Attention: Sentiment Index
Abstract: "All roads lead to Rome", in the search for profit on the track, property companies are making diversified attempts.
In 2023, the macro environment and real estate risks will still put pressure on the property service industry.
While continuing to grow at a low rate, community value-added services continued to pull down the gross profit margin of animal enterprises. Life services have been widely tried by property enterprises, and businesses such as group meals, childcare and elderly care have gradually grown.
As of the end of 2023, the situation of property enterprises increasing revenue but not increasing profits has eased, and on the whole, the net profit performance of central enterprises is better. However, some of them caused great damage to net profit due to asset impairment provisions, and eventually increased revenue but did not increase profits. The average management expense rate index showing the efficiency of enterprise operation and management and cost control decreased by 0.24 percentage points year-on-year, and during the period, the gross profit margin and net profit of the sample property enterprises declined significantly as a whole, which means that the current property service industry is entering a period of low profit.
At the same time, the IPO enthusiasm dropped again, and only 2 small regional property enterprises were listed on the Hong Kong Stock Exchange during the reporting period, and the amount of funds raised was once again refreshed. After considering market sentiment and the current valuation level, Longfor Smart Life also postponed the listing process.
In terms of secondary market performance, only five of the 66 listed property companies in Hong Kong stocks rose from the beginning of the reporting period, and a total of 23 Hong Kong-listed property companies fell by more than 50%. Although some property companies have carried out repurchase actions, the stock price repair effect is not good.
However, at present, the financial and operational stability of the parent company of property enterprises is more important, and only when the fundamentals of the real estate industry stabilize, it is expected to achieve valuation repair in the secondary market.
Business Operations
Return to quality, diversified competition
In 2023, China's macro economy will resume growth after the impact of the epidemic subsides, with a GDP of 126.06 trillion yuan, an increase of 5.2% over the previous year at constant prices, which has laid a good foundation for some industries to stabilize and rebound.
In the real estate sector, the area and sales of commercial housing both declined, while the area for sale increased. According to data from the National Bureau of Statistics, in 2023, the sales area of commercial housing will decrease by 8.5% year-on-year, the sales of commercial housing will decrease by 6.5% year-on-year, and the area of commercial housing for sale will increase by 19.0% year-on-year. It reflects that the real estate market has not adjusted as expected, and the industry as a whole continues to be under pressure.
Despite the great impact of the macro environment and real estate, the property service industry has made some progress in scale expansion, brand building, market strategy adjustment, and improvement of the business environment in 2023. However, it also faces market challenges and fragmentation within the industry.
From the perspective of scale, the area under management of the sample property enterprises in 2023 is still in the stage of rising and growing, and the area under management of most property enterprises has achieved positive growth, with an average increase of 15.3%, which is a significant decrease from the 29.9% observed in the opinion index in the same period last year, indicating that the growth of the scale of property service enterprises has slowed down.
Among them, the role of non-residential enterprises in the growth of scale is becoming more and more important, and the competition of property enterprises in the non-residential format is also becoming increasingly fierce.
Data source: corporate announcements, opinion index collation
In terms of area under management, as of the end of 2023, the area under management of property services other than the "three supplies and one industry" business reached 957 million square meters, a year-on-year increase of 10% over 2022, and the area under management of Poly Property was 719.6 million square meters, a year-on-year increase of 24.91% over 2022, with a similar growth rate.
It is necessary to face up to the fact that the overall incremental slowdown has been the consensus of the industry, and based on this, most property companies have begun to adjust their operational strategies in recent years.
Specifically, it includes market-oriented expansion, developing new tracks, competing in non-residential formats, emphasizing the return to quality services, attaching importance to brand building, and seeking more long-term and stable development, and using technology to reduce costs and increase efficiency, and carry out digital transformation. In addition, some property enterprises have increased the outsourcing of non-core business to optimize resource allocation, and some property enterprises have made necessary adjustments to their organizational structure and management team in the face of in-depth industry adjustment and market changes.
For example, in terms of returning to quality, Ya Living Group has put forward "four goals" for 2023 and the next three years, namely "building a brand, stabilizing development, strengthening capabilities, and promoting integration". Specifically, according to the organizational positioning of "the platform is light, the city is solid, and the project is excellent", Ya Life horizontally promotes the integration of regions and member enterprises with the goal of "resource co-ordination, integration and efficiency improvement", and vertically takes "management sinking and platform streamlining" as the guidance, focuses on the core, completes the construction of the city company platform, and drives the symbiosis between the organization and the business.
Jinke Services has taken the initiative to significantly reduce the number of on-site services provided to real estate developers, including Jinke Group, and focused on high-quality projects with guaranteed cash flow and payment collection.
The opinion index believes that for property enterprises, the era of emphasizing high-quality, market-oriented and independent development has come.
The new track has become the focus of efforts, and the trend of urban services, commercial operations, smart technology applications, value-added services, non-residential property management, IFM (facility management), asset appreciation, internal management and service enhancement has surged, and the corresponding professional requirements have been raised, which has brought opportunities for property enterprises to expand the depth and breadth of services.
The opinion index noted that at present, the focus of various companies is different, and there may be leaders in the future segments.
In September 2022, C&D Property signed a framework agreement with C&D International and C&D Real Estate to undertake the commercial operation of various commercial asset projects of C&D Real Estate, C&D International and its subsidiaries.
The commercial operation business of C&D Property is mainly carried out through its subsidiary Xiamen Yuefa, and its commercial operation scale is currently small, however, C&D Property also said that C&D Commercial Management will make full use of the background of state-owned enterprises and its own brand advantages to actively explore opportunities for the expansion of existing commercial assets under the state-owned platform.
In July 2023, Poly Property officially became the annual strategic partner of IFMA International Facility Management Association, and among the 16 special committees owned by IFMA, Poly Property has entered 8 special committees, including corporate facilities, airport facilities, non-profit facilities, facility management consulting, facilities and equipment, and museum and cultural center facilities, which means that its popularity and influence in the field of international facility management will increase.
In addition, personnel changes can be seen in the company's strategy and business transformation trends. In 2023, the personnel changes of property enterprises are mainly reflected in the replacement of senior management, the withdrawal of founders, and the departure of directors and supervisors.
As his successor, Country Garden Services is mainly responsible for business innovation strategic planning, operation management, digital management and community life service business operation.
The opinion index believes that 2023 is a year for property enterprises to make important strategic adjustments in order to adapt to changes in the external environment and achieve sustainable development. In the future, with the fierce competition in the industry, the market concentration may continue to increase, the central state-owned enterprises and powerful head property enterprises will still occupy a dominant advantage, and the property enterprises with advantages in the subdivision track will also get better development opportunities.
Community value-added services
The growth rate is slowing down, and the exploration continues
In terms of business operations, value-added services can make property management enterprises more independent of the real estate cycle and improve the main logic of area driving by property management enterprises.
In addition, property service companies recognize the important role of community value-added services in improving the quality of life of owners, enhancing the stickiness of owners and improving their own development. By providing special services and selling goods, property service companies aim to improve the living environment of owners, so as to achieve diversified business models and stable profits.
In 2023, the value-added service revenue of property enterprises will continue to grow at a low rate, basically continuing the trend of the previous year.
This was mainly due to the pressure on the domestic economic environment and the contraction of consumer demand, which reduced the demand for community retail, home delivery services and community media, while the decline in real estate sales affected the brokerage business and Mercure business related to housing assets.
In 2023, the average overall gross profit margin of the sample property enterprises will be about 20.80%, while the average gross profit margin of the community value-added service business segment as a whole will be 31.64%, which is more than 10 percentage points higher than the average gross profit margin of the overall business.
Data source: corporate announcements, opinion index collation
At the same time, the median gross profit margin of community value-added services of the sample Hong Kong stock property enterprises is 32%, while the median gross profit margin of the overall gross profit margin is 20.3%.
It is worth noting that the average gross profit margin of community value-added services of the sample property enterprises in 2023H1 decreased significantly from 48.97% in 2022H1, and the influencing factors include the impact of the macro environment and related real estate enterprises, the drag of related income of private developers, the reduction of business due to the reduction of new delivery projects, and the increase in labor costs.
At present, the value-added services of the property enterprise community mainly include community life services, space operation and advertising, home decoration and beauty, asset management and other categories. Among them, the life service category is relatively extensive, and the business of group meals, childcare and elderly care has grown.
As of the end of 2023, more than a dozen property companies such as Longfor Zhichuang Life, Meizhi Service, and Ya Life have entered the field of group catering.
The rising institutional catering business has also received policy support and widespread attention in recent years. For example, the "Notice of the General Office of the State Council on Printing and Distributing the National Nutrition Plan (2017-2030)" and the "Business Norms for Institutional Catering Enterprises" and other laws, regulations and standards have been formulated, and continuously revised and improved. In October 2022, the Ministry of Housing and Urban-Rural Development and the Ministry of Civil Affairs jointly issued the Notice on Carrying out the Pilot Work of Complete Community Construction, mentioning that communities should plan to build a series of convenient commercial service facilities such as canteens. It reflects the importance of relevant departments to people's livelihood and the construction of community canteens.
The service objects of the institutional catering market are mainly schools, enterprises, hospitals, etc., which are similar to the scenarios served by property enterprises, which increases the opportunity for property enterprises to enter the institutional catering market. Through the integrated operation of property and group meals, property companies can improve the efficiency and convenience of customer management docking, and at the same time improve the service experience of customers, which is conducive to increasing the stickiness of owners. In addition, the intelligent system of the property company, the project cleaning and other service personnel can be reused, reducing operating costs and increasing human efficiency.
However, there will also be some situations that make the group meal less attractive, such as the target customer's demand for cost performance will be relatively high, resulting in a thin profit for the group meal; with more and more players entering the market, the competitive pressure will also increase; facing the challenges of prefabricated food disputes, food safety, supply chain, etc., property enterprises will continue to explore in this field.
At present, Xinchengyue Service, which has already emerged, started the road of attacking the group catering business through the acquisition of Chengyue Times in 2020. Subsequently, it acquired Shanghai Xuefu Catering, and completed the logistics catering service layout in hospitals, universities, offices and other full-format fields.
In 2022, Xinchengyue Service added three new mergers and acquisitions, namely Suzhou Haios Catering, Tianjin Jinyu and Shanghai Xiangxi Property, to further complement the company's capabilities in factories, parks, and medical services. In 2023H1, the revenue of Xinchengyue's service group catering business was 222 million yuan, accounting for 49.8% of the community value-added service revenue, a significant increase of about 55.3% year-on-year.
Through acquisitions, cooperation and internal incubation of sub-brands, Jinke Service has established a differentiated business layout from high-end star-rated hotel catering services, medium and large-scale high-end group meals to community catering, which has brought significant revenue growth to Jinke Service. In 2023, the company will have more than 10 joint bidding projects for property services + group meal services, and the catering service revenue will be about 344 million yuan, a year-on-year increase of 73.8%, and the second growth point will take shape.
The opinion index believes that property enterprises will continue to expand the scope and depth of community value-added services, pursue service optimization and upgrading, and continue to seek breakthroughs and improvements in quality and service content. At the same time, with the acceleration of urbanization and the prominence of aging problems, property service enterprises will assume more social responsibilities and public service functions, and how to meet the integrated development of diversified businesses will be the main issues faced by property enterprises.
Value-added services for non-owners
Landslides are significant, or further differentiated
The value-added services for non-owners mainly focus on all aspects of the whole cycle of real estate development, aiming to meet various derivative needs in the process of real estate development, including project planning and design management in the early stage of development, case field co-sales and marketing planning of property sales, housing inspection and evaluation before the delivery of the house, and the final agent sales after the completion of delivery.
In 2023, the value-added service income of non-owners of property service enterprises continued to decline significantly, among which the business contraction of private property enterprises was more serious due to the greater decline in sales of affiliated real estate enterprises, and the decline in this business segment of central state-owned enterprises was smaller.
Source: Corporate reports, opinion index collation
According to the data, the revenue of the non-owner value-added business segment of Wanwuyun, China Overseas Property, Greentown Services and Poly Property in 2023 will all exceed 2 billion yuan, of which China Overseas Property will increase by 18.3% year-on-year, and Poly Property will decrease by 4.60%.
In terms of the range of changes, the fastest growth in 2023 includes Yuexiu Services, China Overseas Property, Jingcheng Jiaye, etc., with year-on-year growth of 39.6%, 18.30% and 15.40% respectively, in addition, Jinmao Services, Greentown Services and China Merchants Surplus also achieved double-digit growth. The year-on-year decline was larger, including Sunac Services, Jinke Services, Rongwanjia, Shimao Services, etc., with a decline of about 60%.
To a certain extent, the value-added services of non-owners also reflect the sales strength of the affiliated real estate enterprises behind the property enterprises.
For example, Poly Property maintained a revenue of more than 2 billion yuan in this business area, while its related party Poly Development topped the list with an equity sales amount of 305.7 billion yuan in 2023, while China Overseas Land & Investment, a related party of China Overseas Property, ranked second with an equity sales amount of 285.54 billion yuan (Monthly Index of Sales Performance and Views of Real Estate Enterprises from January to December 2023).
According to the current report, the main factors influencing the decline of value-added services for non-owners include the contraction of case-site co-sales services caused by the decline in real estate sales, the decline in developers' pre-delivery services and consulting services, the decrease in developers' parking spaces and end-of-market sales business, and the decrease in construction site services and land clearing and cleaning services.
It can also be seen that the business has always been closely linked to the fluctuations of the real estate cycle. As a result, the profitability of value-added services for non-owners of property enterprises has also been greatly reduced.
In 2023, only a few property companies such as Binjiang Service, Jinmao Service and Yuexiu Service will have a higher gross profit margin than the overall gross profit margin of non-owner value-added services, and the gross profit margin of most property companies in this business segment will decline significantly.
Data source: corporate announcements, opinion index collation
At present, the gross profit margin expectation of the non-owner value-added segment presents a certain complexity. On the one hand, the business may continue to face challenges in 2024, and on the other hand, if the operation of related parties is relatively stable and the launch of new projects is carried out steadily, the non-owner value-added segment can still maintain good profitability and growth momentum.
The opinion index believes that with the clearing of risks in the real estate industry, the revenue growth and profitability of non-owner value-added services of central state-owned enterprises and private property enterprises will be further differentiated, and central state-owned enterprises can still maintain a certain scale, while private enterprises will further shrink.
In addition, non-owner value-added services were often criticized as a channel for related parties to carry out benefit transfer, but with the gradual increase in the independence of property enterprises, the situation of benefit transfer will be curbed to a certain extent.
During the reporting period, Evergrande Property said that it would adjust the development strategy of value-added services for non-owners in the future, and carry out related party services based on the principle of marketization, so as to provide value empowerment for real estate developers, so as to obtain more opportunities to expand property management projects. The management of Country Garden Services also said that it will strictly abide by the "five independences" of listed companies, that is, personnel, finance, assets, institutions, businesses and related parties are independent of each other, and strictly abide by the bottom line of the law, and there will be no transfer of interests.
financial management
The increase in revenue does not increase profits and alleviates, and the profitability of urban services is decent
In recent years, in order to enhance their independence and reduce their dependence on real estate related parties, property enterprises have continuously carried out market-oriented expansion, increased the proportion of third-party area under management, strengthened brand value and external expansion capabilities, so as to dilute the adverse impact of the decline in support from related parties, so as to improve their own anti-risk ability and market competitiveness.
At present, the property management industry is still in the rising and growing stage in terms of performance scale, mainly because the vast majority of property enterprises have achieved positive growth in the area under management, with an average increase of 12.83%, reflecting the improvement of the ability of property enterprises to expand abroad.
Data source: corporate announcements, opinion index collation
However, the growth rate of operating income has slowed down, with the average operating income growth of the sample property enterprises falling from 21% in 2022 to 9%, and about 30% of the listed property companies have experienced a year-on-year decline in operating income.
Overall, the performance of basic property management services and community value-added services is relatively stable, and listed property companies will continue to divest strong real estate related businesses such as non-owner value-added services in 2023, resulting in a weaker growth in overall revenue compared with the area under management. Among the sample property enterprises, C&D Property has the highest revenue growth rate of 55.80% in 2023, and Binjiang Service ranks second with a growth rate of 41.7%.
In the first half of 2023, the area under management increased by 37.4% year-on-year to 48.7 million square meters, and the contracted floor area increased by 29.4% year-on-year to 74.2 million square meters. Among them, Binjiang Group has provided a large number of high-quality projects for Binjiang services.
During the reporting period, the situation of property enterprises increasing revenue but not increasing profits eased, and the average year-on-year net profit of sample property enterprises was 9.23%. Overall, the net profit of central enterprises performed better, with the net profit of China Overseas Property, China Resources Mixc Life, China Merchants Surplus and Poly Property increasing by 22.80%, 32.80%, 23.96% and 24% year-on-year respectively.
In addition, KWG Living achieved a turnaround with a year-on-year increase of 788%, Shimao Services' net profit increased by 129.47% year-on-year, while Country Garden Services, Ya Life Services and Sino-Ocean Services decreased significantly by -84.96%, -74.95% and 44.11% respectively, while Kaisa Prosperity recorded a loss of RMB450 million.
Data source: corporate announcements, opinion index collation
During the period, the impairment of assets caused great damage to the net profit of some property enterprises, causing them to increase their income but not increase profits. Country Garden Services, for example, warned in December last year that it would make significant accounts receivable provisions and goodwill impairments. Roughly calculated, the impact range is about 3.2-4.1 billion yuan.
At present, basic property services are still the foundation of property enterprises, but the space constraints are also constantly breaking through, and the service objects have been successfully expanded to the city level.
Urban service is a new track opened up with the promotion of the market-oriented reform of public services, which mainly refers to the process of enterprises undertaking the comprehensive needs of the government and co-ordinating, operating and managing the entire urban public space, including urban greening and sanitation, municipal logistics, water conservancy management, public asset operation, smart city co-construction, etc.
It is worth mentioning that property enterprises with the background of large state-owned enterprises have natural advantages in the field of urban services. The main reason is that some urban services not only undertake the functions of daily urban governance, but also need to cooperate with the government's emergency dispatch under special circumstances, which makes the government pay more attention to the background of enterprises in the bidding process.
In the first half of 2023, Country Garden served the highest urban service revenue of RMB2.394 billion, a year-on-year decrease of 9.14%, while Poly Property, Ya Life Services and Shimao Services achieved revenues of RMB1.224 billion, RMB674 million and RMB655 million respectively, making them the leading players in the field of urban services for property enterprises.
In terms of gross profit margin, Country Garden Services and Ya Life Services had the highest gross profit margins of 21.10% in the urban service business, both of which were 21.10%, while Ya Life said that it was mainly due to the embodiment of scale effect and the refined management of projects. The average gross profit margin of urban services of the sample enterprises is about 15%, and the profitability is not outstanding.
In the future, smart cities will be an important development area of urban services, and more and more leading property service companies may participate in it and contribute to intelligent construction and smart city service governance.
There is limited room for optimization, and the average gross profit margin decreases
The average management expense ratio can illustrate the efficiency and cost control ability of property enterprises in operation and management, and its change trend can also reflect the development trend of the industry and the operating pressure faced by enterprises. The difference in the management expense ratio of enterprises of different sizes can also reveal the impact of scale effect on cost control.
The average management expense ratio of the sample property enterprises monitored by the opinion index during the reporting period was 8.59%, a decrease of 0.24 percentage points compared with the same period in 2022.
Source: Wind, compiled by the Opinion Index
Among them, 26 of the 40 sample property enterprises have achieved optimization of management expenses, including central state-owned enterprises, such as China Resources Vientiane Life, Poly Property, Yuexiu Services, etc., as well as private enterprises such as Ya Life Services, Country Garden Services, and CIFI Yongsheng Services.
In addition, the property enterprises with the lowest management expense ratio included Binjiang Services and Merchants Accumulation, which were 2.78% and 3.42% respectively, while the property enterprises with the highest management expense ratio were German Commercial Investment Services, which reached 15.0%, but achieved optimization from 17.98% in 2022, mainly due to the decrease in administrative expenses, while the revenue recorded a year-on-year increase of 18.0%.
In terms of profitability, the gross profit margin and net profit margin of the 40 sample property companies monitored by the Guandian Index decreased significantly, with the average gross profit margin falling from 27.56% in 2022H1 to 24.98% in 2023H1, a year-on-year decrease of 2.58 percentage points, and the average net profit margin falling from 12.44% in 2022H1 to 9.27% in 2023H1, a year-on-year decrease of 3.17 percentage points.
This seems to mean that the property service industry has entered a stage of low profits.
Data source: wind, opinion index collation
For example, the gross profit margin and net profit margin of Xingsheng Commercial in 2023H1 are 57.06% and 31.54%, which are much higher than the average.
This shows that the profitability of commercial properties is still excellent enough, and it is also the main reason why enterprises like to integrate property management + business management into property services.
The opinion index predicts that under the economic pressure, it is difficult to increase the price of property fees, labor costs continue to rise, and the effect of digital achievements on reducing costs is limited, more and more property enterprises will seek the layout of business management business.
At the same time, more and more projects will face the condition of aging buildings and depleting maintenance funds. Once the old community enters the overhaul period, the renovation will require a lot of money, and these additional cost pressures are expected to further compress the profit margins of property services in the future.
Mismatch of receivables and cash flow timing
In recent years, due to the risk of related real estate enterprises, some property companies have also been affected, resulting in the deterioration of accounts receivable, the risk of financial bad debts has risen, and some property enterprises have carried out impairment provisions, and profits have been damaged.
During the reporting period, property companies such as Xinyuan Services, Jinke Services and Evergrande Property filed legal proceedings against related parties to recover loans and misappropriated funds. Among them, Jinke Service demanded that Jinke and others immediately repay the company's loan principal of 1.5 billion yuan and related interest, and Evergrande Property sued China Evergrande for its deposit pledge of about 13.4 billion yuan was enforced by the relevant banks.
As of the end of the reporting period, the total accounts receivable and bills of the sample property enterprises of the opinion index were about 85.6 billion yuan, an increase of 21% from 70.2 billion yuan in the same period of 2022, and as a comparison, the revenue growth rate of the sample property enterprises in 2023 was 9%, which is a large gap, and the risk of accounts receivable of property enterprises is still high.
Data source: wind, opinion index collation
During the reporting period, Poly Property Trade receivables and bills increased by 30.43% year-on-year to RMB3 billion, which was explained that it was mainly due to the expansion of the area under management and the increase in the number of projects, and the increase in the proportion of property management service income from public service projects, which was affected by the credit period.
In terms of the coverage of net cash flow from operating activities to net profit, the value of most listed property enterprises is less than 1, indicating that part of the net profit of the enterprise still exists in the form of creditor's rights. Only six property companies, including Binjiang Service, Shimao Service, Xingsheng Commercial, Yuexiu Service and Zhenro Service, can achieve the coverage of net cash flow from operating activities to net profit, of which the coverage rate of Binjiang Service and Shimao Service is 2.83 times and 2.26 times respectively.
Source: Wind, compiled by the Opinion Index
In addition, the trade receivables turnover ratio of the sample property enterprises decreased from an average of 2.56% in the same period of 2022 to an average of 2.12% in the middle of 2023, a decrease of 0.44 percentage points, which means that the collection speed of property enterprises has slowed down, the average collection period has been extended, and the risk of bad debt losses has increased.
Specifically, the turnover rate of receivables of Industrial IOT trade decreased by 3.51 percentage points year-on-year, the largest decrease, China SCE Commercial Management decreased by 3.32 percentage points year-on-year, and Shenzhen Property A, CIFI Yongsheng Service, C&D Property and Xinchengyue Service decreased by more than 1 percentage point year-on-year.
Source: Wind, compiled by the Opinion Index
In addition, due to the continuous increase in the proportion of non-residential business, the proportion of monthly and quarterly settlement of the payment cycle of corporate business is very high, so it has a certain role in promoting the extension of the number of days of receivables.
M&A transactions
Tend to be rational and focus on strengthening
In 2023, property enterprises will tend to be rational, mergers and acquisitions will cool down significantly, and the more active property enterprises during the period will mainly serve Jinke. At the same time, China SCE Commercial Management, New Taizheng, Sino-Ocean Services, Financial Street Property, Rongwanjia and other acquisitions have also been made, compared with the past, the central state-owned enterprises are absent from successful major mergers and acquisitions.
In contrast, in 2022, China Resources Mixc Life, a state-owned enterprise, acquired Zhongnan Service and Xiang Biotech to strengthen its influence in East China, China Merchants Accumulation acquired China Minsheng Property and Shenzhen Huiqin to enhance its competitiveness in the financial property sector, and Country Garden Service also acquired Zhongliang Baiyue Zhijia to improve its management density in East China, and KWG Living acquired Guangdong Trijie Environment to deploy urban services. During the period, the mergers and acquisitions of property enterprises focused on the reinforcement of regions and business formats.
During the reporting period, mergers and acquisitions continued to strengthen the trend. For example, in June 2023, Xinda is planning to acquire 100% of the shares of Shangri-La Hexiang Environmental Protection Technology Co., Ltd. and Ruili Binnan Environmental Management Co., Ltd. for 72.295 million yuan, aiming to accelerate the layout of municipal sanitation business, enrich the company's business types, and improve the comprehensive strength of its main business. Sino-Ocean Services acquired 100% equity interest in Sino-Ocean Electromechanical Equipment Technology mainly due to the company's experience in electromechanical business, smart home, energy conservation and environmental protection and system integration with Sino-Ocean Services, while Jinke Services continued to strengthen and expand its institutional catering business by acquiring a 57% stake in Chongqing Yunhan Catering Culture and a 66.85% stake in Shanghai Hete Bag Catering Service.
In addition to reinforcement, China SCE Commercial Management also has obvious "blood transfusion" actions.
One month after China SCE Group failed to pay the principal and interest due in the aggregate loan agreement of approximately US$61 million under the syndicated loan agreement entered into on March 22, 2021, China SCE Commercial Management accepted the entire issued share capital of Beijing Mentougou Outlet Shopping Center sold by China SCE Group to China SCE Group for a total consideration of 1.09 billion yuan, which will be allocated from the internal resources of China SCE Commercial Management and the idle proceeds of China SCE Commercial Management's initial public offering.
In addition, the termination of the acquisition has also become a highlight, and Xinda is terminating the acquisition of 80% of the shares of Yunnan Cangheng Investment Co., Ltd. in June, due to large differences in performance commitment arrangements.
Source: Open Market, Opinion Index Collation
In mid-October, China Overseas Property announced that it planned to acquire two wholly-owned subsidiaries, "China Overseas Communications" and "China Overseas Supervision", from its brother company China State Construction International, Lijin Enterprise Co., Ltd., at a consideration of no more than HK$950 million.
The HK$950 million not only refreshed the largest M&A amount in the property industry at that time, but also created an acquisition price of 17.54 times PE, far exceeding the average acquisition PE of 11.5 times in the property industry in 2022.
However, the deal was widely controversial, and the market mostly pointed out that the acquisition price was too high, and there was a suspicion of benefit transfer, and after the news was disclosed, the share price of China Overseas Property fell for several days. Finally, at the end of 2023, China Shipping announced that it would terminate the related party transaction.
At present, the core valuation of property management companies in the capital market has shifted from simple scale growth to performance improvement capabilities, and the mergers and acquisitions of property enterprises are no longer hot. The opinion index predicts that in the coming period, the mergers and acquisitions of property enterprises will mainly focus on regional and business reinforcement.
IPO
Longfor Zhichuang Life and Zhuhai Wanda Commercial Management slowed down and were blocked
Since 2022, the IPO of property enterprises has not been as hot as before, and a total of 6 property companies have successfully IPOed (all of them are Hong Kong stocks) during the year, with a total amount of about 1.24 billion yuan.
Source: Wind, compiled by the Opinion Index
In 2023, the slowdown will continue, and only two small regional property enterprises, Runhua Services and Zhong'an Smart Life, have finally been successfully listed on the Hong Kong Stock Exchange after multiple submissions, raising a total of about 182 million yuan, and the number and amount of funds have reached a record low.
In addition, during the reporting period, a total of 4 property companies including Zhuhai Wanda Commercial Management (including property management services), Shum Yip Property, Hongying Services and Jingfa Property submitted their reports to the Hong Kong Stock Exchange; from the final situation, it is difficult for Zhuhai Wanda Commercial Management to be listed in the short term; the latter three property enterprises are owned by Shenzhen State-owned Assets, Hunan State-owned Assets and Xi'an State-owned Assets, all of which have obtained the filing notice of the CSRC in February 2024, and new progress is yet to be announced.
In terms of A-shares, Mingzhe Services submitted a form in June 2023 to seek listing on the Shenzhen Stock Exchange, but the company paid high dividends in an "overdraft" manner, and the market questioned that the listing was for "making money".
For example, Longfor Zhichuang Life, the industry leader of "property management + business management", chose to suspend the listing during the reporting period, which Longfor said was mainly based on the consideration of market sentiment and the valuation challenges it faced.
Despite this, under the pressure of the real estate sector, the cash flow provided by the "property management + business management" platform still plays a vital role in the stable operation of the entire group.
The hottest listing news during the period was brought by Zhuhai Wanda Commercial Management, which has submitted its prospectus five times since October 2021, and its fourth prospectus expired on December 28, 2023, resulting in the failure to meet the VAM clause for listing in Hong Kong at the end of December 2023, resulting in the need to pay 38 billion yuan of equity repurchase money to pre-listing investors, causing liquidity pressure on Wanda Commercial Management.
At the last moment, PAG and Dalian Wanda Commercial Management Group completed the replacement of the old and new strategic investments, and relevant news said that in the latest agreement, some existing investors chose to withdraw from the investment, but the vast majority of investors retained their investment in Wanda, and more importantly, new investors entered, including some overseas investors.
Judging from the results, the vast majority of investors are still optimistic about Zhuhai Wanda Commercial Management.
According to the latest documents submitted on November 10, 2023, Zhuhai Wanda Commercial Management's main business includes business management services, property management services and value-added services, with revenue of 17.195 billion yuan, 23.481 billion yuan and 27.118 billion yuan in 2020, 2021 and 2022, and net profit of 1.112 billion yuan, 3.512 billion yuan and 7.533 billion yuan respectively. Zhuhai Wanda Commercial Management is the largest commercial operation service provider in China in terms of total GFA under management and GFA of projects in reserve as of December 31, 2022, with a market share of 9.0%.
The market view is that Wanda Commercial Management may continue to promote the listing plan in the future. However, there are also suggestions that as public REITs continue to usher in new breakthroughs, Wanda can take out some of the more high-quality assets with higher returns and apply for consumer infrastructure public REITs, which may be a major development path.
Secondary market
On the whole, some property companies are actively repurchasing
At the end of the reporting period, there were 66 listed companies in the property service and management sector of Hong Kong stocks, of which only five companies rose from the beginning of the year, and Songdu Services rose the most, reaching 128%, and far exceeded the second and third places Beijing Jiaye and CEC Optics Valley with 31.72% and 15.61%;
Source: Wind, compiled by the Opinion Index
At the same time, there are 23 Hong Kong-listed property companies with a decline of more than 50%, mainly including Landsea Green Life, Rongxin Service, Evergrande Property, Hongyang Service and Xingyue Kanglu, etc., while the smaller decline in the range mainly includes Lingyue Service Group, Binjiang Service, Huafa Property Service, German Commercial Investment Service, etc., all of which fell by no more than 10%.
From the perspective of market capitalization, as of the last trading day of 2023, there are 5 Hong Kong-listed property companies with a total market value of more than HK$10 billion, of which China Resources Vientiane Life ranks first with HK$63.568 billion, followed by Wanwuyun with HK$29.344 billion, Country Garden Services with HK$22.565 billion, China Overseas Property with HK$19.261 billion and Poly Property with HK$15.936 billion.
Overall, the downward pressure on the property service sector continued during the reporting period, mainly due to the outflow of funds caused by the US dollar interest rate hike and the downward drag of the real estate industry. According to the monthly report of the Opinion Index, the Hang Seng Industry Services and Management Index underperformed the Hang Seng Index for many months in 2023.
During the same period, some property companies carried out share repurchase actions in order to demonstrate their confidence in their own business development and prospects. Wind data shows that in 2023, a total of 10 property companies in Hong Kong stocks will carry out repurchase actions, and in terms of total repurchase amount, Country Garden Services ranks first, with a cumulative repurchase amount of about HK $290 million and a total of 30.18 million shares repurchased.
The continued downward trend in the stock price and the company's fundamentals have made the stock price repair ineffective.
However, at present, the financial and operational stability of the parent company of real estate enterprises is more valued, and only when the fundamentals of the real estate industry are stabilized, it is expected to achieve valuation repair in the secondary market.
policy
The positioning of the commercial service industry and the diversified track have been recognized
On December 27, 2023, the National Development and Reform Commission issued the "Guiding Catalogue for Industrial Structure Adjustment (2024 Edition)", mentioning that from February 1, 2024, the property service industry will be adjusted from "encouraged - other service industries" to "encouraged - business service industries", further clarifying the positioning and nature of the industry, reflecting the importance of the country's top-level design to the industry.
At the same time, the breakdown of each track was further recognized. Specifically, it is divided into two categories: residential property management and non-residential property management, of which non-residential property management includes office buildings, schools, hospitals, venues, hotels, industrial parks, commercial complex property services, etc.
The relevant departments will include property services in the business service industry rather than real estate, which will help the industry gradually reduce and get rid of real estate attributes, and connect more into modern commercial and consumer services, so as to create more profit space for property enterprises.
In addition, the National Development and Reform Commission issued the "Implementation Plan for the Construction of Urban Community Embedded Service Facilities" on November 26, pointing out that after comprehensive consideration of factors such as population distribution, work base, and financial level, about 50 cities were selected to carry out pilot projects, and about 100 communities were selected in each pilot city as pilot projects for the construction of community embedded service facilities. Provide one or more services for community residents, such as elderly care, community meal assistance, housekeeping and convenience, health services, sports and fitness, culture and leisure, and children's recreation. This will help usher in a new round of development opportunities for the "property service + life service" model.
While relevant policies continue to expand the property service track, new challenges are also coming. With the growth of the demand for community governance, property enterprises also have to assume more social responsibility and public service functions, which will inevitably put forward higher requirements for the profitability of enterprises.