20211102-华盛证券-A_review_on_historical_trends_and_explore_investment_opportunities_Review_on_the_Property_Management_Sector_in_Hong_Kong_Equity_Market_18页_1mb

Summary of the Property Management Sector in the Hong Kong Equity Market

Core Content

The document provides an in-depth analysis of the property management sector in the Hong Kong equity market, covering its historical development, industry trends, valuation analysis, and investment opportunities. It outlines five key stages of the sector's evolution and highlights the performance of listed companies, market dynamics, and policy impacts.

Main Stages of Development

1. Infancy Stage (2014.7–2017.12)

   • The sector emerged with the listing of Colour Life (1778.HK) in June 2014.
   • The market capitalization of Colour Life surged significantly after listing.
   • The sector attracted attention due to the adoption of mobile technology and OTO services, which had high gross margins.
   • The in-PMSI (in-house Property Management Sector Index) outperformed the Hang Seng Index by +212%, with Greentown Services (+178%) as the top performer and Zhong Ao Home (-65%) as the underperformer.

2. Introduction Stage (2017.12–2019.1)

   • The sector gained more recognition, with Life Service (3319.HK) and Country Garden Service (6098.HK) listing in 2018 and posting strong increases.
   • The central government issued a reform plan affecting property management companies, leading to a 29.6% drawdown.
   • Mobile technology adoption continued to enhance service delivery and user loyalty.

3. Growth Stage (2019.1–2020.4)

   • The sector became a market focus due to potential fee increases, mobile technology, and cross-selling with parent companies.
   • Ten new companies listed in 2019, contributing to the sector's growth.
   • The in-PMSI outperformed the Hang Seng Index by +689%, with S-Enjoy Service (+384%) as the top performer and Creative Enterprise Holdings (-4%) as the underperformer.
   • The sector faced a 29% drawdown due to the impact of the pandemic.

4. Post-COVID-19 Stage (2020.4–2020.8)

   • The sector showed resilience during the pandemic, maintaining stable cash flow.
   • The number of IPOs increased, with six companies listed in July 2020.
   • The in-PMSI outperformed the Hang Seng Index by +687%, but the sector faced a 23% drawdown.
   • Some new listings, such as First Service (2107.HK) and KWG Living (3913.HK), fell below their listing prices.

5. Value Diversion Stage (2020.7–Present)

   • The sector entered a value diversion phase with 46 listed companies, representing 1.08% of the Hong Kong equity market.
   • The in-PMSI rose by +576% compared to the Hang Seng Index, but experienced a 34% maximum drawdown.
   • Hevol Service (+208%) and Times Neighbor (-68%) were the top performers and underperformers, respectively.
   • Some companies faced valuation pressure due to overpricing and market saturation.

Key Industry Highlights

• The sector is becoming increasingly mature and influential in the Hong Kong equity market.
• Leading companies are focusing on expanding services, M&A activities, and technology integration.
• The industry has adopted a more market-oriented approach, leading to higher valuation and increased competition.
• Companies are diversifying their services to include life services, such as elderly care and housekeeping, to enhance profitability.

Industry Valuation and Performance

• The average P/E ratio of the sector is 20, while the industry average ROE is 32%.
• Some companies, such as China Resources Mixc (6677.HK), have a P/E ratio above 50 times, while others, like Colour Life (1778.HK), have a P/E ratio below 10 times.
• The sector has experienced valuation divergence, with some companies showing high concentration in the market.
• The value diversion phase has led to reduced upside potential for new listings due to increased competition and overvaluation.

Investment Characteristics

• The property management sector is asset-light, with stable cash flow and high ROE.
• It is counter-cyclical, showing resilience during the pandemic.
• Companies are leveraging technology to offer value-added services and improve efficiency.
• Partnerships with technology firms and cross-selling with parent companies are key growth drivers.

Investment Recommendations

• Country Garden Service (6098.HK) and Greentown Service (2869.HK) are highlighted as top picks.
• The sector is recommended for investment due to its positive outlook, resilience, and growth potential.
• However, risks include underperformance in agent construction business, non-controlling party management, policy changes, and industry-wide challenges.

Key Risks

• Performance risks: Underperformance in agent construction business and non-controlling party management.
• Policy risks: Regulatory changes may affect the sector's growth and valuation.
• Market risks: Valuation divergence and overpricing may suppress future growth for new entrants.
• Industry concentration: The increasing number of listed companies may lead to greater competition and lower profit margins.

Conclusion

The property management sector in Hong Kong has evolved through multiple stages, from infancy to value diversion, and has shown resilience and growth potential despite macroeconomic challenges. With a focus on technology, expansion, and diversification, the sector remains a positive investment opportunity. However, investors should be cautious of valuation risks, policy impacts, and market saturation.