20221110-招银国际-万物云-02602.HK-Why_market_underpriced_and_over-concerned_about_Onewo__28页_2mb

Onewo (2602 HK) Summary

Core Content

Onewo is a leading residential and commercial property management firm in China, with a strong growth model and competitive advantages over its peers such as COPH and Poly Service. The company is currently underpriced, trading at 12x 2023E PE, while its peers trade at 13x. The report suggests that the stock offers a long-term investment opportunity with a 40% upside potential based on a 18x 2023E PE multiple.

Main Points

1. Market Position and Growth Prospects

• Residential PM (50% of revenue):

  • Onewo has a dominant position in the existing home market, with 50% of its new projects coming from this segment, compared to an industry average of 10%.
  • The company is expected to achieve a 25% CAGR in managed GFA from 2021 to 2024E, driven by third-party expansion.
  • It is the leader in expanding existing residential projects with 50% of third-party expansion from this segment, versus an industry average of 10%.
  • Gross margin is expected to remain stable at 11%.

• Commercial PM (25% of revenue):

  • Strong penetration into corporate facilities management (FM) with a 38% CAGR expected from 2021 to 2024E.
  • Cushman & Wakefield Vanke Service has secured 50% of office revenue from FM, including big clients from internet, finance, and high-end manufacturing.
  • Growth is supported by less competition due to white list access, less sensitivity to office vacancy, and diverse VAS opportunities.

2. Onewo Town Strategy

• The company's "Onewo Town" strategy is designed to increase project density and create high-value sub-districts with over 10k households.
• This strategy is expected to cover >50% of its managed GFA in the mid-to-long term, driving margin improvements through cost savings and better monetization.
• As of June 2022, 150 Onewo Towns had been built, targeting >180 by the end of FY22.

3. Parent Company Concerns

• Onewo is less reliant on its parent company Vanke compared to peers, with non-owner VAS contributing only 13%/10% of total revenue in 2021/1H22.
• Vanke is financially stable, with Net debt to gearing at 20% and Cash/ST cash at 1.7x, and remains in the green category.
• The company's growth is largely driven by third-party expansion (70% of growth), reducing reliance on Vanke.

4. Financial Performance

• Onewo is expected to deliver 32% CAGR in revenue and 32% CAGR in net profits from 2021 to 2024E.
• Net profit margin is projected to remain stable at 7.1%.
• The company's P/E ratio is currently at 12x 2023E, with a target price of HK$49.6 (upside of 43.4%).

Key Information

• Catalysts for growth: Relaxation of COVID restrictions, better-than-guided 2022E earnings.
• Risks: Accounts receivable write-offs, goodwill impairment, potential parent company default.
• Shareholding structure:
  • Vanke: 56.6%
  • Boyu: 15.4%
  • Others: 28.0%
• Market size:
  • Total China PM market: 35bn sq m.
  • Existing home market: 13bn sq m.
• Growth drivers:
  • Third-party expansion in residential and commercial sectors.
  • Diversified VAS (Value Added Services) and digital solutions like AloT and BPaaS.
• Valuation comparison:
  • Current P/E: 12x (vs. 13x for peers).
  • Target P/E: 18x.
  • Expected 40% upside from current price.

Investment Thesis

• Onewo has a dominant advantage in the existing residential market, driving sustainable growth.
• The Onewo Town strategy is expected to significantly improve margins and expand the company's reach.
• Despite concerns over parent company Vanke, the reliance is lower than peers, and Vanke's financial stability supports Onewo's growth.

Financial Analysis

• Revenue growth: 32% CAGR in 2021-24E, driven by Commercial PM (38%), Residential PM (26%), and SaaS (49%).
• Net profit growth: 32% CAGR in 2021-24E, faster than peers (25-30%).
• Gross margin: 17%.
• Net margin: 7.1%.
• ROE: Expected to reach 23% in 2024E.

Valuation and Target Price

• Target price: HK$49.6/share.
• Upside potential: 40% from current price of HK$34.6.
• Valuation comparison:
  • Onewo: 12x 2023E PE.
  • Peers (COPH, Poly Services): 13x 2023E PE.
• P/E multiple: Based on 18x 2023E PE, which is 0.5x standard deviation below historical average.

Risks

• Accounts Receivable (AR):
  • Total AR in 1H22: RMB 6.5bn (40% of total assets).
  • 40% of AR comes from related parties, and 39% from third parties.
  • Collection rate for commercial projects was slightly impacted by COVID-19.
• Goodwill impairment:
  • Goodwill accounts for 13% of total assets in 1H22.
  • Impairment losses are expected to erode 9% of FY22E net profit, which is higher than SOE peers like COPH (4%) but lower than some non-SOEs like Greentown Services (11%).

Conclusion

Onewo is well-positioned for growth in the evolving property management sector in China, with a strong focus on existing residential projects, corporate clients, and digital solutions. Despite current concerns over its parent company, the company's low reliance on Vanke, financial stability, and growth potential make it an attractive investment opportunity. The current valuation suggests a 40% upside potential, with catalysts including relaxation of pandemic restrictions and better-than-expected 2022E results.