that is coupled with adverse market sentiment as a
result of a slowdown in the property development sector. The
sector is currently traded at 19x FY19F PE and 15x FY20F PE
(simple-averaged), versus that of c.30x 1-year forward PE back
in Jul-18. This presents a good entry point for investors who
wish to increase exposure on defensive stocks that ride on the
sizeable property market in China.
Property Management Sector
Feb-19
110
105
100
95
90
85
80
75
70
Jan-19
A-Living had adequate scores in terms of attributes in property
management led by its high growth potential derived from its
M&A-led growth strategy, but came third on an overall basis
given its sizeable dependence on property sales-related VAS
business, which are less certain in nature. Colour Life recorded
satisfactory scores in VAS operations thanks to its wellestablished online platform, but its ranking on an overall basis
was dragged by its comparatively weaker growth potential to
Rebased J ul 2018 (6-mth)
Dec-18
CGS ranked first under our in-house scorecard due to its strong
capability in the property management space. The company
has the highest growth potential from organic growth (sizeable
reserved GFA for future conversion) and parent support. GTS
came second overall with its superior track record in VAS (led
by its strong presence in community VAS and huge potential
from its largely untapped high-quality projects), coupled with
its strong reputation in the property management business.
Performance of property management companies vs HSI
(6 months)
Nov-18
We have identified 9 key operational and financial attributes
for property management services and 5 key factors for valueadded services to gauge key players’ overall strengths and
competitiveness in this sector.
Oct-18
Country Garden Services (CGS) had the best scores based
on our in-house scorecard, followed by Greentown
Services (GTS)
Ex-cash forward PE multiple also indicates attractive valuation.
In light of the typical cash-rich positions of property
management stocks, the sector trades at a simple-averaged
16x/12x FY19E/FY20E PE ex-cash. We believe the sector is not
as expensive as some investors may have initially perceived.
Sep-18
H - High growth. In 2017, the top 100 property managers
represented only c.32.5% of the sector’s total market share
according to the China Index Academy (CIA). This indicates
substantial growth opportunities through market
consolidation. Our earnings growth projection of the four
major players we are initiating coverage is simple-averaged at
42% CAGR in the coming three years, compared with 27%
(before potential downward revisions) for developers and 7.4%
of HSI constituents.
Aug-18
Source: Companies, DBS HK
Note: Lower the results from our scorecard, the better the company’s
attribute within the specific category.
Source: DBS HK
Hang Seng Index
Source: Bloomberg Finance L.P., DBS HK
Page 4
Industry Focus
China Property Management Sector
CGS is our top pick in the sector; Colour Life is attractive on
a valuation standpoint. Putting together the results based on
our scorecard together with the counters’ respective valuations,
CGS is our top pick of the sector given its highest growth
potential and superior earnings visibility. Its decent valuations
after its top-up placement exercise in Jan-19 now offers a good
entry point for investors and there is potential for further rerating as market sentiment recovers. Meanwhile, given its
discounted valuation from peers, Colour Life comes as an
attractive valuation play as we believe market concerns on its lack
of parent support, relatively inferior project quality and
uncertainty on its growth strategy have overshadowed the
counter’s sizeable recurring earnings stream and its longestablished track record that was developed over the years. We
believe the counter warrants to trade at least on-par to its
historical average forward PE multiple since 2018.
Peers valuation table
Colour
V aluat ion
GT S
L if e
Hist oric al 1- y ear f orw ard PE muilt iples
27
18
Historical av erage (x)
27
16
Historical median (x)
38
47
Historical peak (x)
Historical trough (x)
17
7
CGS A - L iv ing
34
34
53
19
18
27
22
11
Hist oric al 1- y ear f orw ard PE muilt iples (sinc e 2018)
Historical av erage (x)
29
12
34
Historical median (x)
29
12
34
Historical peak (x)
38
18
53
Historical trough (x)
22
7
22
19
18
27
11
V aluat ion mult iples
Target F Y19/20 PE multiple (x)
Target price (HK$)
Current price (HK$)*
Current v aluations (x)*
Upside potential (%)
29
8.65
7.30
28
18.4%
12
35
6.63 19.42
4.92 12.86
9
27
34.7% 51.0%
19
15.87
12.52
17
26.7%
* Based on closing price at 25 Feb 2019
Source: Bloomberg Finance L.P., DBS HK
Page 5
Industry Focus
China Property Management Sector
The property management business
GFA sold in the past 15 years
Scalable business in both residential and non-residential
markets…… Taking 15 years of completed gross floor area
(GFA) as the current size of the property management market,
residential properties for management as at end-18 was
around a sizeable 9.3bn sm, alongside c.2.8bn sm for nonresidential properties (offices, retail malls and shops,
warehouses, etc). This translates to a largely untapped 12.1bn
sm of GFA available for management. Implying an average
management fee of Rmb2.3psm/mth and c.Rmb7.0psm/mth
for residential and non-residential properties respectively as per
data compiled by the CIA, the current market size of the
property management sector is estimated at >Rmb450bn.
(m sm)
2,000
46%
1,500
1,000
500
53%
55%
26%
19%
7%
5…
9%
10%
-19%
35%
22%
17%
8%
1%
-8%
15%
1% -5%
0
-25%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
A scalable market with decent growth potential
Non-residential GFA sold (LHS)
Residential GFA sold (LHS)
y-o-y growth (RHS)
Source: CEIC, DBS HK
GFA completed in the past 15 years
(m sm)
1,200
Residential properties dominating the equation. Residential
properties form the predominant type of properties managed
by property managers in China as 1) majority of properties sold
and completed are residential properties (c.88-90% of annual
GFA sold); and 2) most property managers were founded by
property developers to manage projects sold by them, which
are mostly residential properties. Now, there is an emerging
trend for property managers to diversify into other types of
properties.
1,000
800
600
400
200
Residential GFA completed
2017
2018
2016
2014
2015
2013
2011
2012
2010
2008
2009
2006
2007
2004
2005
0
Proportion of types of properties managed by Top 100
property management players in 2017
Rest of GFA completed
Source: CEIC, DBS HK
……. with sustainable growth potential. As at end-18, sold but
uncompleted residential GFA stood at c.3.8bn sm remaining
for conversion. In terms of future GFA sales, our in-house
forecast currently expects residential GFA sold per annum to
remain stable at c.1.2bn sm. This points to a sustainable CAGR
of >5% for the overall market up to 2030.
Schools Hospitals Others
Industrial
0%
2%
4%
parks
4%
Public
properties
2%
Offices
9%
Commercial
9%
Residential
70%
Source: CIA, DBS HK
Page 6
Industry Focus
China Property Management Sector
An overlooked part of the picture – schools, hospitals and
public properties. Given the significant scale of residential and
non-residential (commercial and office) properties, other types
of projects comparatively smaller in scale were left out from
the picture, such as schools, hospitals and public properties.
Based on our estimates, existing GFA for completed schools
and hospitals stand at c.1.5bn sm and 0.4bn sm respectively.
Applying the corresponding average management fees of
Rmb3.4psm/mth and Rmb6.88psm/mth as per CIA, the current
market size of this largely untapped segment amounts to a
decent c.Rmb95bn. Cash collection ratio for these properties
are generally better given their consolidated ownership
structures.
Average management fee by property type in 2017
Fee collection rate
Further room for residential management fee growth as
property is representing an increasing portion of household
wealth. Property is a key asset class that represents a
meaningful portion of household wealth. This is increasingly
more so alongside rapid growth in ASP over the past few years.
According to data compiled by Noah Research, real estate as
an asset class represents c.65% of private household asset
allocation in China. Consequently, demand to preserve
property value have concurrently increased. According to the
CIA, secondary home prices and annual rental income of
properties managed by the Top 100 property managers have
been consistently higher compared to other nearby property
projects over the past 5 years with respective differences stood
at 9.1% and 6.9% in 2017. This points to the evident value of
property management services to property values, and thus
room for quality managers to command higher property
management fees.
101%
99%
Schools
97%
Public properties
Residential
Industrial parks
95%
Hospitals
Offices
Others
Commercial
93%
91%
89%
87%
0
2
4
6
8
10
Rmb/sm/month
Rmb psm
9,000
21%
8,000
18% 17%
15%
7,000
6,000
5,000
4,000 4%
3,000
2,000
1,000
0
25%
20%
11% 12% 15%
9%
8%
8%
7%6%
10%
6%
5%
4%
0%
1%
0%
-5%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: CIA, DBS HK
Residential ASP in China
Market share of top 100 property management players
CN residential ASP (LHS)
Y-o-y growth (RHS)
Source: CEIC, DBS HK
35%
30%
25%
20%
20.7%
15%
10%
11.4%
5%
0%
21.4%
13.3%
4.9%
6.2%
7.6%
2013
2014
2015
Top10 market share
Source: CIA, DBS HK
19.3%
10.2%
11.06%
2016
2017
Top11-100 market share
One of the selective few sectors that are faced with favourable
policies. In contrary to most other property-related sectors, the
property management sector is one of the selective few that is
embraced with supportive policies. On one hand, the
government is putting in efforts to push forward market
reforms and to liberalise the sector. The separation of “Three
supplies and property management (三供一業)” services from
SOE companies to private company specialists is a case in
point. On the other hand, policy relaxations by local
governments on price guidance for initial temporary property
management contracts are increasingly evident. Shenzhen
proposed to raise the price guidance on property management
services for preliminary service contracts, while Jiangsu Province
removed original discounts on property management fees for
vacant units. We expect more supportive policies to come
along and stimulate the development of the sector.
Page 7
Industry Focus
China Property Management Sector
Major channels of growth for leading players
Fragmented market shares and gradual acceleration in market
share consolidation. Led by increased capital activities within
the sector and developers’ intention to expand their property
management arms, the pace of market share consolidation in
the property management market has picked up noticeably in
recent years with market share of the Top 100 property
managers more than doubled during the past five years. Yet,
the sector remains highly fragmented with the Top 100
property managers taking only c.32.5% of total market share
in 2017 according to the CIA. We believe the sector is still at
an early stage of market share consolidation and expect the
pace to pick up led by 1) continued consolidation on the
property development side; 2) gradual deployment of recently
raised capital; and 3) property managers expanding towards
third party projects.
New projects from parent and related developers – the
traditional channel. In the case of properties under
development (new projects), developers are required to invite
tenders and award property projects to the winning property
manager according to a predetermined set of criteria.
Naturally, developers usually award projects to their respective
property management arms/strategic partners. This has been
the traditional and major way for most property managers
(particularly for those with a large-scale parent) to obtain
projects for growth. Together with ongoing consolidation
taking place in the property development market, property
managers with strong developer backgrounds are in an
increasingly favourable position at this end.
Market share of top 10 property developers by GFA sold
(m sm)
20,000
25%
20%
15,000
19%
10,000
5,000
0
15%
15%
5% 6%
8% 9%
10% 11%
13%
10%
5%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Rest (LHS)
Market share (RHS)
Source: CRIC, CEIC, DBS HK
Top 10 developers (LHS)
New projects from third-party developers – the choice for
property managers lacking developer support. In the case of
property managers with none or negligible parent/related
developer support, the battlefield rests on tenders for new
projects by third-party developers that do not have a property
management arm (normally smaller developers). Previously,
competition at this end was comparatively lower as most
property managers (particularly those scalable ones) focused
mostly on taking up contracts from their parents. Now, with an
increased focus on growth, these reputable property managers
that were previously out of this segment have started to tap
into this market.
Projects from secondary market seeing rising interest. Another
source that has received less market interest in the past is
management service contracts for existing projects in the
secondary market, where property owners’ associations are
formed and are looking to switch to another property
manager. Previously, there was less focus on these projects as
1) size of the market was comparatively small – majority of
existing properties were relatively young (c.42% of our
estimated number of 12.1bn sm of properties for management
within the sector were completed over the past 5 years) and
majority had yet to form a property owner association (or
recently formed but contract has not expired); and 2) they
require more care when inspecting the project – as wear and
tear of facilities within these projects may affect property
manager’s profitability. Yet, as the property sales market enters
into a more matured stage with sales growth to moderate, the
proportion of GFA for management from the secondary
market will become increasingly meaningful. Currently, a fair
number of property managers that are able to scale up have
expressed increasing interest to tap on this segment for
growth.
M&A in property manager space – an increasingly popular
growth option. Given the inherent labour-intensive nature of
the industry, it is often difficult for property managers to
expand aggressively through clinching contracts to manage
new projects. Coupled with increasing interest from the capital
market and the sector’s naturally asset-light business model,
more property managers are exploring expansion opportunities
through acquiring existing players. The trend has become
increasingly evident with a growing number of property
managers tapping into the capital market for funds to carry out
M&As (e.g. Colour Life, A-Living). But, quality property
managers up-for-sale have become increasingly scarce and
expensive, not to mention the potential risks and complexities
(e.g. corporate culture conflicts, mixed project qualities)
involved with such deals. As such, a number of property
managers (e.g. GTS, Colour Life) have now turned more
cautious in growing through this channel.
Page 8
Industry Focus
China Property Management Sector
Consideration spent on M&As by large HK-listed
property managers
Rmb (m)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2015
2016
2017
Source: Companies, DBS HK
Page 9
Industry Focus
China Property Management Sector
Stable margin outlook for the next 2-3 years with
potential upside from supportive policies
Currently thin profitability over the sector. Known for its
labour-intensive nature, over 50% of the operating cost for the
Top 100 property managers comprises of labour cost, which
has been increasing at 8-10% p.a. over the past few years.
Meanwhile, Top 100 players’ net margin from basic property
management services averaged at a mere 5-6% in the past
three years. This has created a major concern among investors
on property managers’ ability to maintain their profit margins,
as it is often difficult for property managers to secure property
management fee hikes in their existing managing communities
to offset additional service costs.
Cost breakdown for Top 100 property management
players in 2017
Others
14%
Higher margin new projects to support on profit margins.
Profit margin of property management contracts typically yield
the highest level of profit margins at service commencements.
Over time, profitability would deteriorate alongside lower
efficiency from gradual wear and tear of surveillance
equipment, increased cost to be incurred on the repair and
maintenance of commonly shared facilities, etc. Currently, after
several years of accelerated growth in the property
development market, completed but unsold residential GFA
that are pending for delivery over the next few years amounts
to c.3.8bn sm as at end-18, representing a sizable c.32% of
our estimated total GFA for management. Conversion of
under-development GFA over the next 2-3 years should
continue to form good support on profit margins.
Proportion of accumulated uncompleted GFA
(bn sm)
32%
20
Insurance
1%
26%
15
Daily
operations
10%
10
Labour
56%
Greening
2%
Admin
4%
Security
5%
20%
10%
13%
14%
16%
35%
30%
25%
20%
15%
10%
5
5%
0
0%
2012 2013 2014 2015 2016 2017 2018
Accumulated undelivered GFA (LHS)
Total market size (LHS)
% of uncompleted GFA (RHS)
Cleaning
8%
Source: CIA, DBS HK
Source: CIA, DBS HK
Top 100 players’ average net margin from property
management services
Market liberalization underway - possibly on the pricing side.
Price guidance are generally set by local regulators on the
pricing for preliminary property management contracts entered
into between developers and property managers depending on
the services agreed to be provided to property projects. There
are recent signs of relaxation from this end. Jiangsu province
have announced to remove its previous 30% discount on
property management fee for vacant units. Shenzhen also
proposed to raise its price guidance on preliminary contracts.
Overall policy environment appears to be supportive in our
view. We believe there could be further relaxation on the
pricing side going forward, which may add more room for
property managers to cater for rising labour costs.
6.1%
6.0%
6.0%
5.9%
5.8%
5.7%
5.6%
5.5%
5.5%
5.4%
5.4%
5.3%
5.2%
5.1%
5.0%
2015
Source: CIA, DBS HK
2016
2017
Optimise operating efficiency - Scale expansion at locations
with existing presence for economies of scale. A natural way
for property managers to enhance operational efficiency and
economies of scale is to expand within existing business
locations. This trend has become increasingly evident since
2015, with average number of cities in which these players
Page 10
Industry Focus
China Property Management Sector
have a presence remaining static while they have increased the
number of managed projects within these cities. Additionally,
larger sized property projects generally offer more room for
cost optimisation. The operating cost ratio for Top 100
property managers have declined from 80% in 2015 to 77.7%
in 2017 according to the CIA.
Average no. of projects per city and cities entered into
by Top 100 property managers
30
25
27
28
24
22
5.71
20
15
28
7
6
6.35
5.93
3.82
3.92
0
2013
2014
2015
2016
2017
No. of cities entered (LHS)
Avg no. of project per city (RHS)
Source: CIA, DBS HK
Average number and size of projects managed by Top
100 property managers
180
GF A ('000 sm)
178
180
175
175
170
170
164
165
145
23
79%
80.0%
27
30
25
20
78.8%
78%
15
10
77.7%
77%
5
76%
0
2015
2016
2017
Top 100 average GFA under management (RHS)
Top 100 operating cost ratio (%) (LHS)
Source: CIA, DBS HK
1
0
150
80%
3
2
(m sm)
35
31
4
5
155
81%
5
10
160
Operating cost ratio versus average GFA of projects
managed by Top 100 players
165
178
153
154
166
160
155
150
145
140
140
2015
2016
2017
Average size per project managed by Top 100 (RHS)
Average no. of project managed by Top 100 (LHS)
Source: CIA, DBS HK
Optimise operating efficiency - Investment in technology and
digitisation to reduce dependence on labour. Another trend
we have seen for property managers to reduce their
dependence on labour is their rising investments on technology
to substitute labour and enhance efficiency. While one-off
costs are comparatively high, equipment (e.g. surveillance
cameras) in general offer higher operational efficiency and
reduces labour costs. There is a definite positive trend between
investments of Top 100 property managers on digitisation vs
average GFA managed per employee.
Investment on digitisation versus operational efficiency
of Top 100 property managers
Rmb (mn)
(sm)
7,000
5,912
6,000
5,256
4,548
5,000
4,000
3,273
4.78
3,000
2,000
1,000
0
7.16
2.66
1.68
2014
2015
2016
8
7
6
5
4
3
2
1
0
2017
Top 100 GFA under management per person (LHS)
Investment on digitisation (RHS)
Source: CIA, DBS HK
Page 11
Industry Focus
China Property Management Sector
Optimise operating efficiency - Outsourcing of non-core yet
labour-intensive services. As certain functions of basic property
management services are comparatively non-core in nature but
nonetheless labour intensive, we are seeing an increasing
proportion of these services outsourced to third party service
providers. Of this, cleaning and greening in general are the
most frequently outsourced services among the Top 100
property managers.
Proportion of basic management services outsourced by
Top 100 property managers
2017
60%
43%
25%
2016
59%
42%
24%
2015
38%
0%
Cleaning
37%
35%
26% 20% 24%
50%
Greening
100%
Security
150%
Repair and maintenance
Source: CIA, DBS HK
Page 12
Industry Focus
China Property Management Sector
The emergence of value-added services (VAS)
Natural extension from basic property management services.
VAS are largely categorised according to the target customer in
question: non-property owners and property owners (or
referred to as community VAS). For the former, VAS are
generally related to property sales and utilise property
managers’ expertise that were gradually acquired throughout
their provision of property management services. Such services
include presales facilitation (operation of sales offices, agency
services, training of sales agents etc), inventory sales (sale of
remaining unsold carpark/unit inventories), together with other
non-community related services. For the latter, such services
are a natural extension to property management relating to the
community’s daily needs, such as housekeeping, repair and
maintenance, child care, bulk purchases, etc.
Examples of value-added services
Increasingly meaningful contribution from VAS. Aside from the
offering of basic property management services, property
managers are starting to look out for opportunities to monetise
their resources and expertise through the offering of more
value-added services. Given low marginal costs and favourable
profitability levels from these services, earnings contribution
from this business segment has been increasing steadily in
recent years. At the same time, overall profit margins for
property managers have also gradually risen.
Revenue of Top 100 property managers by service type
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
16.7%
17.3%
18.2%
83.3%
82.7%
81.8%
2015
2016
2017
Basic mgmt services
value-added services
Source: CIA, DBS HK
Net profit of Top 100 property managers by service type
Source: DBS HK
Decent profit margins. In the case of VAS to non-property
owners, most services offered within the segment in general
require little additional resources (mostly consultancy-based,
training-related, and required resources are already available
from its existing operations, such as labour). Meanwhile, in the
case of VAS to property owners, property managers mostly act
as agents who refer demands from residents (e.g. maintenance
requests) to corresponding independent third-party service
providers in return for a specific percentage of commission
based on the transacted amount. As such, both types of
services generally yield higher profit margins compared to basic
property management services.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
31.1%
68.9%
2015
Basic mgmt services
39.2%
41.7%
60.8%
58.3%
2016
2017
value-added services
Source: CIA, DBS HK
Page 13
Industry Focus
China Property Management Sector
Net margin of Top 100 property managers by service
type
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Revenue of Top 100 players from VAS by service type
100%
16.6%
17.7%
13.5%
80%
60%
16%
18%
20%
15%
16%
15%
48%
52%
2016
2017
40%
6.0%
5.4%
5.5%
20%
0%
2015
Property management
2016
Others
Consulting services
Engineering services
Community value-added services
2017
Value-added services
Source: CIA, DBS HK
Accelerating growth in community VAS – an area with strong
growth potential. While VAS to non-property owners remained
sizeable in terms of contribution to total VAS, revenue
contribution from community VAS has increased noticeably.
We believe this is mainly driven by the complimentary nature of
community VAS, which is helping property managers to
establish differentiation from other peers, together with
favourable profitability and strong growth potential. We see
community VAS as an efficient way for property managers to
take advantage of their existing access to thousands of families
within their managed projects. Currently, standard services
such as space utilisation, financing and property brokerage are
the predominant services offered by property managers (52%
in 2017, 77% in 2016). There is plenty more room for property
managers to explore further synergistic services to maximise
the earnings potential of their managed communities.
Source: CIA, DBS HK
Revenue breakdown of community VAS of Top 100
property managers in 2017
Others
21%
Retirement
services
5%
Housekeeping
serv ices
8%
Space
utilisation
23%
F inancing
11%
Electronic
services
14%
Property
brokerage
18%
Source: CIA, DBS HK
Page 14
Industry Focus
China Property Management Sector
Online platform to facilitate the provision of VAS to
differentiate larger players from the crowd. Alongside
increased acceptance and adoption of technology in China, a
number of property managers have started to establish their
own online platforms in China to 1) consolidate on- and offline resources for better operational efficiency; and 2) establish
a direct communication channel between property owners and
representatives of property managers for better user
experiences. This trend is particularly evident for larger property
managers that generally have more resources. Most property
managers are in the early stages of establishing a platform and
are at the initial phase to promote user engagement, even for
the case of Colour Life, who has already put online platform
development as one of their key growth strategies. This serves
as another potential channel for communities under
management to engage more VAS going forward.
% of Top 100 property managers with online
platform/applications
100%
100%
95%
90%
77%
80%
70%
60%
49%
50%
40%
30%
Estimated size of residential community O2O market
Rmb (bn)
20
18
16
14
12
10
8
167%
6
4
0.8
2
0
2013
18.2
300%
250%
238%
200%
200%
8.1
150%
2.4
125%
100%
50%
2014
2015
2016
Size of residential community O2O market (LHS)
y-o-y growth (%) (RHS)
Source: iResearch, DBS HK
Quality VAS to enhance property managers’ brand name and
facilitate expansion in the property management business.
Offering quality VAS would increase residents/property owners’
satisfaction and help to improve the property manager’s
reputation. This could in turn contribute to better project
retention rates as well as support the property manager’s
expansion to other property projects. While most of the
property managers are still at the initial stages of exploring
various types of community VAS, earnings contribution from
this segment will be an important growth driver in the future,
in our view.
20%
10%
0%
Top 10
Top 11-30
Top 30-50 Top 51-100
Source: CIA, DBS HK
Page 15
Industry Focus
China Property Management Sector
A virtuous cycle between offering VAS and basic property management services
Enhance satisfaction & project
retention rate
Value-added service
Basic property management services
Source: CIA, DBS HK
China property management operational flow
Source: DBS HK
Page 16
Industry Focus
China Property Management Sector
Value-added services provided by major HK-listed property management companies
Colour Life
Greentown Services
A-Living
Country Garden Services
Rental of residential and
retail units (introduction of
rental units within selfmanaged communities to
third parties) and sales
assistance to third party
developers
Community products and
services - online and offline
sale of high-quality
agricultural and other daily
products
Resident Services - property
maintenance and repair,
housekeeping and cleaning,
decoration and turnkey
furnishing, purchase
assistance and travel services
Home Living Services Mainly acts as an agent and
receives commission income
through matching
community demands with
third party suppliers in the
offering of purchase
assistance, housekeeping,
turnkey furnishing and
move-in services. Also offers
greening, gardening and
maintenance services
internally
Carpark space sales
Community
Valueadded
services
Commission fees from
transactions made through
online platform (e.g.
purchase of Colour Wealth
Life Value-added plan) and
usage fee from property
managers under cooperating
partnership for access to its
platform
Recommend energy-saving
solutions for Colour Life's
existing projects
Installation of equipment and
systems for property projects
(incl. Colour Life's selfmanaged services)
Valueadded
services to
nonproperty
owners
Service feed for repair and
maintenance, and equipment
leasing (e.g. surveillance
cameras) to Colour Life's
commission-based projects
Service feed from the
implementation of energysaving solutions for Colour
Life's projects
Home living services cleaning, repair and
maintenance services for
property owners/residents
Property value management
services - residential property
lease services
Property asset management
services - property agency
services, carpark sale,
turnkey furnishing and
property leaseback services
Real estate brokerage
services - both property sales
and rentals
Cultural and education
services - provision of early
childhood preschool
education
Services for projects under
construction - mostly to offer
assistance to property
developers to
organise/design experience
centers/sales offices in
preparation of sale of
property projects
Management consulting
services - mainly to offer
consulting services to small
property managers under
Greentown Alliance;
consulting services to small
developers during the whole
property cycle; and offer
services to support daily
operations for industrial
parks, small towns as well as
other commercial projects
Common area value-added
services - mainly advertising
Sales assistance services;
property agency services to
Agile, Greenland and other
small third-party developers;
home inspection services;
and advertising services
Consultancy services for
property developers on the
management of their presale activities
Consultancy services to other
property management
companies
Cleaning, greening, repair
and maintenance services to
property developers at predelivery stage
Property agency services for
carpark space and remaining
housing unit inventories of
currently managed projects
Source: Companies, DBS HK
Page 17
Industry Focus
China Property Management Sector
NPM of Top 100 property managers vs China’s average
annual wage growth
Frequently raised concerns on the sector
Concern 1: Labour cost
Earnings are sensitive to labour cost increases - a valid factor to
monitor. While property managers are spending considerable
efforts to control labour costs, the property management
industry itself is inherently labour intensive with a relatively
high level of labour required per project managed. In 2017,
labour cost represented c.55.8% of operating costs incurred by
Top 100 property managers according to CIA. This is
particularly the case for higher-end property projects where
residents/property owners’ service experience is very important.
Earnings for property managers are therefore seen to be fairly
sensitive to labour cost fluctuations, which has been on an
uptrend and grew at the rate of c.9.7% 5-year CAGR.
60
51
62
74
10.5%
10.0%
56
10%
50
40
67
10%
9%
9.5%
9.0%
30
9%
20
10%
10%
9%
10%
8%
6%
4%
7.24%
7.29%
7.73%
2015
2016
2017
2%
0%
NPM of Top 100 property managers
China's average annual wage growth (%)
Source: CIA, NBS, DBS HK
China’s average annual wage growth
Rmb ('000)
80
10%
70
12%
8.5%
10
0
We have done a NPM sensitivity analysis for FY18E on labour
cost for the companies that we have initiated coverage in this
report, and found that 5%-15% increases in labour cost to our
current estimates would translate to a sizable 10-70% drop in
net profit for the property managers, assuming other factors
remain constant. This explains the share price correction in the
sector following the news on social security payment reform
with payments to be collected by States Administration of
Taxation in China.
8.0%
2013
2014
2015
2016
2017
FY18E NPM sensitivity analysis to labour cost
China's average annual wage (LHS)
y-o-y growth (%) (RHS)
Source: NBS, DBS HK
Nevertheless, as shown in the graph below, the top 100
property managers were able to maintain their net profit
margins over the past despite rising labour costs, which
demonstrates their ability to keep costs under control.
Together with the increasing adoption of technology that is
gradually replacing substitutable labour, scale of economies
and outsourcing part of the services, we believe the pressure
on labour cost increases, despite a valid factor to watch for,
should still be controllable by property managers.
A ddit ional labour
c ost inc rement (F Y 18E)
NP impac t (%)
5%
10%
15%
CGS A - L iv ing
GT S
-14%
-28%
-42%
-9%
-18%
-27%
-22%
-44%
-66%
-12%
-23%
-35%
NPM ppt impac t
5%
10%
15%
2.6%
5.1%
7.7%
2.1%
4.2%
6.2%
1.6%
3.2%
4.8%
1.6%
3.1%
4.7%
Colour
L if e
Source: DBS HK
Page 18
Industry Focus
China Property Management Sector
Concern 2: pace of conversion of contracted GFA
Earnings relatively less sensitive to delivery shortfalls. Property
managers are possessed with visible and steady income
streams, yet growth is a function of the pace of converting
contracted GFA into revenue-bearing GFA (completion and
handover of project by developers to property owners). In the
case of property managers under our coverage, it would
usually take c.2-3 years from obtaining contracted GFA to
conversion into revenue-bearing GFA. Therefore, a concern
commonly raised is the possibility that developers may fail to
meet their scheduled project deliveries, which theoretically may
pose earnings downside risk to property managers.
Under our sensitivity analysis, we in fact found that a 10% and
20% completion slippage from our current estimates (the latter
of which we believe is an extreme case for developers), FY1920F earnings for those companies that we initiated coverage
on will only be 2-10% lower than our current estimates. This is
in part led by the earnings support from the growing scale of
managed GFA versus that of new contributions. While this
factor is frequently raised by investors and is worth monitoring,
we believe the actual earnings impact from completion
slippage is manageable.
Sensitivity analysis of contracted GFA conversion on our FY19F-20F earnings
Rev enue
- 20%
- 10%
Colour Lif e
-0.72%
-0.36%
F Y 19
A - Liv ing
-4.80%
-2.40%
GT S
-6.18%
-3.09%
CGS
-9.29%
-4.64%
Colour Lif e
-0.9%
-0.5%
F Y 20
A - Liv ing
-5.27%
-2.63%
GT S
-8.68%
-4.33%
CGS
-11.75%
-5.87%
GP
- 20%
- 10%
Colour Lif e
-1.94%
-0.97%
F Y 19
A - Liv ing
-3.90%
-1.95%
GT S
-4.60%
-2.29%
CGS
-8.76%
-4.38%
Colour Lif e
-2.5%
-1.2%
F Y 20
A - Liv ing
-4.30%
-2.15%
GT S
-6.75%
-3.37%
CGS
-11.18%
-5.58%
NP
- 20%
- 10%
Colour Lif e
-3.82%
-1.91%
F Y 19
A - Liv ing
-2.76%
-1.38%
GT S
-3.09%
-1.54%
CGS
-7.96%
-3.97%
Colour Lif e
-4.7%
-2.4%
F Y 20
A - Liv ing
-3.11%
-1.56%
GT S
-4.84%
-2.41%
CGS
-10.20%
-5.09%
Source: DBS HK
Concern 3: Management fee collection rate
Management fee collection. Another concern commonly raised
is the property manager’s ability to collect cash from property
owners/residents on time. This is particularly the case for
property managers with projects of a lower quality (i.e.
residents are more reluctant to pay property management
fees). Revenue and earnings of the property manager may be
adversely affected, and a provision on its receivables may have
to be made for overdue and uncollectable payments.
Key ratios and figures to monitor would be cash collection ratio
(sometimes less comparable as these figures are unaudited)
and the ratio of impairments and provisions for trade
receivables (typically comprising of outstanding uncollected
property management fees and revenue from VAS) and
payments on behalf of residents (in the case of commissionbased projects).
The impact from a failure to collect fees is typically first
reflected under the cashflow statement and in the balance
sheet. In the P&L, however, the impact from failure to collect
cash will only be reflected when the company decides to make
impairment allowances and actual impairments. While this is a
potential factor to watch for, we believe immediate earnings
impact, if any, is comparatively limited.
Page 19
Industry Focus
China Property Management Sector
Impairment allowance to trade receivables
Proportion of revenue in FY18F derived from connected
transactions
12%
Rmb (bn)
10%
8%
CGS
82%
10% 8%
6%
4%
A-living
63%
4%
34%
2%
0%
Colour Life
CGS
A-Living
FY17
0%
GTS
1H18
Note: Impairment allowance and receivables for Colour Life includes
respective figures for payments on behalf of residents
Source: Companies, DBS HK
Concern 4: Connected transactions
Connected transaction from parent/sister developers. This
concern is typically shared among investors on property
managers with strong parent/sister developer backings. Such
connected transactions generally come in the form of
consultancy services, property sales and leasing agency
services, etc, which are typically reported under their VAS to
non-property owners. This has also sparked investor concerns
on companies’ corporate governance.
We have excluded Colour Life and GTS in this analysis given
their irrelevance to connected transactions (lack/no developerbacking). For the case of A-Living, which is currently at the
heart of this debate, has c.34% of its FY18F revenue derived
directly from connected transactions. The case is currently less
severe for CGS, where connected transaction is estimated to
represent c.8% of its revenue for FY18F. We have mapped our
FY18F revenue forecasts as well as our forecasts on connected
transactions of the two companies alongside their respective
annual caps allowed to visualize the potential impact to their
performances if those quotas were to be maximized.
20%
40%
60%
80%
100%
Non-connected transaction revenue*
FY18F remaining annual cap
FY18F revenue from connected transaction
* % of revenue from non-connected transaction if annual cap of
connected transactions were to be maximised – assuming our FY18F
total revenue forecasts remain unchanged
Source: Companies, DBS HK
While revenue derived from connected transactions, particularly for
the case of A-Living, represents a sizeable portion of its top line
(and likely a higher portion given better profit margins versus
property management businesses), we believe property managers’
reliance should gradually decrease as contribution from the
property management front picks up (i.e. conversion of reserved
GFA). Our estimates also suggest that contribution from connected
transactions will gradually come down, particularly for the case of
A-Living. Nevertheless, we believe this is a meaningful factor to
watch for given their current sizeable contribution to property
managers’ financial performances.
Proportion of revenue derived from connected transactions
40%
35%
34%
28%
30%
24%
25%
20%
15%
10%
8%
6%
5%
2019F
2020F
5%
0%
2018F
A-living
CGS
Source: Companies, DBS HK
Key factor to monitor under this category would be the annual
cap on the amount of connected transactions allowed for on
both property managers.
Page 20
Industry Focus
China Property Management Sector
In-house scorecard
Contracted GFA by property managers
Key attributes for outperformance
We have identified a few key operational and financial
attributes for property management services and value-added
services. Through comparing these qualities, we attempt to
gauge the competitiveness and growth potential of the
companies that we are initiating coverage on. Together with
the stocks’ current valuations, we aim to offer a comprehensive
analysis and identify the most preferred stocks for investors to
take positions on within the sector.
Property management services
(m sm)
600
500
400
300
200
100
0
Colour Life
For the property management side, the identified key attributes
were put under three categories: current scale of operation,
growth potential, and profitability and operational efficiency.
Key operational attributes for property management
services
CGS
FY17
GTS
A-Living*
1H18
*GFA for consultancy services has been deducted from A-Living’s
numbers
Source: Companies, DBS HK
Category 2: Growth potential
Current scale of
operation
Contracted GF A
Growth potential
Organic growth
•Reserv ed GF A
Growth support
f rom parent
•GF A presold by
parent as % of
contracted GF A
M &A capability
•Cash position
•No. of prev ious
property
management
M&A engaged
•Intention to
growth v ia M&A
Quality of service
•Cash collection
and contract
renewal rate
Profitability, efficiency
and other operational
at tributes
Cont ribution from
new contracts
•Reserv ed GF A as %
of rev enue-bearing
GF A
Scalability and
economies of scale
•Average GFA per
project managed
Labour cost exposure
•Earnings sensitivity to
labour cost hikes
Organic growth. One comparatively major source of growth in
the property management business is the gradual conversion
of signed-for but yet-to-be managed GFA (i.e. reserved GFA).
We therefore attempt to gauge this by looking at the amount
of reserved GFA available for conversion by the property
manager.
Reserved GFA by property managers
(m sm)
300
250
A bility to recover
outstanding fees
•Impairment
allowance as % of
trade receiv ables
200
150
100
50
Source: DBS HK
Category 1: Current scale of operation.
Contracted GFA. Given the recurring income profile of the
property management business, we believe existing scale of
operations, which forms an earnings base for the property
manager, should be a key attribute to monitor. We look at
contracted GFA in possession as this includes both managed
GFA (revenue-generating) and reserved GFA (signed for and
pending project delivery and conversion).
0
CGS
GTS
FY17
Colour Life
A-Living*
1H18
*GFA for consultancy services has been deducted from A-Living’s
numbers
Source: Companies, DBS HK
Growth support from parent/related developers. We believe
GFA growth from parent and other related developers will
gradually moderate over the medium to long term given 1)
moderation in property sales; and 2) increasing scale of
Page 21
Industry Focus
China Property Management Sector
property managers. However, with rapid market share
consolidation on the property sales front, we believe GFA
contribution from this end will still remain a key source of
growth in GFA for management in the short to medium term.
We assess parent/related developers’ support through the
developers’ GFA presold in 2017 as a proportion of the
property manager’s contracted GFA as at end-17.
Cash on hand among property managers (1H18)
(Rmb bn)
4.5
4.0
3.5
3.0
2.5
GFA presold by parent/related developer in 2017 as % of
property manager’s contracted GFA as at end-17
2.0
1.5
1.0
20%
0.5
18%
0.0
16%
CGS
14%
A-Living
FY17
12%
Colour Life
GTS
1H18
Note 1: Consideration paid for the acquisition of Lanzhou Chengguan,
Harbin Jinyang and Qingdao Huaren have been factored into A-Living’s
cash level for 1H18.
Note 2: Consideration of CGS’s recent acquisition of five property
managers and its top-up placement have been incorporated
Note 3: Included early repayment of Rmb310m and Rmb690m of
short-term loans during 2018 and recently in 9-Jan-19
Source: Companies, DBS HK
10%
8%
6%
4%
2%
0%
CGS
A-Living
GTS
Colour Life
Number of property management M&As executed
Note 1: Greentown (3900 HK) is treated as a related company of GTS
Note 2: Only included GFA presold by Agile (3383 HK); contracted GFA
adjusted for area from consultancy services
Source: Companies, DBS HK
M&A capability. Another key attribute is the property
managers’ ability to grow through M&A. Admittedly, excessive
reliance on M&A for growth may lead to some complexities
such as project quality issues and conflicts on corporate
culture, not to mention the asset-heavy nature and uncertain
long-term benefits (highly dependent on quality and scale of
the target company). Yet, growth via this channel provides
immediate earnings contribution and speeds up market share
consolidation. We attempt to measure property managers’
M&A capability through 1) cash on hand; and 2) past M&A
track record. For the former, it directly relates to the property
manager’s capability to fund potential acquisition
opportunities. For the latter, potential issues and conflicts may
be better-handled with previous experiences. We have also
included the willingness of property managers to purse M&A
as a channel to grow their property management business as
part of the criteria.
Number of Acquisitions (times)
45
40
35
30
25
20
15
10
5
0
2015
Colour Life
2016
GTS
2017
A-Living
CGS
Source: Companies, DBS HK
Intention to grow via M&A. We have also taken into account
property managers’ willingness to go through the complexities
that may arise from pursuing M&A as a growth strategy. M&A
is at the heart of A-Living’s growth strategy to enlarge its
market share in the property management space. CGS comes
second as the company is willing to grow via M&A as well,
although taking a conservative stance. GTS and Colour Life
rank third and fourth respectively in our view, as the former
has shown only small interest in exploring M&A opportunities,
whereas the latter has no intention to pursue any M&A in the
near term.
Page 22
Industry Focus
China Property Management Sector
Quality of services. On one hand, we expect competition in the
property management space to increase along with rising
competition from in-house players to participate in third party
projects. On the other hand, contribution from existing projects
in the secondary market (with property owners’ associations
formed) should gradually expand, with negotiating power from
residents/property owners set to increase. Consequently, we
believe service quality will become an increasingly crucial
element to underscore property managers’ growth potential in
the longer run. Meanwhile, we believe better service quality
can eventually translate into higher client satisfaction, which
may enhance property managers’ ability to command higher
management fees for new projects and to negotiate price hikes
in its existing projects. This may also lead to increased
willingness for property owners/residents to pay management
fees in a timely manner. In this aspect, we measure property
managers’ service quality through a combined ranking of cash
collection rate and contract renewal rate.
Cash collection rate in FY17
98%
97%
96%
95%
94%
93%
92%
A-Living
Source: Companies, DBS HK
100%
98%
96%
94%
92%
90%
88%
86%
84%
CGS
A-Living
GTS
Colour Life
Source: Companies, DBS HK
Category 3: Operational efficiency and performance.
Under this category, we aim to look at property managers’
attributes alongside major concerns of investors in this sector,
together with other relevant operational performances that we
deem to be relevant to contribute to their competitiveness in
the property management space. Some of the major concerns
among investors relates to 1) profitability and cost control; and
2) ability to recover all outstanding property management fees.
99%
GTS
Contract renewal rate in FY17
Colour Life
CGS
Profitability and cost control. A key concern on this sector is
the property managers’ profitability and their ability to keep
costs (particular labour costs) under tight control. For the
former, we look at the contribution from new projects versus
their current scale, as profit margins for a typical property
management project are at the peak upon initial
commencement of services and will gradually decline over
time. We therefore attempt to measure this factor through
analysing the property managers’ reserved GFA outstanding
versus current level of GFA under management.
For cost control, we look at 1) average GFA per project
managed; and 2) earnings sensitivity to labour cost
fluctuations. For the former, larger projects in general offer
more room for cost optimisation given better economies of
scale. For the latter, we measure the sensitivity of property
managers’ earnings to labour cost increases, other things
equal.
Page 23
Industry Focus
China Property Management Sector
Reserved GFA as % of GFA under management
FY18E earnings sensitivity to labour cost fluctuations
A-Living
200%
Colour Life
CGS
GTS
0%
180%
160%
-10%
140%
-20%
120%
-30%
100%
80%
-40%
60%
-50%
40%
-60%
20%
0%
CGS
A-Living*
GTS
FY17
Colour Life
-70%
5% increase
1H18
*Contracted and under-management GFA of A-Living have been
adjusted for area from consultancy services
Source: Companies, DBS HK
Average GFA per project managed
('000 sm)
300
250
200
150
10% increase
15% increase
Source: Companies, DBS HK
Ability to recover outstanding management fees. Another key
concern shared relates to property managers’ ability to recover
outstanding property management fees. The problem of
delaying/refusing payments remains relatively common at the
moment. For this aspect, we look at property manager’s
impairment allowance ratio to trade receivables (which
contains mostly outstanding fees to be collected for property
management services and VAS).
Impairment allowance to trade receivables
100
12%
50
10%
0
A-Living
CGS
FY17
Source: Companies, DBS HK
Colour Life
1H18
GTS
8%
6%
4%
2%
0%
Colour Life
CGS
FY17
A-Living
GTS
1H18
Note: Impairment allowance and receivables includes respective figures
for payments on behalf of residents for Colour Life
Source: Companies, DBS HK
Page 24
Industry Focus
China Property Management Sector
CGS and A-Living are the most preferred counters in the
property management space. Based on key attributes listed
above (equally-weighted), CGS and A-Living are the most
preferred counters in the property management space. CGS is
known for its strong growth visibility from (i) projects to be
gradually delivered by Country Garden, who has over the years
become one of the largest property developers in China, and
(ii) sizeable reserved GFA accumulated over the past few years
led by Country Garden’s accelerated presales growth.
Meanwhile, A-Living is the second most preferred counter
based on its high growth potential in this space, driven by its
M&A growth strategy.
Overall score of property managers
Companies
Current
sc ale of
operat ion
CGS
A-Liv ing
GTS
Colour Life
2
4
3
1
Grow t h Prof it abilit y ,
pot ent ial
ef f ic ienc y
and ot her
operat ional
at t ribut es
1
2
2
1
2
3
4
4
Ov erall
rank ing
1
2
3
4
Source: DBS HK
Summary of scores by attributes for each property manager
Companies
Current Organic Parent
M &A
M &A
M &A Qualit y
New Pot ent ial
Labour A bilit y t o Ov erall
scale of Grow t h support capabilit y capabilit y capabilit y
of
project
f or
cost
recov er rank ing
operat ions
(Cash
(T rack (Int ent ion serv ices cont ribt ion economies exposure oust anding
lev el)
Record) f or M &A )
of scale
f ees
CGS
A-Living
GTS
Colour Life
2
4
3
1
1
4
2
3
1
2
3
4
1
2
4
3
3
4
2
1
2
1
3
4
3
2
1
4
1
2
3
4
2
1
4
3
3
1
4
2
3
2
1
4
Source: DBS HK
Page 25
1
2
3
4
Industry Focus
China Property Management Sector
Value-added services.
Currently, VAS comprises both VAS to non-property owners
and community VAS. Yet, we believe revenue and earnings
contribution from community VAS will gradually take the lead
and become the major growth driver for the space, given 1) its
complementary nature to property management services; and
2) strong growth potential given the inherent proximity
between property managers and thousands of households
within their managed communities. We therefore put our
focus on attributes of property managers’ current exposure
and growth potential within the community VAS segment.
Key operational attributes for VAS
Current
ex psoures on community VAS
No. of major types
of community VAS on
of fer
Pot ential
mark et size
Pot ential in managed
c ommunities
•Units currently under
management
Distribution Channel
Growth potential
Online platform
est ablishment
•No. of active users
Int ention to
grow via M&A
Quality of project
•Average management
fee
Source: DBS HK
Category 1: Current exposure on community VAS.
Category 2: Potential market size.
Number of community VAS with meaningful contribution on
offer. The metric we chose to gauge property managers’
current exposure is the number of community VAS offerings
with meaningful contribution. We define “meaningful” as
those offerings that will generate annual revenue of more than
Rmb50m in FY18E.
Current market size in managed communities. We assess
property managers’ potential market size in their managed
communities through the number of units currently under
management. We have assumed an average unit size of 100sm
by GFA.
Estimated no. of units under management
No. of meaningful community VAS on offer
('000)
4,000
No. of community V AS offerings > Rmb50m
8
3,500
3,000
7
2,500
6
2,000
5
1,500
4
1,000
3
500
0
2
Colour Life
1
FY17
0
GTS
CGS
Source: Companies, DBS HK
Colour Life
A-Living
GTS
CGS
A-Living*
1H18
*GFA for consultancy services has been deducted from A-Living’s
numbers
Source: Companies, DBS HK
Page 26
Industry Focus
China Property Management Sector
Number of active users on online platform
('000)
Thousands
Project quality. We define project quality as the willingness and
affordability of property owners/residents within the managed
community. We believe those who are willing to pay a
premium for better services will likely be more inclined to incur
additional spending for value-added services that can enhance
their living standards. Property managers with higher quality
projects should therefore have higher growth potential for
their VAS on offer. We measure project quality by calculating
the average management fee achieved by each property
manager. This is done by annualising property managers’
income from property management in 1H18 and dividing it by
average GFA under management during the period (i.e. the
average of GFA as at Jan-18 and Jun-18). In the case of Colour
Life and A-Living where they each have a meaningful exposure
to commission-based projects, we have adjusted the revenue
based on 10% commission fee for comparison purposes.
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Colour Life
GTS
FY17
CGS
A-Living
1H18
Source: Companies, DBS HK
Average management fee achieved
Category 4: Growth potential
(Rmb/sm/mth)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
GTS
CGS
FY17
A-Living
Colour Life
1H18
Source: Companies, DBS HK
Category 3: Distribution channel
Online platform establishment. While online platform
development is still at a preliminary stage with actual impact to
property managers yet to seen, its inherent potential to
establish a direct distribution channel and the opportunity to
better monetise property managers’ resources and undermanagement communities should not be overlooked. We seek
to assess the property managers’ readiness and development
of online platform by looking at the number of active users on
their platforms.
Intention to pursue M&A opportunities. VAS remains at the
preliminary stages of development for most property
managers. An alternative route for growth may come from
M&A, where competition remains manageable as most
property managers are focused on looking for M&A
opportunities on the property management side. We ranked
the four property managers in this category by their expressed
willingness to pursue M&A opportunities for growth. Based on
our understanding, GTS is the most active in terms of acquiring
VAS-related companies (per previous acquisition records and
reiteration of interest on numerous occasions). This is closely
followed by CGS, who is now actively exploring opportunities
both off- and on-shore. A-Living is third as majority of its focus
remains the acquisition of property management companies.
Colour Life is last among the four as 1) the property manager
intends to act as an agent for its community and third-party
service providers; and 2) the company intends to control its
debt level and has little intention to participate within the M&A
space in the near term.
GTS has the best potential in VAS, followed by CGS. Based on
our list of key attributes, GTS was ranked first among peers
thanks to its highest project quality, with sizeable existing
presence in community VAS services as well as its strong
intention to grow its VAS segment, which includes the
possibility to tap into quality players via M&A. CGS came
second in this space on similar grounds with a good balance in
our identified key attributes.
Page 27
Industry Focus
China Property Management Sector
Ranking of property managers on VAS based on identified key attributes
Current expsoure on
communit y V A S
Companies
GTS
CGS
Colour Life
A-Living
No. of
meaningf ul t y pes of
communit y
V A S on of f er
1
2
3
4
Pot ent ial mark et size
Current
pot ent ial in
managed
communit ies
2
3
1
4
Qualit y
of
project
1
2
4
3
Dist ribut ion
channel
Online plat f orm
est ablishment
2
3
1
4
Grow t h
pot ent ial
Int ent ion t o
grow v ia M &A
1
2
4
3
Ov erall
rank ing
1
2
3
4
Source: DBS HK
CGS and GTS as the most preferred names within the sector.
We have allocated a 50:50 weighting on the average ranking
for our covered names regarding their attributes within
property management and VAS space. Among those under our
covered universe, CGS and GTS are the most preferred names
after considering overall operational metrics. This is swiftly
followed by A-Living and Colour Life.
Overall ranking
Companies
CGS
GTS
A-Living
Colour Life
Propert y
management
serv ices
(av g score)
V AS
(av g score)
Ov erall
score
1
3
2
4
2
1
4
3
3
4
6
7
Source: Companies, DBS HK
Page 28
Industry Focus
China Property Management Sector
Valuations and financial comparisons
Ex-cash PE multiples
PE multiples adopted as the valuation method. Given 1) the
sector’s asset-light business model; 2) high earnings visibility;
and 3) emerging dependence on M&A for growth, which adds
uncertainty on future operational capex, we have opted to use
PE multiple to value property management companies that we
have initiated coverage within this report. Our target PE
multiples are set through benchmarking the stocks’ historical
average/median PE multiples, which are adjusted according to
our findings from our comparison analysis above.
Ex - c ash f orw ard PE*
F Y18E
F Y19E
F Y20E
GT S
Colour
L if e
CGS
A - L iv ing
A v erage
37
28
22
11
9
8
34
27
20
19
17
13
25
20
16
33
23
18
12
10
8
31
21
15
13
10
8
22
16
12
*Based on closing prices at 25 Feb 2019
Source: Bloomberg Finance L.P., DBS HK
Valuations
Colour
V aluat ion
GT S
L if e
Hist oric al 1- y ear f orw ard PE muilt iples
27
18
Historical av erage (x)
27
16
Historical median (x)
38
47
Historical peak (x)
Historical trough (x)
17
7
CGS A - L iv ing
34
34
53
19
18
27
22
11
Hist oric al 1- y ear f orw ard PE muilt iples (sinc e 2018)
Historical av erage (x)
29
12
34
Historical median (x)
29
12
34
Historical peak (x)
38
18
53
Historical trough (x)
22
7
22
19
18
27
11
V aluat ion mult iples
Target F Y19/20 PE multiple (x)
Target price (HK$)
Current price (HK$)*
Current v aluations (x)*
Upside potential (%)
V aluat ion
F orw ard PE*
F Y18E
F Y19E
F Y20E
29
8.65
7.30
28
18.4%
12
35
6.63 19.42
4.92 12.86
9
27
34.7% 51.0%
19
15.87
12.52
17
26.7%
*Based on closing prices at 25 Feb 2019
Source: Bloomberg Finance L.P., DBS HK
Currently, valuations of the stocks of our covered universe are
largely trading in tandem with the results of our in-house
scorecard, which implies that these attributes have been in part
priced-in by the market.
An alternative way to look at valuations – ex-cash forward PE
multiple. In light of the typical cash-rich positions of property
management stocks, we have calculated the ex-cash forward
PE multiples to offer a clearer picture regarding the current
valuations of the counters within our covered universe. On a
comparable basis, the sector (which refers to the four
companies under our coverage) trades at a simple-averaged
16x/12x FY19E/FY20E PE ex-cash. We believe the sector is not
as expensive as some investors may have initially perceived.
Since listing, CGS has continually traded at a sizeable premium
to peers, which is consistent with its superior fundamentals as
identified under our in-house scorecard, which has awarded
the counter with superior profitability that is sustainable
(backed by sizeable higher-margined new projects to come onstream that represent c.36%/32%/31% of total GFA under
management in FY18E/19E/20E) and strong earnings visibility
(strong support from CG and scalable reserved GFA at hand to
be converted). The counter’s valuation moderated along with
affected market sentiments after its top-up placement exercise
(c.6.32% of enlarged capital) at 22.6x FY19F PE in Jan-19.
With little signs of change in its solid attributes, we believe this
points to a good entry point for investors to take position on
the counter at an attractive valuation. We therefore initiate
coverage on CGS with a BUY and a TP of HK$19.42, pegged
to 34.5x averaged FY19/20F PE that is on par with its historical
average forward PE.
Colour Life is currently trading at the lowest valuation in the
sector and is below its historical average, led in part by market
concerns regarding its lack of parent support, comparatively
lower project quality, and uncertainty on its growth strategy
that focuses on online platform development. Yet, these
concerns have overshadowed the counter’s sizeable recurring
income base that has been expanding, notwithstanding the
developing ecosystem between its existing property
management business and its online platform. We believe the
stock warrants to trade at least at on-par with its historical
average of c.11.8x forward PE since 2018. We therefore have a
BUY rating on the counter with a TP of HK$6.63, pegged to
11.8x averaged FY19F/FY20F PE.
GTS’s valuation is the highest among peers and appears to
have largely priced in its superior fundamentals, which places
the counter second best in terms of overall growth attributes
under our in-house scorecard. Admittedly, we believe the
counter’s strength in the property management spaces (i.e.
well-established reputation and service quality, high-end
projects under management) has been widely recognized and
Page 29
Industry Focus
China Property Management Sector
factored in by the market. Yet, GTS’s unmatched growth
potential within the community VAS space, as identified within
our in-house scorecard, is often less noticed by investors, in
part led by investors’ typical emphasis on the recurring
property management business and the generally premature
development stage of community VAS within the property
management segment. We believe the company is one of the
best positioned players to shine within the community VAS
space and the market has yet to have fully recognized GTS’s
competitiveness at this end. Initiate with BUY with a TP of
HK$8.65, pegged to 29.2x averaged FY19F/FY20F PE.
A-Living’s valuation is lower-than-peers on the back of ongoing
market concerns on the counter’s ability to secure quality and
scalable M&A opportunities at reasonable costs, particularly
after the departure of its previous CEO. The sizeable number of
connected transactions is also another question mark on the
company’s earnings sustainability. However, our estimates show
that coupled with our modest M&A assumption (FY19: 37m sm;
FY20: 30m sm), the company’s EPS should continue to grow at
a decent 3-year CAGR of 33% for FY17-FY20F. Revenue from
connected transactions is also expected to trend down gradually
alongside rapid development of its property management
business from c.34% in FY18E to c.24% by FY20F. We
therefore initiate coverage on A-Living with a BUY rating and
HK$15.87 TP, based on 18.7x averaged FY19F/FY20F PE, which
is on par with its historical average forward PE.
Taking both fundamental factors and valuation into account,
CGS is our top pick in the sector. Colour Life also stands as an
attractive opportunity on a risk-reward perspective.
Ranking vs Valuations
30.0
CGS
FY19 PE
GTS
25.0
2.5
3.5
20.0
4.5
Overall ranking
5.5
6.5
A-Living
7.5
15.0
10.0
Colour Life
5.0
*Based on closing prices at 25 Feb 2019
Source: Bloomberg Finance L.P., DBS HK
Page 30
Industry Focus
China Property Management Sector
Financial comparison
F inanc ial c omparison
Rev enue (Rmb m)
F Y17
F Y18E
GT S
Colour L if e
CGS
A - L iv ing
5,140.06
6,606.91
8,657.50
11,016.23
1,628.70
3,538.47
4,355.36
4,961.22
3,121.85
4,499.42
7,053.09
10,088.10
1,760.75
3,181.87
4,331.24
5,687.50
29%
31%
27%
29%
117%
23%
14%
45%
44%
57%
43%
48%
81%
36%
31%
48%
1,989.73
2,637.56
3,151.19
572.91
650.65
747.79
869.83
1,128.44
1,509.80
1,358.72
1,590.19
1,963.97
30%
30%
29%
16%
15%
15%
19%
16%
15%
43%
37%
35%
387.48
481.21
647.98
799.43
320.66
481.72
607.59
692.50
401.74
829.31
1,129.20
1,513.51
289.73
744.67
888.21
1,102.91
Net prof it grow t h (%)
F Y18E
F Y19E
F Y20E
3- y ear CA GR
24.2%
34.7%
23.4%
27%
50.2%
26.1%
14.0%
29%
106.4%
36.2%
34.0%
56%
157.0%
19.3%
24.2%
56%
Net prof it margins (%)
F Y18E
F Y19E
F Y20E
7.3%
7.5%
7.3%
13.6%
14.0%
14.0%
18.4%
16.0%
15.0%
23.4%
20.5%
19.4%
EPS (Rmb)
F Y17A
F Y18E
F Y19E
F Y20E
0.14
0.17
0.23
0.29
0.32
0.38
0.46
0.53
0.16
0.33
0.42
0.57
0.35
0.57
0.67
0.83
24.2%
34.7%
23.4%
27%
17.1%
22.5%
14.0%
18%
106.4%
27.8%
33.8%
52%
65.0%
16.0%
24.2%
33%
1,816
2,077
(805)
2,935
3,094
1,818
4,161
5,039
F Y19E
F Y20E
Rev enue grow t h (%)
F Y18E
F Y19E
F Y20E
3-y ear CAGR
Rev enue f rom V A S (Rmb m)
F Y18E
F Y19E
F Y20E
Rev enue f rom V A S (%)
F Y18E
F Y19E
F Y20E
Net prof it
F Y17A
F Y18E
F Y19E
F Y20E
EPS Grow t h (%)
F Y18E
F Y19E
F Y20E
3- y ear CA GR
Balanc e sheet it ems (as at J un- 18)
Net cash/(debt) positions (Rmb m)
Book v alue (Total equity ) - Rmb m
Source: Companies, DBS HK
Page 31
Industry Focus
China Property Management Sector
Appendix 1: Charging methods – Lump-sum vs
Commission-based
Property management service fees are typically charged under
lump-sum basis or commission basis depending on the
respective project and preferences of local authorities/property
managers. Under lump-sum basis, property management
companies charge a pre-determined management fee that is
all-inclusive for all basic property management services offered
to property owners and/or property developers. Accordingly,
property managers will also bear all the related costs. For
commission-based projects, property managers essentially act
as an agent to manage the property projects and charge a
commission fee (a percentage of the agreed property
management fee), while direct costs on the provision of
property management services will be borne by the property
owner and/or property developers from the remaining portion
of property management fees. Any excess will be kept under a
separate reserve for future use pertaining to the managed
project, while any shortfall will be borne by property owners.
larger projects, as they can leverage on economies of scale to
enhance efficiency and realise cost savings, which will
accordingly feed directly into their overall profitability. This is
also the preferred route for property owners of residential
properties, as this arrangement enables property owners to
delegate collective decision-making processes to property
management companies, who can leverage on economies of
scale for better cost efficiency.
Commission-based is usually for smaller projects and
commercial properties with concentrated holdings. The
commission-based payment arrangement is generally preferred
for smaller projects as it theoretically guarantees profitability
(all related costs are supposedly borne by property
owners/residents). It is also often the preferred route for
commercial properties with concentrated ownership. Property
owners usually take a more active role in the management of
these properties and property managers under this feecharging model are normally required to prepare budgets and
accounts for property owners to review on a regular basis.
Lump-sum typically preferred for larger projects and residential
properties that are widely owned. In the perspective of
property managers, lump-sum basis is often preferred for
Differences between Lump-sum and Commission-based projects
Lump sum based
Commission based
Revenue
Management fee is fully recognised in the P&L
8-10% of stated management fee booked into P&L as
commission income
COGS
Cost incurred for property management services
fully booked as COGS
No direct cost on provision of property management services to
be charged to P&L
Profit margin in P&L
GPM typically lower at 10-30%; NPM similar
GPM typically higher at 50%+; NPM similar
Balance Sheet
impact
Receivables and payables comprise mainly of
management fees from property owners and
payments to suppliers/subcontractors
Receivables/payables are separately disclosed as
payments/receipts on behalf of residents of commission-based
communities
Incentive for
property manager
Preferred particularly for larger projects, where
operating efficiency is easier to obtain and helps to
enhance profitability
Preferred in smaller projects which in theory guarantees
profitability and is supposedly less affected by unprecedented
cost escalations
Investor preference
Preferred given clearer representation of operations
and offers comparability to other property
management projects
Less preferred as operational efficiency is hidden within
projects. Furthermore, projects are not comparable
Property owners'
preference
No significant difference but arguably less preferred
given potential impact on service quality with cost
saving measures undertaken by property manager
No significant difference but arguably better off as property
managers have no incentive to save costs as long as total cost
falls within the 90% of management fee (plus common area
rental assistance income)
Source: DBS HK
Page 32
Industry Focus
China Property Management Sector
Appendix 2: Incentive schemes in place
Pre-IPO share options granted by CGS
We have shortlisted the incentive schemes in place of our
covered counters here to gauge respective companies’ areas of
focus in their business operations. Overall, the most widely
adopted incentive schemes include the introduction of Key
Performance Indicators (KPIs) based on employees’ designation
and job scope, followed by share-based compensation plans.
Incentive schemes in place
Companies
A-Living
CGS
Colour Life
GTS
K PI
bonus
Y
Y
Y
Y
Share
Share A ct ual share
opt ion aw ards
int erest s
N
N
Y
Y
N
N
Y
Y
N
Y
N
N
Source: Companies, DBS HK
A-Living – operationally focused. Unlike its peers, A-Living’s
incentive scheme relies mainly on the award of bonuses
according to an employee’s ability to meet individual KPIs. While
a pool of shares (6% of stake) has been allocated under a limited
partnership structure for incentive compensation purposes, only
a few selected senior management personnel were entitled to
the pool (Mr. Liu Deming, former CEO of the company; Mr. Feng
Xin, Vice President; and Mr. Li Dalong, CFO), with actual plans
for distribution of these benefits yet to be finalised.
Name
Direct ors of t he
company
Li Changjiang
Wu Bijun
Guo Zhangjun
Xiao Hua
Subt ot al
Ot hers
Mo Bin
Xie Shutai
Chen Yuhui
Xia Xiaonan
A -Living (3319 HK)
Wang Cuiqin
6.0%
0.1%
Gongqingcheng Yagao
Investment Management
(General Partner)
Wang Yingwu
25%
M r. Feng Xin
(V ice president)
(Limited Partner)
49.9%
M r. Liu Deming
(F ormer CEO)
(Limited Partner)
Executive Director
Non-Executive Director
Executive Director
Executive Director
Senior management
of t he company
Gong Shunsong
Chief Operating Officer
Xu Binhuai
Deputy General Manager
Huang Peng
Chief Financial Officer and
J oint Company Secretary
Yu Xiangdong
Deputy General Manager
Yuan Hongkai
Deputy General Manager
Subt ot al
Beneficiaries of A-Living’s incentive share pool
Gongqingcheng
Investment
Posit ion
President of CG
Deputy President of CG
General Manager of
Operational Management
Center of CG Property Services
General Manager of
Administrative Management
Cener and Overseas
Department of CG Property
Services
General Manager of External
Development and
Management Department of
CG Property Services
Deputy General Manager of
CG Property Services
Subt ot al
25%
M r. Li Dalong
(CF O)
(Limited Partner)
Source: Company, DBS HK
CGS – earnings growth and profitability as core focus. Like
majority of its peers, CGS’s incentive scheme mainly consist of
bonuses based on individual KPIs and pre-IPO share options.
For the former, KPIs are set according to an individual
employee’s job scope. KPIs for management are generally more
focused on profitability. For the latter, CGS awarded a total of
c.133m of pre-IPO share options to 15 individuals at an
exercise price of HK$0.94 per share with a vesting schedule of
40%/30%/30% for FY18/19/20 (subject to a 2-year lockup
period upon exercise of option) upon the fulfillment of a 25%
growth in adjusted recurring earnings for FY18.
T ot al no. of share opt ions grant ed
No. of
shares opt ion
12,964,000
12,964,000
4,699,000
4,762,000
35,389,000
4,257,000
5,000,000
4,411,000
4,884,000
4,591,000
23,143,000
38,892,000
19,446,000
3,769,000
4,465,000
3,931,000
3,913,000
74,416,000
132,948,000
Source: Company, DBS HK
Colour Life – share price performance driven. Aside from the
company’s implementation of KPIs on individual employees,
Colour Life has a sizeable amount of share-related
compensation that was gradually awarded since 2014 for both
the senior management and selected employees, which points
to a focus towards share price performance. The company
issued a total of 104m share options at respective exercise
prices with vesting conditions listed below. Additionally, the
company adopted a share award scheme and has allocated a
total of HK$25m for the acquisition of the shares. The grant of
these shares is subject to the discretion of the CEO and the
Chief Human Resource Officer.
Page 33
Industry Focus
China Property Management Sector
Share options granted by Colour Life
Dat e of
issuanc e
Sep-14
Sep-14
Apr-15
Mar-16
Nov -18*
No. of
Ex erc ise
shares pric e (HK $)
20,000,000
6.66
25,000,000
25,000,000
34,247,488
19,464,720
V est ing c ondit ion
1/3 on the date of
issuance; 1/3 on each of
anniv ersairies from date
of issuance
6.66
1/3 on each of
anniv ersaries from date
of issuance
10.88
Meeting specific
performance targets; 1/3
on each of anniv ersaries
from date of issuance
5.76
4.11
Meeting specific
performance targets; 1/3
on each of anniv ersaries
from date of issuance
Meeting specific
performance targets; 1/3
on each of anniv ersaries
from date of issuance
*Reallocation of share options that had lapsed (failed to meet
performance targets) or previously held by employees who have since
resigned
Source: Company, DBS HK
GTS – growing focus on share price performances. Previously,
GTS mainly relied on giving out bonuses according to
employees meeting their respective sets of KPIs. In Sep-2018,
GTS rolled out its share options scheme and awarded a total of
133.5m of share options at an exercise price of HK$6.116 per
share with a vesting schedule of 33%/33%/34% in Sep19/Sep-20/Sep-21 upon the fulfilment of stipulated
performance targets. Over time, this should gradually
transform into increased attention on the company’s share
price performance.
Share options granted by GTS
Name
Li Hairong
Wu Zhihua
Posit ion
Executiv e Director, Chairman and
substantial shareholder
Executiv e Director and V ice
Chairman
Executiv e Director, CEO and CF O
Chen Hao
Executiv e Director
2,500,000
J in Keli
Chief Operating Officer
2,250,000
Weng Yafei
Chief Quality Officer
1,750,000
Xu Yaping
Chief Marketing Officer
1,750,000
Yuan Weidong
Chief Technology Officer
1,450,000
Zhou Hong
Chief Security Officer
Yang Zhangfa
No. of shares
800,000
3,000,000
4,500,000
1,250,000
Other employ ees
T ot al share opt ions issued
114,250,000
133,500,000
Source: Company, DBS HK
We have focused mainly on the property managers’ sharebased compensation schemes when assessing the
competitiveness of each property manager’s incentive schemes,
as KPI-related compensations are generally largely similar
among the companies and lack common indicators for the
purpose of comparison.
To measure the attractiveness, we mainly assessed the
incentive schemes based on three criteria: 1) ability to stimulate
future performance; 2) attractiveness of share options; and 3)
impact of incentive scheme on the overall company.
Criteria 1: Ability to stimulate future performances
For the first criteria, we look at the value of outstanding share
options that remain unvested and require specific performance
targets to be met before those entitled individuals can exercise
their options.
Page 34
Industry Focus
China Property Management Sector
Market value of unvested options that require specific
performance targets to be met
Criteria 3: Impact of incentive scheme on the company level
For the last criteria, we look at the total % of unvested share
options held by general employees of the company.
Consideration of share options (HK$m)
1,200
% of unvested share options held by general employees
of the company
1,000
800
100%
90%
600
80%
400
70%
60%
200
50%
0
40%
GTS
Colour Life*
Note: Based on closing prices of 25 Feb 2019
*Colour Life’s unvested options are estimated based on reported
numbers in its 2018 interim report
**CGS’s unvested options require a 25% increase in recurring net
profit, which has already been achieved
***A-Living has no share options in place
Source: Companies, DBS HK
Criteria 2: Attractiveness of share options
To measure the attractiveness of the share options, we
calculate the differential between the counter’s current market
value to the value of the option calculated with the stated
exercise price.
Differential between current market value to exercise
value of unvested options
V alue differential (HK$m)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
-200
-400
30%
20%
10%
0%
Colour Life
GTS
CGS
*Colour Life’s unvested options are estimated based on the reported
numbers in its 2018 interim report
**A-Living has no share options in place
Source: Companies, DBS HK
Overall score
Company
A bilit y t o A t t ract iv eness
% of A v erage
st imulat e of incent eiv e dist ribut ion
score
f ut ure
scheme t o general
perf ormance
employ ee
GTS
1
2
2
1.7
Colour Life
2
3
1
2.0
CGS
3
1
3
2.3
A-Living
4
4
4
4.0
Source: DBS HK
CGS
GTS
Colour Life*
Note: Based on closing prices of 25 Feb 2019
*Colour Life’s unvested options are estimated based on the reported
numbers in its 2018 interim report
**A-Living has no share options in place
Source: Companies, DBS HK
GTS has the most competitive incentive scheme in place,
followed by Colour Life. Under our defined criteria, we
identified the incentive scheme launched by GTS as the most
competitive among peers, followed by Colour Life. CGS lagged
behind as the company has already achieved the requirement
of 25% growth in FY18 recurring earnings (per its recently
announced positive profit alert), as well as the fact that its
share option scheme was not extended to general employees.
A-Living was less competitive compared to peers as its share
incentive scheme remains largely at a preliminary stage with no
definitive plans at the moment and its incentive pool of shares
are only available to top management personnel and are
domestic shares that are currently not tradable in Hong Kong.
Page 35
Industry Focus
China Property Management Sector
PE & PB chart
Country Garden Services Holdings - PE band chart
Country Garden Services Holdings - PB band chart
x
x
10.0
35
9.0
+1SD: 28.2x
30
Avg: 25.6x
25
-1SD: 23x
+1SD: 7.8x
Av g: 6.8x
8.0
7.0
-1SD: 5.9x
6.0
5.0
20
4.0
15
3.0
Greentown Service Group - PE band chart
Feb-19
Jan-19
Jan-19
Dec-18
Dec-18
Nov-18
Nov-18
Oct-18
Oct-18
Sep-18
Sep-18
Aug-18
Aug-18
Jul-18
Jul-18
Feb-19
Jan-19
Jan-19
Dec-18
Dec-18
Nov-18
Nov-18
Oct-18
Oct-18
Sep-18
Sep-18
Aug-18
Jul-18
Aug-18
Jul-18
Jun-18
Jun-18
2.0
10
Greentown Service Group - PB band chart
x
x
9.0
40
8.0
35
+1SD: 28.7x
30
6.0
Av g: 23.5x
5.0
Feb-19
Dec-18
Oct-18
May-18
Jan-18
Mar-18
Oct-17
Aug-17
Jun-17
Apr-17
Feb-17
Nov-16
Sep-16
Feb-19
Dec-18
Oct-18
Jul-18
May-18
Mar-18
Jan-18
Oct-17
Aug-17
0.0
Jun-17
0
Feb-17
1.0
Apr-17
2.0
5
Nov-16
3.0
10
Sep-16
-1SD: 3.7x
4.0
15
Jul-18
-1SD: 18.2x
20
Jul-16
Avg: 5.1x
Jul-16
25
+1SD: 6.5x
7.0
Source: Thomson Reuters, DBS HK
Page 36
x
25
20
20
10
+1SD: 19x
Av g: 16.2x
15
-1SD: 13.4x
10
5
0.5
0
0.0
Colour Life Services Group - PE band chart
x
70
60
50
40
+1SD: 31.7x
30
Avg: 20.7x
-1SD: 9.8x
0
Feb-18
Mar-18
Mar-18
Apr-18
May-18
May-18
Jun-18
Jul-18
Aug-18
Aug-18
Sep-18
Oct-18
Oct-18
Nov-18
Dec-18
Jan-19
Jan-19
Feb-19
Feb-18
Mar-18
Mar-18
Apr-18
May-18
Jun-18
Jun-18
Jul-18
Aug-18
Sep-18
Sep-18
Oct-18
Nov-18
Dec-18
Dec-18
Jan-19
Feb-19
A-Living Services - PE band chart
2.0
2.0
Jun-14
Sep-14
Nov-14
Jan-15
Mar-15
Jun-15
Aug-15
Oct-15
Dec-15
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Feb-17
Apr-17
Jun-17
Aug-17
Nov-17
Jan-18
Mar-18
May-18
Aug-18
Oct-18
Dec-18
Feb-19
Jun-14
Sep-14
Nov-14
Jan-15
Mar-15
Jun-15
Aug-15
Oct-15
Dec-15
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Feb-17
Apr-17
Jun-17
Aug-17
Nov-17
Jan-18
Mar-18
May-18
Aug-18
Oct-18
Dec-18
Feb-19
Industry Focus
China Property Management Sector
A-Living Services - PB band chart
x
3.5
3.0
2.5
+1SD: 2.7x
Av g: 2.3x
-1SD: 1.9x
1.5
1.0
Colour Life Services Group - PB band chart
x
9.0
8.0
7.0
6.0
5.0
+1SD: 4.5x
4.0
3.0
Av g: 3x
-1SD: 1.6x
1.0
0.0
Source: Thomson Reuters, DBS HK
Page 37
China / Hong Kong Company Guide
Country Garden Services Holdings Co Ltd
Version 1 | Bloomberg: 6098 HK Equity
| Reuters: 6098.HK
Refer to important disclosures at the end of this report
DBS Group Research . Equity
27 Feb 2019
BUY (Initiating Coverage)
Highest EPS growth with strong
visibility
Last Traded Price (25 Feb 2019):HK$12.86 (HSI : 28,959)
Price Target 12-mth: HK$19.42 (51.0% upside)
•
•
•
Analyst
Jason LAM +852 36684179 jasonlamch@dbs.com
Danielle WANG CFA, +852 36684176 danielle_wang@dbs.com
Ken HE CFA, +86 21 3896 8221 ken_he@dbs.com
Price Relative
HK$
Relative Index
15.7
209
14.7
189
13.7
169
12.7
149
11.7
10.7
129
9.7
109
8.7
Jul-18
89
Oct-18
Jan-19
Country Garden Services Holdings Co Ltd (LHS)
Relative HSI (RHS)
Forecasts and Valuation
FY Dec (RMB m)
2017A
Turnover
3,122
EBITDA
592
Pre-tax Profit
608
Net Profit
402
Net Profit Gth (%)
23.9
EPS (RMB)
0.16
EPS (HK$)
0.19
EPS Gth (%)
N/A
PE (X)
68.3
P/Cash Flow (X)
31.0
EV/EBITDA (X)
42.1
DPS (HK$)
0.00
Div Yield (%)
0.0
Net Gearing (%)
CASH
ROE (%)
32.9
Book Value (HK$)
0.67
P/Book Value (X)
19.3
Earnings Rev (%):
Consensus EPS (RMB)
Other Broker Recs:
2018F
4,499
962
982
829
106.4
0.33
0.39
106.4
33.1
24.0
25.7
0.10
0.8
CASH
47.9
0.96
13.4
2019F
7,053
1,390
1,432
1,129
36.2
0.42
0.50
27.8
25.9
16.9
16.8
0.12
1.0
CASH
34.0
2.02
6.4
2020F
10,088
1,858
1,919
1,514
34.0
0.57
0.66
33.8
19.4
12.9
11.6
0.17
1.3
CASH
29.3
2.52
5.1
New
0.34
B:13
New
0.44
S:1
New
0.56
H:3
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters
Highest 3-year CAGR in EPS with superior visibility
Well-poised to be the largest HK-listed property manager
Ample growth potential in community value-added
services that may offer additional upside on earnings
• Initiate BUY as our Top pick with HK$19.42 TP
Initiate with BUY on high earning visibility and sustainable profitability.
Currently valued at 26x/19x FY19F/FY20F PE, Country Garden Services
(CGS) is traded at a premium to peers’ average of 19x/15x FY19F/FY20F
PE. This is primarily led by CGS’s superior scale and high growth visibility,
which we believe should be sustainable going forward. On the growth
visibility front, CGS has in hand a sizeable reserved GFA of c.249m sm as
at Jun-18. Even if we are to exclude any future projects to be awarded
from Country Garden (CG) from 2019 onwards, its revenue-bearing GFA
is set to grow at an estimated 3-year CAGR of c.48%. This is expected to
translate into a superior 3-year CAGR of 52% in EPS that is highest
among peers within our covered universe. Potential M&As, strongerthan-expected performance in the value-added services (VAS) segment
from better penetration rates of its services or good response to new
offerings may offer additional earnings upside to our current estimates.
Where we differ? Limited impact from potential slippage of CG’s project
delivery. A widely shared concern held by investors relates to the
potential impact to CGS upon a possible delay in delivery of CG’s
projects. Our sensitivity analysis shows that a 10% slippage in delivery of
CG’s projects will only hurt CGS’ FY18E/19F/20F earnings by
1.3%/2.5%/3.2%.
Sizeable new project contributions to support profit margins. Profitability
of property projects are typically at their highest levels when they are first
delivered. Under our estimates, newly delivered projects that will be
converted to revenue-bearing GFA will represent c.36%/32%/31% of
CGS’s total GFA under management for FY18F/FY19F/FY20F. This should
offer decent support to CGS’s profit margins.
Valuation:
Our TP is based on 34.5x average FY19F/FY20F PE, which is on par to
its historical average. Its historical forward PE range was 22x-53x.
Key Risks to Our View:
Inability to maintain its “High Technology Enterprise” status; failure in
attaining quality third party projects or securing synergetic M&A deals
at reasonable cost.
At A Glance
Issued Capital (m shrs)
2,669
Mkt Cap (HK$m/US$m)
34,320 / 4,373
Major Shareholders (%)
Yang (Huiyan)
54.1
Free Float (%)
45.9
3m Avg. Daily Val. (US$m)
20.1
ICB Industry: Financials / Real Estate Investment & Services
ed-JS / sa- CS / AH
Company Guide
Country Garden Services Holdings Co Ltd
CRITICAL FACTORS TO WATCH
CGS’s contracted GFA growth
60%
40%
20%
0%
2016
2017
2018E
2019E
Contracted GFA (m sm)
2020E
y-o-y growth (%)
CGS ‘s revenue-bearing GFA growth
GF A (msm)
500
400
300
200
100
0
80%
60%
40%
20%
0%
2016
2017
2018E
2019E
Revenue-bearing GFA (m sm)
2020E
y-o-y growth (%)
CG’s attri. Presales GFA growth
15
60%
40%
20%
0%
-20%
-40%
13
11
share price
12/18/2018
12/4/2018
11/20/2018
11/6/2018
10/23/2018
9/25/2018
10/9/2018
9/11/2018
8/14/2018
8/28/2018
9
7/17/2018
Progress and conversion of projects under “Three supplies and
property management” CGS formed an 80% JV with a stateowned enterprise to extend its reach towards “Three supplies
and property management” projects, which is currently
estimated to offer c.138m sm of residential and industrial
projects upon full injection. Currently, c.20m sm project has
been injected into the JV but is yet to be converted into
revenue-bearing GFA. Our current estimates excluded the
potential contribution from these projects given their inherent
remoteness and limited profitability over the short term. Yet,
progress of signing and converting these “Three supplies and
property management” projects should be closely monitored.
80%
7/31/2018
Further M&As to spur market interest and earnings upside.
Based on CGS’s growth strategy, third-party projects will also be
a key area for future growth. The property manager will look to
expand through both public tender and M&A. For the latter, the
property manager recently announced the acquisition of 5
property management companies with a total GFA under
management of c.22m sm for c.Rmb683m (valued at c.10x
FY18E PE). Further acquisition of quality property managers may
be a catalyst and offer upside surprises to current market
estimates.
GF A (m sm)
1,000
800
600
400
200
0
7/3/2018
Critical Factors
Saleable resources schedule and presales performance of CG.
CGS’s growth in contracted and revenue-bearing GFA are
primarily derived from projects awarded by CG and other thirdparty developers. As at Jun-18, 89.1% of CGS’s 136.8m sm of
revenue-bearing GFA came from projects developed by CG,
with the remaining 10.9% from third-party developers. Given
CG’s large scale, the developer will likely continue to be the
main growth contributor for CGS. CG’s launch of saleable
resources and presales are therefore key factors to monitor.
CG attri. presales growth GFA
Source: Company, DBS HK
Potential offshore M&A for the offering of professional property
management services. CGS recently completed a top-up
placement exercise for c.US$250m at HK$11.61 (c.23x FY19E
PE, c.6.2% FY19 EPS dilution) or 10% discount to its previous
day’s closing price. 70% of the net proceed raised are expected
to be used on quality offshore M&A opportunities that are
currently engaged in professional property management
services (upstream technical city services, such as equipment
management) to enhance their current product offerings. While
successful acquisition of such deals may have limited financial
impact in the near term, it may serve as a catalyst to support
market sentiments, enrich CGS’s product competitiveness and
create positive synergies to their current businesses.
Page 39
Company Guide
Country Garden Services Holdings Co Ltd
Balance Sheet:
Net cash position. CGS has Rmb3.1bn of net cash as at Jun-18
or c.Rmb4.1bn after its acquisition of interests in five property
management companies in Nov-18 for c.Rmb683bn and net
proceeds of c.Rmb1.7bn received from its top-up placement.
Cash collection ratio in 1H18 improved to 91.7% versus 88.1%
in 1H17. Impairment allowance to adjusted trade receivables
ratio as at Jun-18 was estimated at 6%, which came third
among our covered stocks.
Leverage & Asset Turnover (x)
0.05
1.3
0.05
1.3
0.04
0.04
1.2
0.03
0.03
1.2
0.02
1.1
0.02
0.01
1.1
0.01
0.00
1.0
2016A
Share Price Drivers:
Acquisition of scalable quality property management
companies; listing/major capital activities of other headline
property management companies.
2017A
2018F
Gross Debt to Equity (LHS)
2019F
2020F
Asset Turnover (RHS)
ROE
45.0%
40.0%
35.0%
30.0%
Key Risks:
Inability to maintain their “High and New Technology
Enterprise” status. CGS is currently entitled to a preferential tax
rate of 15% for 2017-19 thanks to its qualification of this
status. Yet, this status is up for renewal every three years and
companies must meet certain requirements over the three
preceding financial years. In the event where CGS fails to
maintain its preferential tax status when it is up for renewal in
2020, the company will be subject to the ordinary 25% tax rate
and this would adversely impact its earnings.
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2016A
2017A
2018F
2019F
Forward PE Band
34.9
(x)
32.9
+2sd: 31.5x
30.9
+1sd: 29x
28.9
Failure in attaining quality third-party projects or securing
synergetic M&A deals at reasonable costs. While CGS is wellsupported by projects awarded by CG, the company will also
have to attain a sizeable number of projects from independent
third-party developers and M&A in order to maintain its
earnings growth trajectory. We are expecting c.59m sm and
c.61m sm of GFA from third-party and M&A in 2019 and 2020
to meet our estimates for the respective years. In the event
where the company fails to maintain its growth momentum,
market sentiment could be affected and pose downside risks to
our estimates
26.9
Avg: 26.4x
24.9
-1sd: 23.8x
22.9
-2sd: 21.3x
20.9
18.9
Jul-18
Oct-18
Jan-19
PB Band
(x)
18.3
17.3
+2sd: 17.16x
16.3
+1sd: 15.46x
15.3
14.3
Avg: 13.77x
13.3
Company Background
CGS is the property management arm of CG (2007 HK) in
China. It was spun-off by introduction onto the HKSE with a 1for-8.7 distribution ratio of Country Garden's shares in June
2018. The company is a leading residential property
management services provider, ranked third in terms of overall
strength among the Top 100 Property Management
Companies in China by the China Index Academy (CIA) in
2018. It operates a total contracted GFA of 386m sm as at Jun
2018.
2020F
12.3
-1sd: 12.08x
11.3
-2sd: 10.38x
10.3
9.3
Jul-18
Oct-18
Jan-19
Source: Company, DBS HK
Page 40
Company Guide
Country Garden Services Holdings Co Ltd
Shareholding structure
M s. Yang Huiy an and her
associates
Public shareholders
54.1%
45.9%
CGS (6098 HK)
Source: Company, DBS (HK)
Page 41
Company Guide
Country Garden Services Holdings Co Ltd
Management profile
Name
Ms. Yang
Huiyan
Age
36
Position
Profile
Chairman of the
company (Executive
director and vice
chairman of CGH)
Ms Yang was appointed as the company's non-executive Director and the chairman of the
Board on 9 March 2018 and is responsible for the formulation and provision of guidance
and development strategies for the overall development of the company. Ms. Yang is one
of Country Garden (2007 HK) ("CGH")'s Controlling Shareholders. She joined CGH in
March 2005 and served respectively as a general manager, an executive director and then
the vice chairman of CGH. Ms. Yang is also a member of the corporate governance
committee, the executive committee and the finance committee of CGH and a director of
several subsidiaries of the CGH Group. Ms. Yang Huiyan was a director of nine PRC
companies which were wound up voluntarily by shareholders for commercial
considerations. She has been a director of the board and the chairman of Bright Scholar
Education Holdings Limited since December 2016.
Mr. Huang
Peng
35
CFO and Joint
Company Secretary
Mr. Huang was appointed as chief financial officer in September 2016 and is primarily
responsible for financial management, investment management, compliance and company
secretarial matters of the company. Prior to joining the Group, Mr. Huang served as an
independent director of the board at Beijing Arrays Medical Imaging Corporation until
September 2016. He was also an executive director at Guangzhou Yanzhao Enterprise
Management Company Limited from January 2016 to October 2016 and an executive
director at Guangdong Huishi Network Medical Investment Company Limited from July
2016 to November 2016.
Mr. Leung
Chong Shun
52
Joint Company
Secretary
Mr. Leung is currently the joint company secretary of four listed companies on the Main
Board of the Stock Exchange, namely, China Merchants China Direct Investments Limited
(133 HK), China Merchants Port Holdings Company Limited (144 HK), Guangzhou
Automobile Group Co., Ltd. (2238 HK) and CGH.
Mr. Li
Changjiang
52
ED and General
Manager
Mr. Li was appointed as the company's executive Director on 9 March 2018 and has been
the general manager of CG Property Services since he joined the Group in December 2011.
Mr. Li is primarily responsible for overall strategic decisions, business planning and major
operational decisions of the Group. Prior to joining the Group, he was a regional director
within the group of A-Living Services Co., Ltd. He also served in several senior positions for
other property management companies as well where he was responsible for tasks
including administration, customer services management, marketing and property
management, etc.
Mr. Xiao Hua
40
ED and Deputy
General Manager
Mr. Xiao was appointed as executive Director on 9 March 2018 and has been the deputy
general manager of CG Property Services since February 2013. Mr. Xiao is primarily
responsible for overall management of value-added services to non-property owners.
Mr. Guo
Zhanjun
38
ED and Deputy
General Manager
Mr. Guo was appointed as executive Director on 9 March 2018 and has been the deputy
general manager of CG Property Services since he joined the Group in August 2017. Mr.
Guo is primarily responsible for overall management of human resources of the Group.
Source: Company, DBS HK
Page 42
Company Guide
Country Garden Services Holdings Co Ltd
Key Assumptions
FY Dec
Average property
management fee growth
(%)
Average GFA conversion
rate for new projects
from 3rd party (years)
Average GFA conversion
rate for projects from CG
(years)
2018F
2019F
2020F
(9.5)%
11.4%
0.7%
2.1
2.1
2.1
2.6
2.6
2.6
Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec
Revenues (RMB m)
Property Management Services
Value-added services to nonproperty
owners
Value-added
services to property
owners
Other services
Total
2016A
2017A
2018F
2019F
2020F
1,957
194
200
8
2,358
2,545
242
328
7
3,122
3,621
363
506
8
4,499
5,916
539
589
8
7,053
8,569
814
696
9
10,088
Source: Company, DBS HK
Income Statement (RMB m)
FY Dec
Turnover
Cost of Goods Sold
Gross Profit
Other Opg (Exp)/Inc
Operating Profit
Associates Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Core Profit
2016A
2,358
(1,558)
800
(323)
477
(7)
16
0
486
(134)
(28)
324
324
2017A
3,122
(2,086)
1,036
(454)
581
(8)
35
0
608
(168)
(39)
402
402
2018F
4,499
(2,836)
1,663
(720)
943
0
39
0
982
(109)
(44)
829
829
2019F
7,053
(4,518)
2,535
(1,164)
1,371
0
61
0
1,432
(243)
(59)
1,129
1,129
2020F
10,088
(6,534)
3,554
(1,715)
1,839
0
80
0
1,919
(326)
(80)
1,514
1,514
Sales Gth (%)
Net Profit Gth (%)
Core Profit Gth (%)
Gross Mgn (%)
Core Profit Margin (%)
Tax Rate
41.0
47.0
47.0
33.9
13.7
27.5
32.4
23.9
23.9
33.2
12.9
27.6
44.1
106.4
106.4
37.0
18.4
11.1
56.8
36.2
36.2
35.9
16.0
17.0
43.0
34.0
34.0
35.2
15.0
17.0
Source: Company, DBS HK
Page 43
Company Guide
Country Garden Services Holdings Co Ltd
Balance Sheet (RMB m)
FY Dec
2016A
2017A
2018F
2019F
2020F
Fixed Assets
Invts in Assocs & JVs
Other LT Assets
Cash & ST Invts
Other Current Assets
Total Assets
43
20
7
1,775
622
2,468
79
18
25
2,637
718
3,477
61
701
23
2,929
1,009
4,723
44
701
22
6,146
1,499
8,411
26
701
20
8,120
2,037
10,904
ST Debt
Creditors
Other Current Liab
LT Debt
Other LT Liabilities
Minority Interests
Shareholder’s Equity
Total Capital
0
943
442
0
0
64
1,019
2,468
0
1,315
606
0
14
121
1,421
3,477
0
1,895
606
0
14
165
2,043
4,723
0
2,971
606
0
14
224
4,596
8,411
0
4,249
606
0
14
304
5,732
10,904
Share Capital (m)
Net Cash/(Debt)
Net Gearing (%)
0
1,775
CASH
2,500
2,637
CASH
2,500
2,929
CASH
2,665
6,146
CASH
2,669
8,120
CASH
Source: Company, DBS HK
Cash Flow Statement (RMB m)
FY Dec
Profit Before Tax
Assoc. & JV Inc/(loss)
Tax Paid
Depr/Amort
Chg in Wkg.Cap.
Other Non-Cash
Operating CF
Net chg in inv.
Assoc, MI, Invsmt
Investing CF
Net Chg in Debt
New Capital
Dividend
Other Financing CF
Financing CF
Chg in Cash
Chg in Net Cash
2016A
2017A
2018F
2019F
2020F
486
7
(117)
14
591
20
1,001
2
64
67
0
0
0
115
115
1,183
1,183
608
8
(151)
19
436
(35)
885
0
(32)
(32)
(3)
0
0
10
7
860
862
982
0
(109)
19
290
(39)
1,143
0
(644)
(644)
0
0
(207)
0
(207)
292
292
1,432
0
(243)
19
586
(61)
1,732
0
61
61
0
1,706
(282)
0
1,424
3,217
3,217
1,919
0
(326)
19
740
(80)
2,272
0
80
80
0
0
(378)
0
(378)
1,973
1,973
Source: Company, DBS HK
Page 44
China / Hong Kong Company Guide
Greentown Service Group
Version 1 | Bloomberg: 2869 HK Equity | Reuters: 2869.HK
Refer to important disclosures at the end of this report
DBS Group Research . Equity
27 Feb 2019
BUY
The Quality Play
Last Traded Price ( 25 Feb 2019):HK$7.30 (HSI : 28,959)
Price Target 12-mth:HK$8.65 (18.4% upside)
•
Well-reputed for its superior service quality
•
Extending footprint towards cities outside YRD region
•
Strongest growth potential in community VAS
•
Initiate BUY with HK$8.65 TP
Analyst
Jason LAM+852 36684179, jasonlamch@dbs.com
Danielle WANG CFA,+852 36684176, danielle_wang@dbs.com
Ken HE CFA, +86 21 3896 8221 ken_he@dbs.com
Price Relative
HK$
Relative Index
8.9
212
8.4
192
7.9
7.4
172
6.9
152
6.4
132
5.9
112
5.4
92
4.9
4.4
Jun-18
72
Sep-18
Greentown Service Group (LHS)
Forecasts and Valuation
FY Dec (RMBm)
Turnover
EBITDA
Pre-tax Profit
Net Profit
Net Profit Gth (%)
EPS (RMB)
EPS (HK$)
EPS Gth (%)
PE (X)
P/Cash Flow (X)
EV/EBITDA (X)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Book Value (HK$)
P/Book Value (X)
Earnings Rev (%):
Consensus EPS (RMB)
Other Broker Recs:
2017A
5,140
530
509
387
35.7
0.14
0.16
15.7
44.7
32.7
29.0
0.06
0.8
CASH
21.3
0.81
9.0
Dec-18
Relative HSI (RHS)
2018F
6,607
675
655
481
24.2
0.17
0.20
24.2
36.0
54.7
22.6
0.07
1.0
CASH
23.2
0.94
7.8
2019F
8,658
897
882
648
34.7
0.23
0.27
34.7
26.7
23.4
16.4
0.10
1.3
CASH
26.5
1.12
6.5
2020F
11,016
1,097
1,088
799
23.4
0.29
0.34
23.4
21.7
19.1
12.8
0.12
1.6
CASH
27.5
1.34
5.5
New
0.18
B:16
New
0.24
S:0
New
0.31
H:5
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters
Initiate with BUY on superior quality. With a strong reputation for its
superior service quality and extensive track record, Greentown Service
Group (GTS) is well positioned to focus on high-end property projects both
in the primary and secondary market. Having the largest market share in
Hangzhou and nearby cities, GTS has decided to extend its footprint
towards other regions of China to drive growth. Based on our current
expected rate of reserved GFA conversion, we estimate GTS to eye for a 3year CAGR of 30% in management fee income growth. GTS also has the
largest scale of operation in community value-added services (VAS) among
our covered names which is expected to grow at a 27% 3-year CAGR
under our forecast. We believe the counter deserves to trade at a premium
valuation compared with peers, given its balanced growth drivers and high
services quality that points to growth sustainability.
Where we differ? Capability to negotiate for higher property management
fees. A key concern on this sector is property manager’s ability to raise
project management fees. GTS managed to secure fee hikes of
24%/20%/25% for 27%/30%/39% of contracts that expired over the
period in 2017/1H18/11M2018. This indicates its ability to maintain its
margins alongside rising labour costs.
Development in community VAS well-supported by superior project
quality. GTS was identified with the highest potential within the VAS space
under our in-house scorecard. This was derived mainly by its superior
project quality at hand. With its seven community VAS business lines that
should contribute over Rmb50mn revenue in 2018E (which is highest
among our covered players), GTS’s overall VAS segment is expected to
represent c.30% of its revenue with >30% GPM in the coming 3 years.
Valuation:
Our TP is based on 29x FY19F/FY20F average PE, on par with its
average forward PE since 2018, versus its historical average forward PE
range of 17x-38x.
Key Risks to Our View:
Unsuccessful regional expansion; inability to maintain profit margins;
weaker growth in its community VAS segment.
At A Glance
Issued Capital (m shrs)
2,778
Mkt Cap (HK$m/US$m)
20,278 / 2,584
Major Shareholders (%)
Orchid Garden Investment Co., Ltd.
36.7
Li (Hairong)
20.3
Free Float (%)
43.0
3m Avg. Daily Val. (US$m)
4.3
ICB Industry: Financials / Real Estate Investment & Services
ed- JS / sa- CS / AH
Company Guide
Greentown Service Group
Contracted GFA growth
CRITICAL FACTORS TO WATCH
Critical Factors
Attaining GFA growth through third party projects in both the
primary and secondary markets. Property management services
remains at the heart of GTS’s business model and thus growth
in contracted GFA (revenue-bearing GFA + reserved GFA) will
be a key factor to dictate the company’s performance. As at
Jun-18, the company has on hand 311m sm of contracted
GFA, 150.8m sm of which are revenue-bearing with an
average management fee of Rmb3.13psm/mth. The company
targets to achieve c.30% growth in contracted and revenuebearing GFA for FY18. Looking forward, the company aims to
expand its operational scale through securing third party
contracts both from the primary and secondary markets. Given
sizeable reserved GFA and its well-established reputation of
offering superior service quality, we believe GTS is wellpositioned to achieve its targeted growth rates, which is
modest in our view.
Magnitude of labour cost hikes versus management fee
increases. Profitability for the property management sector is
among the biggest concerns shared by investors. This is even
more so in the case of GTS given its substantial
underperformance in margins (1H18: GPM @ 11.9%) versus
peers (>20%) despite having higher average management fees.
The concern largely stems from the inherent difficulty for
property managers to negotiate management fee hikes with
property owners/residents against increasing labour cost (the
largest cost item for property management services). In GTS’s
case, its total labour cost rose c.10% whereas average
management fees grew by a mere 3.7% CAGR between 20132017. Its lower-than-peers GPM also offers less cushion to
sustain profitability in the case of further cost hikes. Future
trend in labour cost as well as management fee hikes are key
factors that will affect both the financials and stock
performance of this counter.
Sizable M&A deals in the community VAS segment. In contrast
with peers who are focusing on M&A in the basic property
management field, GTS is actively looking for potential
acquisition opportunities to grow its community VAS segment,
particularly within the education sector and other home-living
services. While acquisition for education-related companies
have been halted given recent regulatory adjustments in the
education sector, GTS is still actively sourcing for M&A
opportunities in other segments. In Dec, the property manager
acquired a small air-conditioning equipment servicing company
for c.Rmb8.97m to strengthen its home-living services division.
Any sizeable deals that will help to strengthen its community
VAS offerings should be a share price catalyst.
35%
30%
25%
20%
15%
10%
5%
0%
29%
31%
28%
30%
24%
15%
2014
2015
2016
15%
2017 2018E 2019E 2020E
Revenue-bearing GFA growth
35%
30%
25%
20%
15%
10%
5%
0%
31%
26%
27%
2015
2016
29%
29%
29%
20%
2014
2017 2018E 2019E 2020E
Average management fee
Rmb psm/mth
9.3%
3.15
3.10
3.05
3.00
2.95
2.90
2.85
2.80
y -o-y growth
10%
8%
6%
4.1%
0.7%
1.0%
1.3%
2016
2017
1H18
4%
2%
0%
2014
2015
No. of community VAS acquisitions made
No. of community V AS
acquisitions
6
5
4
3
2
1
0
5
1
0
2016
2017
1H18
Source: Company, DBS (HK)
Page 46
Company Guide
Greentown Service Group
Balance Sheet:
Net cash position: GTS has a net cash position of c.Rmb1.8bn
with no interest-bearing debt as at Jun-18. The company is
currently actively looking to deploy the spare cash to
acquisition opportunities in the VAS space. Thanks to its
superior service quality and reputation, cash collection rate
stands at a superior 97.7% in 1H18, with its impairment
allowance to trade receivables ratio estimated at 3.4% at Jun18, which placed the company first among our covered stocks.
Leverage & Asset Turnover (x)
0.05
1.9
0.05
1.8
0.04
0.04
1.7
0.03
0.03
1.6
0.02
1.5
0.02
0.01
1.4
0.01
Share Price Drivers:
Faster-than-expected turnaround in its education and property
asset management services; higher-than-anticipated new
contracts signing; further capital activities/listing of headline
property management companies.
0.00
1.3
2016A
2017A
2018F
2019F
Gross Debt to Equity (LHS)
2020F
Asset Turnover (RHS)
ROE
30.0%
25.0%
20.0%
Key Risks:
Over-emphasis on service quality at the expense of profit
margins. Superior service quality has been one of GTS’s key
competitive edge among peers in property management
services. Yet, this has inevitably led to lower-than-peers profit
margins. It is therefore of crucial importance for the company
to strike a balance between profitability and service quality. In
the event where the company fails to maintain profit margins
whilst focusing on service quality, or vice-versa, the company’s
competitive edge and profitability may be adversely impacted.
This may also affect its currently higher-than-peers valuation.
15.0%
10.0%
5.0%
0.0%
2016A
2017A
2018F
2019F
2020F
Forward PE Band
37.2
(x)
+2sd: 32.7x
32.2
+1sd: 29.3x
27.2
Worse-than-expected market response to its self-provided
community living services. GTS is actively looking to selfprovide value-added services that management expects to
have strong growth potential and are complementary to their
existing property services business, such as early-education
and property asset management services. The company has
been devoting substantial effort and resources into the
development of both businesses, which has impacted profit
margins. In the event of a worse-than-expected market
response or slower-than-anticipated ramp-up/turnaround of
these businesses, financial performance and market sentiment
on the counter may be affected.
Avg: 25.9x
-1sd: 22.5x
22.2
-2sd: 19.1x
17.2
Jun-18
Sep-18
Dec-18
PB Band
(x)
10.0
9.0
+2sd: 8.97x
8.0
+1sd: 8.14x
Avg: 7.31x
7.0
-1sd: 6.48x
6.0
-2sd: 5.65x
Company Background
Greentown Services was listed on the HKSE in November
2016 at an IPO price of HK$2.20. The company is a high-end
residential property management services provider that offers
a comprehensive range of property, community and
consulting services primarily aimed at property owners and
community residents. It operates a sizable contracted GFA of
311m sm as at Jun-18, and ranked second in terms of overall
strength among the Top 100 Property Management
Companies in China by the CIA in 2018.
5.0
Jun-18
Sep-18
Dec-18
Source: Company, DBS HK
Page 47
Company Guide
Greentown Service Group
Shareholding structure
M r. Song Weiping, Mr. Shou Bainian
(NED), Mr. Xia Yubo (NED)
M s. Li Hairong (Chairman)
36.72%
21.28%
Greenwood Asset Management
5.32%
Greentown China (3900 HK)
5.0%
Greentown Services (2869 HK)
Public shareholders
31.68%
Source: Company, DBS (HK)
Management Profile
Name
Age
Position
Profile
Ms. Li
Hairong
60
Chairman
and ED
Ms. Li has been the Chairman of Greentown Property Management since October 1998, and was also
general manager from October 1998 to February 2011, where she was primarily responsible for overall
management and daily operations. She also served as the executive general manager of Greentown
Holdings from January 2006 to October 2015. Currently holding directorships in various other subsidiaries
of GTS, she is also a vice president of China Property Management Association and the Zhejiang Province
Real Estate Industry Association, as well as the head of its Property Management Special Committee.
Mr. Yang
Zhangfa
46
ED,
former
CEO and
Vice
Chairman
Mr. Yang has been executive Director and chief executive officer of the company since 27 November
2015. He was appointed as the vice Chairman of the Board and ceased to be the chief executive officer of
the company with effect from 23 March 2018. He is responsible for making decisions for material
operational matters, participating in Board decisions and implementing the resolutions of the Board. He
joined the company in February 2002 and has served in various positions in Greentown Property
Management, including but not limited to the assistant to general manager, the vice general manager,
the executive vice general manager, the executive general manager and the general manager. Currently
holding directorships in various subsidiaries of the company, he is also the chairman of Zhejiang
Greentown Real Estate Consulting Co. Ltd and is in charge of its development strategy and strategic
planning.
Mr. Wu
Zhihua
39
ED, CEO
and CFO
Mr. Wu has been executive Director and chief executive officer since 27 November 2015 and 23 March
2018 respectively. He joined the company in June 2003 and was subsequently promoted as the executive
vice general manager and the general manager of Zhejiang Lvsheng Property Management Company
Limited in 2008. He also subsequently served as the assistant to general manager, the vice general
manager, the vice executive general manager and chairman of Greentown Property Management from
January 2009 to present. Mr. Wu also serves as the president of the Property Management Association of
Xihu District, Hangzhou.
Mr. Chen
Hao
48
ED
Mr. Chen joined the company in May 2015 as a vice general manager and is primarily responsible for the
management of community products and services of the company. He has been a director of Greentown
Property Management since November 2015 and a director of Twin Cities Network since April 2015. Prior
to joining the company, Mr. Chen has served as a director of Hong Kong Hung Seun International
Resources Limited, a company primarily engaged in trade of copper, market research and fund
investment, since October 2009. He has also been the vice chairman of Daye Youse Greentown Property
Development Co., Ltd. (being held as to 30% by Greentown China and the remaining 70% by
Independent Third Parties which engages in the business of property development) since January 2012.
Source: Company, DBS (HK)
Page 48
Company Guide
Greentown Service Group
Key Assumptions
FY Dec
2016A
2017A
Average property
management fee growth
(%)
Average GFA conversion
rate (years)
2018F
2019F
2020F
1%
1%
1%
3.0
3.0
3.0
Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec
Revenues (RMB m)
Property Management
Services
Property Consulting
Services
Community Living Services
Total
2016A
2017A
2018F
2019F
2020F
2,620
3,560
4,617
6,020
7,865
618
680
902
1,182
1,293
484
3,722
900
5,140
1,088
6,607
1,455
8,658
1,858
11,016
2016A
3,722
(3,006)
716
(299)
417
3
0
(2)
419
(124)
(9)
286
286
435
2017A
5,140
(4,194)
946
(462)
485
5
0
19
509
(117)
(5)
387
387
530
2018F
6,607
(5,402)
1,205
(571)
634
0
0
20
655
(164)
(10)
481
481
675
2019F
8,658
(7,076)
1,582
(725)
856
0
0
25
882
(220)
(13)
648
648
897
2020F
11,016
(9,034)
1,982
(926)
1,056
0
0
31
1,088
(272)
(16)
799
799
1,097
27.5
46.1
46.9
44.3
38.1
21.9
16.2
35.7
28.5
27.2
30.9
24.2
31.0
32.9
35.0
34.7
27.2
22.3
23.4
23.4
19.2
10.8
7.7
30.9
11.5
27.7
35.0
250.0
18.4
8.6
7.5
21.3
10.4
19.8
34.7
NM
18.2
9.0
7.3
23.2
11.1
22.0
35.0
NM
18.3
9.4
7.5
26.5
13.2
25.3
35.0
NM
18.0
9.2
7.3
27.5
13.6
26.2
35.0
NM
Source: Company, DBS HK
Income Statement (RMB m)
FY Dec
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Pre-tax Profit
Tax
Minority Interest
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
Source: Company, DBS HK
Page 49
Company Guide
Greentown Service Group
Balance Sheet (RMB m)
FY Dec
2016A
2017A
2018F
2019F
2020F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
264
127
78
2,296
10
547
0
3,323
304
559
341
1,990
128
790
29
4,140
271
567
334
2,149
132
1,016
29
4,499
238
567
327
2,686
173
1,332
29
5,352
204
567
320
3,341
220
1,695
29
6,378
ST Debt
Creditors
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
0
943
612
0
22
1,719
27
3,323
0
1,304
835
0
10
1,918
74
4,140
0
1,340
835
0
10
2,231
83
4,499
0
1,759
835
0
10
2,652
97
5,352
0
2,248
835
0
10
3,172
113
6,378
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
(998)
2,296
47.4
109.2
0.7
1.5
1.8
1.8
CASH
CASH
(1,192)
1,990
47.4
98.7
6.1
1.4
1.4
1.3
CASH
CASH
(997)
2,149
49.9
90.0
8.8
1.5
1.5
1.5
CASH
CASH
(1,059)
2,686
49.5
80.4
7.9
1.8
1.6
1.5
CASH
CASH
(1,139)
3,341
50.1
81.3
8.0
1.9
1.7
1.6
CASH
CASH
Source: Company, DBS HK
Cash Flow Statement (RMB m)
FY Dec
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
(Pft)/ Loss on disposal of FAs
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (RMB)
Free CFPS (RMB)
2016A
2017A
2018F
2019F
2020F
419
15
(80)
(3)
1
13
30
394
(81)
4
(75)
2
4
(147)
(22)
(180)
1,266
(50)
1,014
42
1,303
0.16
0.13
509
40
(101)
(8)
(4)
75
16
529
(117)
(477)
(172)
0
16
(750)
(100)
0
0
82
(18)
(53)
(292)
0.16
0.15
655
40
(164)
0
0
(194)
(20)
317
0
0
(9)
0
20
11
(168)
0
0
0
(168)
0
159
0.18
0.11
882
40
(220)
0
0
62
(25)
738
0
0
0
0
25
25
(227)
0
0
0
(227)
0
537
0.24
0.27
1,088
40
(272)
0
0
80
(31)
904
0
0
0
0
31
31
(280)
0
0
0
(280)
0
656
0.30
0.33
Source: Company, DBS HK
Page 50
China / Hong Kong Company Guide
A-Living Group Limited
Version 1 | Bloomberg: 3319 HK Equity
| Reuters: 3319.HK
Refer to important disclosures at the end of this report
DBS Group Research . Equity
27 Feb 2019
BUY (Initiating Coverage)
High beta play
Last Traded Price (25 Feb 2019): HK$12.52 (HSI : 28,959)
Price Target 12-mth: HK$15.87 (26.7% upside)
•
Parent and strategic partner support in the VAS space
•
M&A-led growth strategy, a key to derive superior growth
•
Higher correlation to the property sales sector versus peers
•
Initiate with BUY, TP HK$15.87
Analyst
Jason LAM +852 36684179 jasonlamch@dbs.com
Danielle WANG CFA, +852 36684176 danielle_wang@dbs.com
Ken HE CFA, +86 21 3896 8221 ken_he@dbs.com
Initiate with BUY given strong growth potential versus peers. A-Living
offers the second highest EPS growth potential among our covered peers.
This is based on: (1) its M&A-focused growth strategy, alongside tie-ups
with third party developers and decent parent/strategic partner backing;
and (2) growth potential in sales agency services to Agile (60-70% of
Agile’s annual presales) and gradually to some of Greenland Group’s
projects. We expect A-Living to record decent EPS growth of
65%/16%/24% for 2018/2019/2020. Potential upsides may come from
faster than expected M&A and contracted sales of Agile and Greenland.
Price Relative
Forecasts and Valuation
FY Dec (RMB m)
2017A
Turnover
1,761
EBITDA
414
Pre-tax Profit
403
Net Profit
290
Net Profit Gth (%)
80.3
EPS (RMB)
0.35
EPS (HK$)
0.41
EPS Gth (%)
56.0
PE (X)
30.7
P/Cash Flow (X)
31.0
EV/EBITDA (X)
19.4
DPS (HK$)
0.00
Div Yield (%)
0.0
Net Gearing (%)
CASH
ROE (%)
33.1
Book Value (HK$)
2.07
P/Book Value (X)
6.0
Earnings Rev (%):
Consensus EPS (RMB)
Other Broker Recs:
2018F
3,182
787
1,024
745
157.0
0.57
0.67
65.0
18.6
16.6
11.6
0.17
1.3
CASH
21.7
4.87
2.6
2019F
4,331
993
1,221
888
19.3
0.67
0.78
16.0
16.0
13.9
8.9
0.20
1.6
CASH
15.2
5.52
2.3
2020F
5,688
1,260
1,516
1,103
24.2
0.83
0.97
24.2
12.9
11.3
6.4
0.24
1.9
CASH
16.1
6.49
1.9
New
0.52
B:16
New
0.76
S:0
New
1.00
H:0
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters
Where we differ? Less concerned on connected transactions. A key
concern surrounding the counter relates to the sizeable portion of its
revenue and earnings derived from connected transactions. Yet, we
believe its accelerating growth in the property management business
should gradually reduce its dependence on these earnings from the
current 34% for FY18E to 24% by FY20E.
Full-on acquisition mode. A-Living is actively looking for M&A
opportunities to build on its existing scale. Since listing, the company has
announced four acquisitions of majority stakes in property management
companies with total contracted GFA of c.67m sm. Factoring in the total
acquisition cost of c.Rmb660m, the company remains well positioned for
further M&As with c.Rmb3.7bn of net cash on hand as at Jun-18. Our
current estimates currently assume a modest addition of 20m/30mn sm in
contracted GFA from the M&A front for FY19/FY20. Faster-than-expected
M&A will offer upside surprise to our estimates.
Valuation:
Our TP is based on 18.7x FY19F/FY20F average PE, which is on par to its
historical average level. Its historical average forward PE range was 11x27x.
Key Risks to Our View:
Inability to secure quality M&A opportunities at reasonable costs; property
market slowdown.
At A Glance
Issued Capital (m shrs)
433
Non H shrs (m shs)
900
Mkt Cap (HK$m/US$m)
16,693 / 2,127
Major Shareholders (%)
Agile Group.
54.0
Greenland Group
15.0
Free Float (%)
31.0
3m Avg. Daily Val. (US$m)
3.0
ICB Industry: Financials / Real Estate Investment & Services
ed-JS / sa- CS / AH
Company Guide
A-Living Group Limited
CRITICAL FACTORS TO WATCH
Contracted GFA growth
Dependence on connected transaction. While connected
transactions (businesses with Agile and Greenland) is expected
to remain sizeable going forward, we expect revenue
contribution in this end to decrease at a noticeable rate from
34% for FY18F to 28%/24% for FY19F/FY20F, mostly led by
growing contribution from its accelerating property
management business. Additionally, its annual cap on
connected transactions will cap revenue contribution from this
side of the business, which is now quite tight compared to our
current estimates. Yet, any further revision in annual cap may
signal another round of increase in dependence on connected
transactions.
73%
60%
41%
40%
34%
28%
16%
20%
0%
2015
2016
2017 2018E 2019E
Revenue-bearing GFA growth
80%
2020E
69%
56%
60%
43%
43%
40%
40%
20%
8%
0%
2/8/2019
12/8/2…
200%
100%
0%
-100%
1/8/2019
10/8/2…
9/8/2018
7/8/2018
8/8/2018
5/8/2018
6/8/2018
4/8/2018
Share price (HK$/sh)
21
16
11
6
11/8/2…
2015
2016
2017 2018E 2019E 2020E
Greenland and Agile’s presales growth to share price
2/8/2018
Presales of Agile and Greenland to denote earnings
performance through agency fee/sales assistance services. In
1H18, property sales related services represented c.83%/39%
of A-Living’s revenue from value-added services/overall
operations, most of which came from property agency and sales
assistance services with Agile (and increasingly so with
Greenland). Support on this front from the two scalable
developers (both in aggregate offer annual sales of
c.Rmb500bn, equivalent to the scale of a national top 5
developer), overall revenue and profit from this segment
expected to remain meaningful going forward. Our sensitivity
analysis shows that for a 10% outperformance in presales by
the two developers, A-Living’s gross and net profit in 2019
would respectively increase by 2.3% and 2.1%. This also in part
explains the evident correlation between the share price of ALiving and presales performances of Agile and Greenland
Group.
72%
80%
3/8/2018
Critical Factors
Ability to secure quality M&A at reasonable costs. M&A serves
as a key growth factor for A-Living’s property management
business. Since listing in Feb-18, A-Living has announced the
acquisition of four property managers at 9-12x FY18E PE, which
brought in an aggregate of c.67m sm of contracted GFA for its
property management business, versus its 1H18 contracted GFA
of c.186m sm. Currently, its announced acquisition of Lanzhou
Chengguan is put on hold and could be called off as there
remains unresolved regulatory complexities on social security
payments to be settled, which has already been factored into
our estimates. Alongside its cash-rich financial position, the
company is well-positioned to undertake further M&A
opportunities for growth on top of the two acquisitions
announced in Jan-19. Our earnings forecast currently factors in
another modest 20m/30m sm of GFA from M&A for
2019/2020. Faster-than-expected pace of acquisition would
offer further earnings upside to drive share price performance.
+1 std 3319 HK
Announced combined presales growth for Greenland and
Agile
Current caps on connected transactions vs estimated
connected transactions
100%
9.7%
19.4%
23.1%
50%
90.3%
80.6%
76.9%
0%
2018E
2019E
2020E
Remaining caps
Estimated revenue from connected transactions
Source: Company, DBS HK
Page 52
Company Guide
A-Living Group Limited
Balance Sheet:
Net cash position: The company remains in net cash as at Jun18 despite some level of debt inherited from the acquisition of
Zizhu Property. Factoring the acquisition of Lanzhou
Chengguan in Jul-18 and Qingdao Huaren/Harbin Jinyang in
Jan-19, net cash stands strong at Rmb3.7bn and offers ample
room for further M&A if opportunities arise. Cash collection in
1H18 improved 1.6ppt to 91.9%, which is at similar levels
compared with peers. Impairment allowance ratio to adjusted
trade receivables is estimated at 3.8% as at Jun-18, which
ranks the counter second among our covered universe.
Leverage & Asset Turnover (x)
ROE
Share Price Drivers:
Acquisition of sizable quality projects at reasonable costs;
further capital activities/IPO listing of other headline property
management peers.
Key Risks:
Inability to secure quality M&A: M&A plays a key role within
the company’s forthcoming growth strategy. Alongside
intensifying competition in the M&A space for quality property
management companies, inability of the company to secure
reasonably priced synergetic opportunities may lower market
expectations on its growth potential.
Forward PE Band
Slowdown in Agile and Greenland’s contracted sales:
Alongside Agile’s (and gradually Greenland) appointment of
A-Living as their property sales agent for majority of their
development projects, 34%/28%/24% of the company’s
revenue for FY18F/FY19F/FY20F are dependent on these two
companies’ annual presales. In the scenario of significant
slowdown in presales of these two companies, A-Living’s
earnings may be negatively affected.
Company Background
A-Living is the property management division of Agile Group
(3383 HK) that was spun-off for listing on the HKSE in
February 2018 at an IPO price of HK$14.20. A-Living has
almost 25 years of experience in the industry. With a
contracted GFA of 185.6m sm as at Jun-18, A-Living is
admittedly of a smaller scale compared to some of the bigger
names within the industry but at the same time presents a
high-growth story stemming from its strategic alliance with
Greenland Holdings and its sizeable cash reserves to pursue
M&A opportunities.
PB Band
Source: Company, DBS HK
Page 53
Company Guide
A-Living Group Limited
Appendix 1: A look at Company's listed history – what drives its share price?
Shareholding structure
A gile Group (3383 HK)
Greenland Group
15%
54%
Gongqingcheng
Inv estment
(Senior management)
A -Liv ing (3319 HK)
6%
Public shareholders
25%
Source: Company. DBS (HK)
Page 54
Company Guide
A-Living Group Limited
Management profile
Name
Age
Position
Profile
Mr. Chan
Cheuk Hung
62
Co-chairman
Mr. Chan has served as a non-executive Director of the company since 21 July 2017 and cochairman of the Board since 27 August 2017. He is also a member of the risk management
committee of the Board. Mr. Chan is responsible for the formulation of development strategies
and provision of guidance for the overall development of the Group. He has been an executive
director and senior vice president of Agile Group Holdings Limited since November 2005 and
responsible for its overall strategic decisions, business planning and major operational decisions.
Mr. Chan has over 24 years of experience in real estate development and related businesses.
Mr. Huang
Fengchao
56
ED, CEO and
Co-chairman
Mr. Huang has served as an executive Director and the co-chairman of the Board of the company
since 21 July 2017. He was also appointed as CEO of the company in Nov-18. Furthermore, Mr
Huang also serves as the chairman of the risk management committee of the Board, a member of
each of the remuneration and appraisal committee and the nomination committee of the Board.
He is responsible for overall strategic decisions, business planning and major operational decisions
of the company. Mr. Huang joined Agile Holdings in October 1999 and has held positions of
including but not limited to general manager, director of different subsidiaries. Mr. Huang has
been serving as an executive director and vice president of Agile Holdings and president of the
Hainan and Yunnan region since May 2014, where he was in charge of the real estate
development and property management in Hainan province and Yunnan province. Mr. Huang
has been in charge of the investment department, cost center, human resources center, legal
department and audit and supervision department of Agile Holdings since May 2015.
Mr. Feng Xin
47
ED and Vice
President
Mr. Feng has served as an executive Director of the company since 21 July 2017 and is
responsible for assisting the chief executive officer of the company with business planning, overall
management of property management and business development. Mr. Feng has over 20 years of
experience in property management. Mr. Feng joined the company as the property manager in
Nanhai project in June 2002 and was promoted to deputy director of Foshan region in March
2008, managing director of South China region in March 2012, and general manager of property
management center in April 2015. Mr. Feng has been the vice president of the company since
January 2017. Prior to joining the company, from February 1993 to April 1995, Mr. Feng was a
director of Guangzhou World Trade Center Complex Property Management Co., Ltd.
Mr. Wang
Wei
47
ED
Mr. Wang has served as an executive Director of the company since 21 July 2017 where he was
responsible for overall management and operations of Shanghai Greenland Property Services Co.,
Ltd. (“Greenland Property Services”). Mr. Wang has over 18 years of experience in property
management. Mr. Wang served as the general manager of Greenland Property Services since
November 2012, where he was responsible for its overall operations and management of the
company.
Mr. Li Dalong
34
CFO and Joint
Company
Secretary
Mr. Li has been the chief financial officer and joint company secretary since August 2016 and
August 2017, respectively. Mr. Li is responsible for financial management, accounting,
investment, mergers and acquisitions and company secretarial matters of the Group. He has over
11 years of experience in accounting and capital market. Prior to this, from November 2013 to
June 2016, Mr. Li was a senior manager of the capital market department at
PricewaterhouseCoopers (Hong Kong).
Source: Company, DBS HK
Page 55
Company Guide
A-Living Group Limited
Key Assumptions
FY Dec
Average property
management fee growth
(%)
Average GFA conversion
rate for new projects
from 3rd party/Greenland
(years)
Average GFA conversion
rate for projects from
Agile (years)
2018F
2019F
2020F
(14.0)%
(3.0)%
(2.7)%
3.0
3.0
3.0
3.4
3.4
3.4
Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec
Revenues (RMB m)
Property Management Services
Value-added services to nonproperty
owners
Value-added
services to property
owners
Total
2016A
2017A
2018F
2019F
2020F
978
212
55
1,245
1,206
453
102
1,761
1,823
1,155
204
3,182
2,741
1,305
285
4,331
3,724
1,479
485
5,688
Source: Company, DBS HK
Income Statement (RMB m)
FY Dec
Turnover
Cost of Goods Sold
Gross Profit
Other Opg (Exp)/Inc
Operating Profit
Associates Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Core Profit
2016A
1,245
(933)
312
(94)
217
0
15
0
232
(63)
(8)
161
161
2017A
1,761
(1,170)
591
(192)
398
0
4
0
403
(102)
(10)
290
290
2018F
3,182
(2,044)
1,137
(366)
772
0
252
0
1,024
(256)
(23)
745
745
2019F
4,331
(2,855)
1,476
(498)
978
0
243
0
1,221
(305)
(27)
888
888
2020F
5,688
(3,789)
1,898
(654)
1,244
0
272
0
1,516
(379)
(34)
1,103
1,103
Sales Gth (%)
Net Profit Gth (%)
Core Profit Gth (%)
Gross Mgn (%)
Core Profit Margin (%)
Tax Rate
33.2
147.3
147.3
25.0
12.9
27.1
41.5
80.3
80.3
33.5
16.5
25.5
80.7
157.0
157.0
35.7
23.4
25.0
36.1
19.3
19.3
34.1
20.5
25.0
31.3
24.2
24.2
33.4
19.4
25.0
Source: Company, DBS HK
Page 56
Company Guide
A-Living Group Limited
Balance Sheet (RMB m)
FY Dec
2016A
2017A
2018F
2019F
2020F
Fixed Assets
Invts in Assocs & JVs
Other LT Assets
Cash & ST Invts
Other Current Assets
Total Assets
62
0
658
526
653
1,899
71
0
1,041
880
519
2,511
63
0
1,418
4,770
954
7,206
56
0
1,932
5,515
1,294
8,797
49
0
2,674
6,295
1,695
10,712
ST Debt
Creditors
Other Current Liab
LT Debt
Other LT Liabilities
Minority Interests
Shareholder’s Equity
Total Capital
200
761
39
596
0
24
280
1,899
0
952
62
0
22
2
1,472
2,511
12
1,691
62
0
22
25
5,393
7,206
12
2,367
62
0
22
53
6,282
8,797
12
3,145
62
0
22
87
7,385
10,712
Share Capital (m)
Net Cash/(Debt)
Net Gearing (%)
720
(269)
88.6
832
880
CASH
1,297
4,758
CASH
1,333
5,503
CASH
1,333
6,283
CASH
Source: Company, DBS HK
Cash Flow Statement (RMB m)
FY Dec
Profit Before Tax
Assoc. & JV Inc/(loss)
Tax Paid
Depr/Amort
Chg in Wkg.Cap.
Other Non-Cash
Operating CF
Net chg in inv.
Assoc, MI, Invsmt
Investing CF
Net Chg in Debt
New Capital
Dividend
Other Financing CF
Financing CF
Chg in Cash
Chg in Net Cash
2016A
2017A
2018F
2019F
2020F
232
0
(68)
6
187
(13)
344
0
(215)
(215)
201
0
0
(11)
190
319
110
403
0
(76)
16
(43)
(12)
287
(981)
1,030
49
(809)
1,199
0
(370)
20
357
1,149
1,024
0
(256)
16
303
(252)
834
(385)
252
(133)
12
3,177
0
0
3,189
3,890
3,878
1,221
0
(305)
16
336
(243)
1,024
(523)
243
(279)
0
0
0
0
0
745
745
1,516
0
(379)
16
377
(272)
1,258
(750)
272
(478)
0
0
0
0
0
779
779
Source: Company, DBS HK
Page 57
China / Hong Kong Company Guide
Colour Life Services Group Co Ltd
Version 1 | Bloomberg: 1778 HK Equity
| Reuters: 1778.HK
Refer to important disclosures at the end of this report
DBS Group Research . Equity
27 Feb 2019
BUY (Initiating Coverage)
Reshaping its path of growth
Last Traded Price (25 Feb 2019):HK$4.92 (HSI : 28,959)
Price Target 12-mth: HK$6.63 (34.7% upside)
•
Modest reserved GFA at hand to support decent growth
•
Largest online platform to cultivate community VAS
Analyst
Jason LAM +852 36684179 jasonlamch@dbs.com
Danielle WANG CFA, +852 36684176 danielle_wang@dbs.com
Ken HE CFA, +86 21 3896 8221 ken_he@dbs.com
•
Concerns and uncertainties are largely priced in
•
Attractive on risk-reward perspective - initiating with BUY
Concerns largely factored in – Initiate coverage with BUY. While
investors share concerns on Colour Life’s (CL) lack of parent support
and its extensive exposure to mass market projects, CL’s EPS growth is
nonetheless expected to remain decent at a 3-year CAGR of 18% on
the back of its modest reserved GFA at hand for future conversion
(1H18: 150.4m sm, 46% of revenue-bearing GFA). Having established
a scalable presence in the property management space, CL has shifted
their focus onto the development of its online platform to minimize
costs and cultivate community VAS. The counter is trading at 9.1x
FY19F PE, a significant discount to peers’ average of 18.8x FY19F PE.
We believe share price has been overly punished and is attractive on a
risk-reward perspective. Initiate coverage with BUY at HK$6.63 TP.
Price Relative
HK$
Relative Index
222
9.3
202
8.3
182
162
7.3
142
6.3
122
5.3
102
4.3
3.3
May-18
82
62
Aug-18
Nov-18
Colour Life Services Group Co Ltd (LHS)
Forecasts and Valuation
FY Dec (RMB m)
2017A
Turnover
1,629
EBITDA
614
Pre-tax Profit
457
Net Profit
321
Net Profit Gth (%)
70.8
EPS (RMB)
0.32
EPS (HK$)
0.38
EPS Gth (%)
71.4
PE (X)
13.0
P/Cash Flow (X)
29.9
EV/EBITDA (X)
8.0
DPS (HK$)
0.14
Div Yield (%)
2.9
Net Gearing (%)
17.8
ROE (%)
13.2
Book Value (HK$)
3.03
P/Book Value (X)
1.6
Earnings Rev (%):
Consensus EPS (RMB)
Other Broker Recs:
Feb-19
Relative HSI (RHS)
2018F
3,538
974
697
482
50.2
0.38
0.44
17.1
11.1
7.7
6.0
0.22
4.5
10.3
14.2
3.12
1.6
2019F
4,355
1,047
879
608
26.1
0.46
0.54
22.5
9.1
25.0
5.8
0.27
5.5
9.3
16.9
3.36
1.5
2020F
4,961
1,137
1,001
692
14.0
0.53
0.62
14.0
8.0
9.9
5.2
0.31
6.3
2.0
17.5
3.71
1.3
New
0.40
B:14
New
0.49
S:0
New
0.62
H:1
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters
Where we differ? Uncertainty from growth strategy and project quality
concerns are mostly reflected. We believe the concerns surrounding
CL’s growth strategy and project quality are now largely priced in, and
the market has yet to fully recognise its decent and visible earnings
growth from its scalable property management business and growing
contribution from community VAS.
Reshaping fundamentals with online platform development.
Leveraging on its most established online platform among peers (active
users reached c.3.9m as at Oct-18), CL attempts to reshape its
fundamentals and build another stream of income. In return for usage
fees and commission income on transactions made under its platform,
CL shares its online platform with other property managers that they
have entered into cooperative partnerships with. In 1H18, 46.7% of
revenue from community VAS was derived from its online platform.
Valuation:
Our TP is based on 11.8x average FY19F/20F PE, on par to its
historical average forward PE since 2018. Its historical forward PE
range was 7x-47x.
Key Risks to Our View:
Inability to secure growth in online platform; deterioration in cash
collection ratio.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Fantasia Holdings Group Co Ltd
Splendid Fortune (CEO Mr. Tang Xuebin)
Central Huijin Investment Ltd.
Free Float (%)
3m Avg. Daily Val. (US$m)
ICB Industry: Financials / Real Estate Investment & Services
ed- JS / sa- CS / AH
1,329
6,537 / 833
55.5
16.4
6.0
22.1
1.1
Company Guide
Colour Life Services Group Co Ltd
CRITICAL FACTORS TO WATCH
Contracted GFA growth
Critical Factors
Growth in self-managed contracted GFA. Growth in contracted
GFA managed by CL is expected to moderate going forward
given: 1) high base effect; and 2) reduced willingness to engage
in M&A. Nevertheless, given its focus on mass-market thirdparty projects that are less competitive in nature, we expect
contracted GFA growth to remain decent at c.10% in 2019 and
2020. Over the longer term, contracted GFA growth is expected
to moderate to c.5-10% per annum. The potential acquisition
of Home E&E currently held under its parent could offer upside
potential to our current estimates and improve market
sentiment on the stock.
140%
Platform to drive growth. Platform service area directly dictates
the scope and scale of market that CL can reach for the
distribution of value-added services. Historically, CL relied
primarily on self-managed GFA to grow its platform service
area. With the adoption of cooperative partnerships, where CL
agrees to invest in small-mid cap peers for a 5-10% minority
stake in return for usage fee from these partners (and agency
fees from transactions made by platform users within their
projects) for platform usage, platform service area grew strongly
to 1.15bn sm at Oct-18. Of this, service area from cooperative
partnerships was 635m sm as at Oct-18. CL has spent
c.Rmb100m on capex for such investments in FY18 and has
budgeted to spend c.Rmb150m in FY19, which should translate
to another year of strong growth in platform area. We believe
cooperative partnerships will serve as a major growth engine for
platform service area, which may in turn translate into growth
potential for CL’s VAS.
100%
Active users and GMV of online platform. Another key
component of CL’s transforming business model lies on the
acceptance of residents/property owners within the platform
service area of its online platform and its app, notwithstanding
increasing revenue contribution from agency fees received from
transactions made under the app (1H18: est. at c.20% of
revenue from community VAS). As at Oct-18, the platform had
16.5m registered users, of which 3.9m are active users (c.24%
active ratio). Gross Merchandise Volume (GMV) in 10M18
reached Rmb7.49bn (up 42.7% y-o-y). Number of active users
and GMV would dictate CL’s performance in community VAS as
well as the market’s perception on the viability of the
company’s overall business strategy to focus on online platform
development.
117% 121%
120%
100%
80%
60%
40%
18%
20%
13%
27%
10%
8%
0%
2014
2015 2016 2017 2018E 2019E 2020E
GFA under management growth
200%
173%
150%
41%
50%
29%
25%
1%
14%
12%
0%
2014
160%
140%
120%
100%
80%
60%
40%
20%
0%
2015
2016 2017 2018E 2019E 2020E
Platform area growth
139%
124%
57%
17%
2014
30%
28%
21%
2015
2016 2017 2018E 2019E 2020E
Number of active users
No. of activ e users
6,000
5,000
4,000
3,000
2,000
1,000
0
2014
2015
2016
2017 2018E 2019E 2020E
Gross Merchandise Volume (GMV) of platform
Rmb (m)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2016
2017
2018E
2019E
2020E
Source: Company, DBS HK
Page 59
Company Guide
Colour Life Services Group Co Ltd
Balance Sheet:
Net debt position with high receivables: Given rapid
engagement in M&A activities over the past, CL is the only
scalable (>100m sm contracted GFA) HK-listed property
management company that is in a net debt position. Net debt
ratio rose to 27.4% as at Jun-18 with the inclusion of debt
from the consolidation of Wanxiangmei but is expected to
moderate to c.10% in FY18. The company has recently
announced the full repayment of a Rmb1.0bn term loan
inherited from Wanxiangmei. Impairment allowance ratio to
adjusted trade receivables and payments on behalf of residents
th
as at Jun-18 is estimated at 10%, which ranks 4 among our
covered companies. Average cash collection ratio in FY17 stood
at c.95%.
Leverage & Asset Turnover (x)
0.5
0.90
0.5
0.80
0.70
0.4
0.60
0.4
0.50
0.3
0.40
0.3
0.30
0.2
0.20
0.2
0.10
0.00
0.1
2016A
2017A
2018F
Gross Debt to Equity (LHS)
2019F
2020F
Asset Turnover (RHS)
ROE
16.0%
14.0%
Share Price Drivers:
Notable operational improvements alongside substantial pick
up in utilisation of its online platform; increased capital
activities/listing of other headline property management peers.
12.0%
10.0%
8.0%
6.0%
4.0%
Key Risks:
Inability to secure online platform area growth: Failure to
maintain growth in the company’s online platform area may
limit the company’s further development and growth from
value-added services and affect market perception of CL’s
growth strategy.
2.0%
0.0%
2016A
2017A
2018F
2019F
2020F
Forward PE Band
(x)
19.3
+2sd: 18.2x
17.3
15.3
+1sd: 14.6x
13.3
Deterioration in cash collection: Inability to collect
management fee payments on time may affect the company’s
cash flow and lead to potential impairment losses, affecting
Colour Life’s financial performance and may exacerbate
market concerns over the stock’s project quality.
Company Background
Listed in June 2014, Colour Life is the first property
management company listed on the HKSE, and has sizable
contracted GFA of 477m sm as at Jun-18. The company was
th
ranked 6 in terms of overall strength among the Top 100
Property Management Companies in China by the CIA in
2018. Thanks to its unique business model that focuses
primarily on the pursuance of value-added services and
platform operations, Colour Life is known for its advancement
on the establishment and operation of its online platform,
Caizhiyun, alongside its leading progress on platform
monetisation.
11.3
Avg: 10.9x
9.3
-1sd: 7.3x
7.3
5.3
3.3
May-18
-2sd: 3.7x
Aug-18
Nov-18
Feb-19
PB Band
(x)
3.1
+2sd: 2.89x
2.6
+1sd: 2.35x
2.1
Avg: 1.8x
1.6
-1sd: 1.26x
1.1
0.6
May-18
-2sd: 0.72x
Aug-18
Nov-18
Feb-19
Source: Company, DBS HK
Page 60
Company Guide
Colour Life Services Group Co Ltd
Appendix 1: A look at Company's listed history – what drives its share price?
Shareholding Structure
M s. Zeng Baby
57.68%
Cent ral Huijin Investment
Splendid Fotune Enterprise Limited
(CEO Mr. Tang Xuebin)
F antasia (1777 HK)
55.5%
6.0%
Public shareholders
16.4%
Colour Life (1778 HK)
22.1%
Source: HKExnews, DBS (HK)
Page 61
Company Guide
Colour Life Services Group Co Ltd
Management profile
Name
Age
Position
Profile
Mr. TANG
Xuebin
50
ED and
CEO
Mr. Tang joined the company in 2002 and is responsible for the operation and management of the
company. He also serves as a general manager of a number of subsidiaries of the company. Mr. Tang was
appointed as a director on 30 October 2012 and was re-designated as an executive director on 11 June
2014 and is also the chief executive officer of the company. He has over 18 years of experience in property
management. Prior to joining the company, he worked at China Overseas Property Management Co., Ltd.
(2669 HK) from 1997 to 2001, where his last position held was the deputy general manager and was
primarily responsible for the management of engineering department.
Mr. DONG
Dong
54
ED and
COO
Mr. Dong joined the company in 2004 and is responsible for the operation and management of
information technology of the company. He was the general manager of Shenzhen Kaiyuan Tongji from
2004 to 2005. In 2013, he became the vice president of the company. He served as the dean of the
research institute of the company in 2017. Mr. Dong was appointed as a director on 30 October 2012 and
was re-designated as an executive director on 11 June 2014 and is also the chief operation officer of the
company. He has 18 years of experience in property management. Prior to joining the company, he was
the manager, deputy manager and assistant manager of engineering department of China Overseas
Property Management Co., Ltd. (2669 HK).
Mr. PAN
Jun
46
Chairman
Mr. Pan was appointed as a director on 16 March 2011 and was re-designated as a non-executive director
on 11 June 2014 and is also the chairman of the Board. He joined the Fantasia Group (1777 HK)
("Fantasia") in 1999 and is responsible for the overall operation of Fantasia. He is also currently the
president of Fantasia, the general manager of Shenzhen Fantasia Real Estate Group Limited and the
director of a number of Fantasia’s subsidiaries. Mr. Pan has over 19 years of experience in the real estate
development industry in China, and prior to joining Fantasia, Mr. Pan was the project manager, the
manager of the marketing department, the manager of the valuation department and the assistant to the
general manager of World Union Real Estate Consultancy (Shenzhen) Ltd.
Mr.
CHANG
Rong
41
Vice
President
Mr. Chang joined the company in 2002 and is responsible for the operation and management of the
fundamental service division of the company. He has been a vice president of Shenzhen Colour Life since
January 2015. He has about 17 years of experience in property management. Prior to joining the company,
he worked as the project director and assistant manager in China Overseas Property Management Co., Ltd.
(2669 HK) from July 1998 to December 2002, where he was primarily responsible for management of
property development projects.
Mr. GUAN
Jiandong
40
Vice
President
Mr. Guan joined the company in 2001 and is responsible for the operation and management of the Colour
Life Property project of the company. He served on various positions within the company, including but not
limited to the general manager of Shenzhen Kaiyuan Tongji and Shenzhen Colour Life Network Service,
both of which are indirect wholly owned subsidiaries of the Company. He has over 18 years of experience
in engineering and property management. Prior to joining the company, he worked as the head of
management office, vice president of electrical and mechanical services department and manager of
community network department in China Overseas Property Management Co., Ltd. (2669 HK).
Dr. DUAN
Feiqin
39
Vice
President
Dr. Duan joined the company in December 2014 and is responsible for the company’s ecosystem and
investor relations matters. Dr. Duan has about 13 years of experience in corporate strategic management,
industry research and capital markets. Prior to joining the company, he worked as the oversea chief
industry analyst of China Merchants Securities from July 2011 to September 2014, where he was primarily
responsible for Hong Kong and overseas real estate and related industries and corporate research and
involved in the listing related work of a number of real estate companies in Hong Kong.
Source: Company, DBS (HK)
Page 62
Company Guide
Colour Life Services Group Co Ltd
Key Assumptions
FY Dec
Average property
management fee growth
(lump sum basis) (%)
Average property
management fee growth
(commission basis) (%)
Average GFA conversion
rate for new projects
(years)
2018F
2019F
2020F
35.0%
(5.0)%
(10.0)%
5.0%
3.0%
3.0%
2.9
2.9
2.9
Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec
Revenues (RMB m)
Property Management Services
Engineering Services
Community value-added services
Total
2016A
2017A
2018F
2019F
2020F
1,059
126
157
1,342
1,231
121
277
1,629
2,966
148
425
3,538
3,705
120
530
4,355
4,213
115
633
4,961
Source: Company, DBS HK
Income Statement (RMB m)
FY Dec
Turnover
Cost of Goods Sold
Gross Profit
Other Opg (Exp)/Inc
Operating Profit
Associates Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Core Profit
2016A
1,342
(756)
586
(256)
330
1
(38)
6
298
(82)
(28)
188
188
2017A
1,629
(898)
731
(188)
542
2
(90)
3
457
(106)
(30)
321
321
2018F
3,538
(2,244)
1,295
(387)
908
0
(211)
0
697
(167)
(48)
482
482
2019F
4,355
(2,842)
1,514
(534)
980
0
(101)
0
879
(211)
(60)
608
608
2020F
4,961
(3,276)
1,685
(615)
1,070
0
(69)
0
1,001
(240)
(68)
692
692
Sales Gth (%)
Net Profit Gth (%)
Core Profit Gth (%)
Gross Mgn (%)
Core Profit Margin (%)
Tax Rate
62.2
11.5
11.5
43.6
14.0
27.5
21.4
70.8
70.8
44.9
19.7
23.2
117.3
50.2
50.2
36.6
13.6
24.0
23.1
26.1
26.1
34.8
14.0
24.0
13.9
14.0
14.0
34.0
14.0
24.0
Source: Company, DBS HK
Page 63
Company Guide
Colour Life Services Group Co Ltd
Balance Sheet (RMB m)
FY Dec
2016A
2017A
2018F
2019F
2020F
Fixed Assets
Invts in Assocs & JVs
Other LT Assets
Cash & ST Invts
Other Current Assets
Total Assets
273
9
1,288
1,248
1,205
4,023
310
69
3,784
2,225
2,423
8,812
201
69
3,559
2,106
3,615
9,551
163
69
3,530
1,187
4,365
9,314
125
69
3,501
1,443
5,060
10,198
ST Debt
Creditors
Other Current Liab
LT Debt
Other LT Liabilities
Minority Interests
Shareholder’s Equity
Total Capital
214
710
358
1,124
84
74
1,459
4,023
733
1,492
625
2,117
340
106
3,399
8,812
481
3,002
435
1,992
82
154
3,404
9,551
464
3,281
411
1,092
82
214
3,771
9,314
442
3,737
404
1,092
82
282
4,159
10,198
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
1,000
(90)
137
5.9
996
(625)
306
17.8
1,277
(367)
178
10.3
1,315
(369)
673
9.3
1,315
(91)
919
2.0
Source: Company, DBS HK
Cash Flow Statement (RMB m)
FY Dec
Profit Before Tax
Assoc. & JV Inc/(loss)
Tax Paid
Depr/Amort
Chg in Wkg.Cap.
Other Non-Cash
Operating CF
Net chg in inv.
Assoc, MI, Invsmt
Investing CF
Net Chg in Debt
New Capital
Dividend
Other Financing CF
Financing CF
Chg in Cash
Chg in Net Cash
2016A
2017A
2018F
2019F
2020F
298
(1)
(69)
51
(93)
136
322
(401)
(214)
(615)
728
0
(85)
(15)
628
335
(468)
457
(2)
(79)
67
(400)
97
140
1,058
(64)
994
158
0
(87)
(112)
(41)
1,093
(534)
697
0
(167)
67
128
(31)
693
0
(3,013)
(3,013)
1,000
1,361
(159)
0
2,201
(118)
258
879
0
(211)
67
(495)
(18)
221
0
0
0
(900)
0
(241)
0
(1,141)
(920)
(2)
1,001
0
(240)
67
(246)
(22)
560
0
0
0
0
0
(304)
0
(304)
256
278
Source: Company, DBS HK
Page 64
Industry Focus
China Property Management Sector
DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 27 Feb 2019 18:29:38 (HKT)
Dissemination Date: 27 Feb 2019 19:40:35 (HKT)
Sources for all charts and tables are DBS HK unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS
Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS HK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers,
employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or
sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we
do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions
expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document
does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is
for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain
separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss
(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation
to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along
with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document.
The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform
broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b)
there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department,
has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past
twelve months and does not engage in market-making.
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ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
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banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1.
DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in China Overseas Property
Holdings Ltd (2669 HK) and Country Garden Services Holdings Co Ltd (6098 HK) recommended in this report as of 25 Feb 2019.
2.
Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
3.
Compensation for investment banking services:
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security
discussed in this document should contact DBSVUSA exclusively.
4.
Disclosure of previous investment recommendation produced:
DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment
recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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Industry Focus
China Property Management Sector
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General
Australia
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
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This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial
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Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
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This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority
Wong Ming Tek, Executive Director, ADBSR
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised
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professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
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Industry Focus
China Property Management Sector
United Arab
Emirates
This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined
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DBS Bank (Hong Kong) Limited
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Tel: (852) 3668-4181, Fax: (852) 2521-1812
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Industry Focus
China Property Management Sector
DBS Regional Research Offices
HONG KONG
DBS Bank (Hong Kong) Ltd
Contact: Carol Wu
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Quarry Bay, Hong Kong
Tel: 852 3668 4181
Fax: 852 2521 1812
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MALAYSIA
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Contact: Wong Ming Tek (128540 U)
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Securities and Exchange Commission, Thailand
SINGAPORE
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Contact: Janice Chua
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Singapore 018982
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