DJ EQS-News: Jefferies initiated on Excellence Commercial (6989.HK) with a Buy rating and a PT of HKD11.69.
EQS-News / 14/12/2020 / 08:29 UTC+8
Jefferies initiated on Excellence Commercial (6989.HK) with a Buy rating and
a PT of HKD11.69.
Excellence Commercial is one of the few office operators in China with deep
expertise and the ability to serve fast-growth tech-clients. With a high
entry barrier but a flexible management fee, we expect it to deliver 60%
earnings CAGR amid 3-4ppt net margin expansion in FY19-22F. Jefferies
believes the stock's clean financials deserve an above peers valuation, and
expect the market to re-rate it.
Large market size + High service quality = Solidified leading position:
Frost & Sullivan forecasts that the commercial property market in China will
continue to expand at 5.2%/8.0% CAGR in GFA/revenue in the medium term, with
a growing market for high-end properties (55% in 2024F in revenue vs. 48% in
2019). Considering its good service quality, strong expertise in managing
high-end office buildings (i.e. high entry barrier), its good relationships
with existing giant internet/high-tech clients (e.g. Tencent/Huawei/Baidu),
as well as its proactive expansion in YRD and other high-tier cities,
Jefferies believes Excellence Commercial will solidify its leading position
in GBA with a doubling in commercial scale by 2022F (25mn sqm GFA under
management), boosting its market share to >15% (vs. 9% in 2019). VAS engine
ignited: Before the spin-off, Excellence Commercial had limited VAS
coverage, and offered mostly free services to its parent developer. With
market pricing to be implemented going forward, as well as the wider service
variety to its office/residential clients, Jefferies expects the VAS of the
company to be 5.4x bigger to RMB1.1bn by FY22F, doubling its revenue
contribution to >20% amid significant segment gross margin expansion to
35-36% (vs. 25.2% in FY19).
Strong and quality earnings outlook deserves re-rating:
Given flexible pricing of the commercial management fee and higher revenue
contribution from Value-add Services (VAS), we believe Excellence Commercial
is more immune to increasing labor cost, and should expand its blended gross
margin to 26-27% in the next few years (vs. 23.6% in FY19). Coupled with the
strong growth of its scale/VAS, we expect Excellence Commercial to deliver
60% earnings CAGR in FY19-22F. In addition to the short-term catalysts
(issuing positive FY20F profits alert in February and inclusion in stock
connect in March), we believe the stock should also deserve a higher
valuation than comparable peers given its better earnings quality (i.e.
sustainable margin, large third-party contribution and low related-party
transactions).
About Excellence Commercial Property & Facilities Management Group Limited
Excellence Commercial Property & Facilities Management Group Limited (stock
code: 6989) is the leading commercial property management service provider
in China. Since the inception in 1999, the Company has been focusing on
providing commercial property management services, projects including
commercial properties, public and industrial properties and residential
properties. The Company is also one of the few property management service
providers in the market which are specialized in providing comprehensive
services to commercial properties. The Company aims to provide comprehensive
services along the industry chain to cover the full lifecycle of customers'
properties. As of 31 May 2020, the Company had 331 projects in 34 cities
under management with an aggregate GFA of 25.8 million sq.m.. Most of the
properties under its management are located in first-tier or new first-tier
cities. In addition to the more conventional basic property management
services, the Company has also developed a wide range of value-added
services to satisfy customers' needs, including asset services, corporate
services and specialized value-added services.
According to the Frost & Sullivan Report, in 2019 the Company ranked fourth
among the commercial property management service providers in China, and
second among the commercial property management service providers in the
Greater Bay Area in terms of the revenue from basic property management
services provided to commercial properties. In terms of the revenue from
basic property management services provided to high-end commercial
properties in 2019, it ranked third among the commercial property management
service providers in China, and first among the commercial property
management service providers in the Greater Bay Area.
File: Jefferies initiated on Excellence Commercial (6989.HK) with a Buy
rating and a PT of HKD11.69. [1]
14/12/2020 Dissemination of a Marketing Press Release, transmitted by EQS
Group.
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(END) Dow Jones Newswires
December 13, 2020 19:29 ET (00:29 GMT)
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