DJ EQS-News: Fineland Real Estate Services Group Purchases High-Quality Asset from Parent Group, Becoming a Fierce Competitor in Property Management Industry
EQS-News / 08/12/2020 / 08:00 UTC+8 *Fineland Real Estate Services Group Purchases High-Quality Asset from Parent Group, Becoming a Fierce Competitor in Property Management Industry* Since May this year, the listing of Fineland Real Estate Services Group Limited (hereinafter referred to as The Company stock code: 9978. HK) has been officially transferred to the mainboard from the GEM, and recently The company is attempting to make an audacious move, which is purchasing Fineland E-Life, a property management company under the parent group, at the cost of 68 million RMB. By then, The Company will no longer solely be a real estate agency company, but become a part of the hottest sectors of Hong Kong stock market, the property service and management sector. The parent company, Fineland Group, is one of the Top 100 Real Estate Companies in China, but with only one subsidiary being listed in the Stock Exchange of Hong Kong Limited, which is The Company. After The Company's successful transfer to the mainboard, it is natural for the parent Company's property management business to follow the momentum and to be listed in the Stock Exchange of Hong Kong Limited. Compared with lots of other property management companies still queuing up for IPOs, the company is getting a huge boost to surpass them. The company to be acquired, Fineland E-Life, currently covering a contract area of 12 million square meters, is a first-class professional property service provider in China, which is also among the top 22 property service companies in China. Headquartered in Guangzhou, Fineland E-Life's businesses have been expanded to and rooted in the Guangdong-Hong Kong-Macao Greater Bay Area, Jiangsu province and other regions, with multiple high-quality property projects in hand. After more than 20 years of development, its businesses have become rather mature and comprehensive, including residential properties, apartments, office buildings, industrial parks, government administrative buildings and schools. *The Competition in Property Management Industry Is Relentless, But the Sector Is Highly Stable* As a matter of fact, right now the sector of property service and management in the Hong Kong stock market is not in its heyday, moreover, in recent time, a wide range of property service companies' IPOs fell on their first days of trading, and therefore the practice of overvaluing in the industry has been challenged. According to statistics, this year, 13 property service companies' IPOs have been listed, and in the short term more companies such as Evergrande Property Services Group Ltd, China Resources Mixc Lifestyle Services Limited, Jiayuan Services Holdings Limited will also become IPOs, increasing the number of listed companies in the property sector of Hong Kong stock market to almost 40. As the number of stocks in the sector increases, their rarity decreases. In the first half of the year, due to the epidemic, property management companies demonstrated their social value and a midterm performance of steady and high growth, and the sector is therefore taking the lead in growth rate compared with other sectors. Nevertheless, over the past 3 months, the cumulative retracement rate of the sector has reached 20%, and the leading stocks also suffer significant drops in value. The profitability of IPOs is far less than that in the previous two years, and furthermore, some of those IPOs falling on their first days of trading one after another just adds insult to injury. To analyze the reasons for IPOs falling on their first days of trading, on one hand, it is because the IPOs were overpriced. For instance, the PE ratio of KWG Living's and Shimao Service's IPOs both exceeded 70 times or even 80 times, while previously the average PE ratio of the IPOs in this industry was less than 30 times. Therefore, it is understandable that such high pricing will lead to falls on their first days of trading. On the other hand, it is due to the large cumulative growth of the sector earlier this year, so naturally some shareholders especially those of leading stocks sold a great deal of their stocks, and thus the stock market as a whole was affected by this. Although currently the competition in property management industry has become rather unrelenting, it is safe to say that the sector as a whole is expected to have stable growth. The short term decline is by and large a temporary profit-reaping by some shareholders, and we can still expect lasting, stable and sound growth. Moreover, the "cash cow" law remains the same. Recently, several property management subsidiaries of leading real estate companies such as Sunac Service and Evergrande Property Services, have been listed one after another, creating a certain capital diversion effect, but in the meantime showing that the sector has strong appeal in the capital market, and the sector is still given relatively high valuation. We believe that with more incremental capital flowing in, the sector will continue to be active. *What Matters? The Right Place, the Right Boss, and the Right Business Structure* As the number of property service stocks is growing day after day, their division in the future will likely be inevitable. But how do we choose investment targets? Should we go after radical growth or stable and sound business operation? Moreover, does The Company have a clear picture of the quality of the acquired company Fineland E-Life, and is it able to achieve rational securitization of assets? First of all, the right place matters. Projects in first- and second-tier cities are generally better than those in third- or fourth-tier cities. Fineland E-Life's businesses are deeply rooted in the Greater Bay Area, and its major projects are located in the key cities in this area, therefore the overall quality of the projects can be guaranteed. Secondly, the right boss matters. For a property management company, having a strong real estate company as the parent company is of significant importance, because on one hand it can gain resources from the parent company, and on the other hand it can share the parent company's brand influence. Fineland E-Life is a subsidiary of Fineland Group, and it should be a wise strategic planning of Fineland Group to integrate Fineland E-Life to The Company. As far as Fineland Group is concerned, it is headquartered in Guangzhou and has been listed as one of the Top 100 Real Estate Companies in China for 14 consecutive years. The parent company's growth in contract sales value has to a certain degree ensured the future growth of Fineland E-Life's businesses. Last but not least, the business structure matters. At the moment, among all the property management stocks (nearly 40 of them) in Hong Kong stock market, those with mono business models are usually not thought highly of, since they don't have a high anti-risk capacity, and thus their valuation is affected as well. For your reference, the property service for residential properties generates stable profit, while the property service for the commercial properties offer high gross profit, and good value-added services will certainly be a plus. Fineland E-Life has not yet published much information, but from its announcements and the data shown on its official website, it can be seen that Fineland E-Life is involved in quite a few kinds of businesses, which include a high percentage of residential properties projects and a certain percentage of commercial properties, and it also has operation experience of office buildings, government administrative buildings, schools, and so on. However, Fineland E-Life has not yet published any information related to expansion or extension business. Judging from the style of the parent company Fineland Group, Fineland E-Life should not be a company that chases after short-sighted or radical results. *Doubling the Revenue and Transforming the Valuation Method after Acquisition* The cost of this acquisition will be 68 million RMB for 66.31% of the target company's shares, and financial consolidation is expected to take place next year. In 2019, the revenue of The Company added up to 256 million RMB, with net profit attributable to the shareholders of the parent company totaling 22.17 million RMB. In 2019, the target company's revenue amounted to 210 million RMB, with profit before tax reaching 15.31 million RMB. The Company is currently in the real estate agency sector of Hong Kong stock market, and its valuation is not high, with a PE ratio of only 8.5 times and a TTMPE ratio of 11.38 times. Once financial consolidation is completed, the PE ratio in 2019 will roughly drop to 6.4 times. The revenue is expected to double after financial consolidation is completed, and in the future, these two businesses, real estate agency service and property management, will go hand in hand, expanding the business portfolio and enhancing coordination. More importantly, the valuation method is expected to change. After the injection of property management capital, it will officially be identified as a property management stock, and the average TTMPE ratio of the property management sector of Hong Kong stock market is about 35 times. Considering the size of Fineland's properties, the stock can be fit into the third echelon with a conservative PE ratio estimate of 25 times, translated as 0.52 HKD in stock price. In the future, the foreseeable potential growth will be as high as 300%. Of course, the development prospect might not be as smooth as we expect after the injection of capital, and the valuation method used by the market is not expected to change overnight. However, after the injection of the high-quality property service projects, Fineland will be "transferred" to the property service and management sector, and thus the current valuation method will no longer be appropriate, and its stock price will not continue to remain below 1 HKD. Therefore, it is high time that you grasped the opportunity before the valuation of The Company changes! *The Possibility of Consistent Capital Injection from the Parent Company, Fineland Group* Fineland Group is among the Top 100 Real Estate Companies in China, but with only one listed platform in Hong Kong stock market, which is The Company. Not so long ago, The Company still mostly dealt in property agency services and was only listed on the GEM. Due to the fact that the fluidity and valuation level in the GEM in Hong Kong stock market are far lower than those in the mainboard market, The Company was officially transferred to the mainboard at the end of May this year, replacing the old code (8376. HK) with the new one (9978. HK). Right after the successful transfer, The Company immediately purchases a property management asset with its own capital, instead of raising funds with IPOs. Everyone is curious about what The Company's next move will be. The businesses of Fineland Group have now already expanded from property to finance, education, health care and old-age care, overseas investment, and so on. In view of the "three redlines" that mainland companies have to bear, the importance of having an unobstructed listed platform in the Hong Kong stock market is beyond doubt. The Group had been listed on the GEM in Hong Kong stock market since 2017 but made few major moves ever since until now, therefore the market shall not view it from the old perspective as the purchase of property management asset this time is highly unexpected. Certainly the Hong Kong stock market cannot go without leading stocks with consistent, stable and sound growth, yet it should also be careful of the cheap stocks stuck in a horizontal trend, since the capital pool of Hong Kong stock market is smaller than that of A-shares in mainland. Out of everyone's expectation, The Company is making an immense breakthrough with the possibility of consistent capital injection from the parent company, and therefore, let's look forward to the potential profits of a high stock price! File: Fineland Real Estate Services Group Purchases High-Quality Asset from Parent Group, Becoming a Fierce Competitor in Property Management Industry [1] 08/12/2020 Dissemination of a Marketing Press Release, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. Media archive at www.todayir.com 1: https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=75254e068ae246c7c398c6fb4ffcc870&application_id=1153109&site_id=vwd&application_name=news
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December 07, 2020 19:00 ET (00:00 GMT)
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