20210311-招银国际-China_Property_Service_Sector__Worth_to_chip_in_the_sector_again_10页_1mb

China Property Service Sector Summary

Core Content

The China property service sector is currently experiencing a valuation correction and market uncertainty, but the report suggests that the sector may be undervalued and presents a good opportunity for investment. The key drivers of growth are shifting from Gross Floor Area (GFA) expansion to Value-Added Services (VAS), which are expected to grow at an average of 44% CAGR from 2019 to 2022, contributing 35% of group gross profit by 2022. The sector is trading at 17x 2022E PE, below its historical average of 18x, and with a forecasted 30% earnings growth, the PEG is at 0.56, indicating an attractive valuation.

Main Points

• Sector Overview: The property management sector has seen a 20% share price pullback from its recent peak, attributed to valuation correction and global growth sector sell-off.
• Key Growth Drivers: VAS and retail/rental growth are now the key drivers of the sector, with GFA growth being more defensive.
• VAS Potential: VAS is expected to grow at 44% CAGR from 2019 to 2022, with a potential of contributing 35% of group GP by 2022. VAS per managed GFA is currently RMB4/sq m, significantly lower than RMB50-56/sq m in US and Japan.
• Retail/Rental Recovery: Major players like CR Land are expected to benefit from consumption recovery, with a potential 60% YoY rental growth in 1H21. CR Mixc Lifestyle could benefit from 5-10% of rental revenue or EBIT profits.
• HK-Connect Catalyst: The addition of 8 property management names to the HK-Connect program on 15 Mar is expected to provide support, especially for CR Mixc Lifestyle, the only high-end shopping mall operator in the list.
• Rating Changes and Stock Picks: The report upgrades Poly PM and A-living to Hold, initiates Sino-Ocean Services with a Buy rating, and continues to favor CGS/Ever Sunshine and CR Mixc Lifestyle/Powerlong Commercial/Sino-Ocean Services as top picks.

Key Information

• VAS Leaders: CGS is highlighted as a leader in VAS due to its first-mover advantage in acquiring advertisement and brokerage companies. It has launched a health insurance program via its acquired company.
• Shopping Mall Operators: Companies targeting Tier 1-2 cities and mid-to-high end tenants are preferred. These malls have a higher rent/sales ratio and are less affected by e-commerce.
• Valuation Table: The table highlights the current valuation, target price, and growth forecasts for various companies, with Sino-Ocean Services being initiated at a Buy rating with a target price of HK$7.13.
• Earnings Forecast: Sino-Ocean Services is projected to have 41% CAGR in earnings from 2019 to 2022, reaching RMB584mn by 2022E.
• Market Leaders: The report emphasizes the importance of market leaders with high exposure to shopping mall operations, strong VAS potential, and high earnings visibility.

Investment Recommendations

• Top Picks: CGS/Ever Sunshine (on VAS and high earnings visibility), CR Mixc Lifestyle/Powerlong Commercial/Sino-Ocean Services (on shopping mall exposure).
• Rating Change: Poly PM and A-living are upgraded to Hold due to attractive valuations post-sell-off.
• Initiation: Sino-Ocean Services is initiated with a Buy rating and a target price of HK$7.13, based on 12x 2022E PE multiple.
• Catalysts: Update on commercial operation services and management incentive plans are expected to drive re-rating.

Financial Highlights

• Revenue and Net Profit: Sino-Ocean Services is projected to have significant revenue growth, with net profit expected to reach RMB584mn by 2022E.
• Gross Margin: Expected to grow from 20.1% in FY18A to 27.5% by 2022E.
• Cash Flow: Net cash from operating activities is forecasted to increase from RMB38mn in FY18A to RMB873mn in FY22E.
• Balance Sheet: The company's total assets are expected to grow from RMB4,339mn in FY18A to RMB5,443mn in FY22E.

Summary

The China property service sector is currently undervalued, with VAS and retail/rental growth being the key drivers of future performance. Companies like CR Land and CR Mixc Lifestyle are expected to benefit from consumption recovery, while VAS leaders such as CGS are poised for significant growth. The addition of companies to the HK-Connect program is seen as a positive catalyst, and the report recommends investing in market leaders with strong VAS potential and shopping mall exposure. Sino-Ocean Services is highlighted as a top pick with a Buy rating and a target price of HK$7.13, based on its potential for commercial operation services and strong parent company support.