20170405-中国银河国际证券-Property_Management_Sector__2016_Earnings_Review__Greentown_Service_and_COPL_Have_Higher_Visibility__Re-rating_of_Colour_Life_Depends_on_M_A_14页_714kb

Property Management Sector Summary

Core Content

The property management sector in China showed strong earnings growth in 2016, driven by the expansion of managed GFA and the adoption of high-margin value-added services. The sector remains highly fragmented, with over 100,000 players as of 2015, creating significant opportunities for growth through organic expansion and acquisitions, especially for listed companies.

Main Points

• Earnings Growth: Leading companies achieved double-digit earnings growth. Greentown Service Group [2869.HK] saw a 44.3% net profit growth, while China Overseas Property [2669.HK] had a 93.33% growth. Colour Life [1778.HK] underperformed, with a 11.49% net profit growth, but its performance was affected by a change in business model and lower earnings visibility.

• Accounting Treatment Impact: The top line of the sector is not directly comparable due to different accounting methods. Companies using the lump-sum basis report higher revenue but lower gross profit margins, while those using the commission basis report lower revenue but higher GPM. Gross profit is a better indicator of actual profitability.

• Value-Added Services: These services saw strong growth, particularly for Greentown Service (74% revenue growth) and China Overseas Property (16.1% growth). The expansion of these services is expected to continue in 2017, contributing to higher margins.

• Market Positioning and Strategy:

  • Greentown Service: Focused on mid to high-end properties, with a strong project pipeline and growing value-added services. Its inclusion in the Shenzhen-Hong Kong Stock Connect improved its visibility and share price performance.
  • China Overseas Property: Has a strong project pipeline from its related companies and a substantial war chest (HK$1.83bn) for M&A. Its performance was impacted by accounting distortions, including currency depreciation and VAT reform.
  • Colour Life: Focused on mid-end properties but is expanding into high-end. It experienced a revenue beat but missed on GPM due to lump-sum revenue contributions. Its business transformation and potential asset injection from Wanda Property Management are key for future growth.

• Share Price Performance:

  • Greentown Service outperformed with a 44.2% gain since its IPO in July 2016.
  • COPL gained 33.6% over the past year, driven by speculation around M&A.
  • Colour Life lagged with an 18.5% decline in share price, attributed to weaker earnings growth and lower visibility.

• Valuation:

  • Greentown Service trades at 19.12x 2017E PER, higher than its peers, but justified by its growth and visibility.
  • COPL is at 17.88x 2017E PER, with a relatively low share price but high potential due to its M&A capabilities.
  • Colour Life has a lower valuation, with a 2017E PER of 14.45x, reflecting weaker performance and earnings visibility.

• GFA Under Management:

  • Greentown Service: 105.2m sqm under management, with a reserve of 119.4m sqm.
  • China Overseas Property: 93.5m sqm under management, with COLI's land bank of 56.8m sqm.
  • Colour Life: 395.12m sqm under management, but its GFA growth is less clear.

• Strategic Collaborations:

  • Greentown Service has formed partnerships with state-owned enterprises and is expanding its value-added services, including education and property agency.
  • China Overseas Property has secured strategic collaborations with central SOEs and has a strong pipeline for future projects.

Key Information

• Fragmented Market: The sector is highly fragmented, with over 100,000 players, creating a ripe environment for consolidation.
• M&A Potential: Companies with a listing platform are expected to benefit from M&A opportunities, with COPL being a prime example.
• Growth Drivers: Expansion of managed GFA, value-added services, and strategic collaborations are key growth drivers.
• Challenges: Accounting distortions, such as RMB depreciation and VAT reform, have impacted top-line growth for some companies.
• Future Outlook: The sector is expected to see continued growth, especially for companies with strong project pipelines and M&A activity. Greentown Service is viewed as the top pick due to its visibility and growth potential.

Summary Table

Figures Overview

• Figure 1: Valuation of the sector, showing PER and PBR for each company.
• Figure 2: Management fee income composition, highlighting the use of lump-sum and commission basis.
• Figure 3: Relative performance of the sector, showing share price changes.
• Figure 4: Income statement and financial breakdown for Greentown Service.
• Figure 5: Geographical breakdown of revenue and GFA under management for Greentown Service.
• Figure 6: Income statement for China Overseas Property, showing revenue and cost trends.
• Figure 7: Revenue and GFA breakdown by region for China Overseas Property.
• Figure 8: Income statement and financial breakdown for Colour Life.

Conclusion

The property management sector in China is poised for growth, with leading companies like Greentown Service and China Overseas Property showing strong earnings and strategic advantages. Colour Life, while lagging in 2016, may benefit from potential M&A and business transformation in the coming year. The sector's fragmented nature offers significant opportunities for consolidation and expansion, especially for listed companies with strong financial positions and growth pipelines.