In the real estate shift cycle, the property management industry, which is highly related to real estate, has also faced practical difficulties such as slowing down in scale growth and increasing profit pressure in recent years. According to the observation of Zhitong Financial APP, the performance of Hong Kong-listed property companies will be further differentiated in 2023. Some property companies with stable operations of related parties, or property companies with a relatively small proportion of real estate-related business, have shown strong development resilience, while the performance pressure of property companies with credit risk of some related parties is still high.
According to the disclosure of the Hong Kong Stock Exchange on April 24, Hongying City Operation Service Group Co., Ltd. (hereinafter referred to as "Hongying Services") passed the listing hearing on the main board of the Hong Kong Stock Exchange, and CICC was its sole sponsor, adding another new recruit to the capital market in the property market.
The property management industry has entered an era of differentiation, and leading property companies have consciously increased the dividend rate in order to attract the attention of more investors. In this context, without hard core power, it is difficult for newly listed property companies to stand out in the capital market.
Backed by Changsha Urban Development Group, the performance is stable and improving
According to the prospectus, Hongying Service is a state-owned city service and operation provider, and its business operations are mainly located in Changsha City, Hunan Province. Influenced by the Urban Development Group, Prosperity Services has been inclined to manage public urban spaces since its establishment. The Company's property management services are mainly aimed at public and commercial properties, with residential properties in a secondary position.
As the Company continues to grow, the Company leverages its experience in property management services and gradually consolidates its competitive advantage in urban services. At present, the company's business covers property management services, urban services and commercial operation services. Overall, the city services business has generated stable revenue and profits, and has become a key driver of the company's growth and the focus of the business.
For the year ended December 31, 2023, the Company had a total of 68 property management projects under management, with a GFA under management of 11.1 million square meters, and a total of 157 projects under management in the urban services sector, including 4 lighting system operation projects, 150 parking lot operation projects and 3 municipal sanitation projects, while the Company also completed 85 landscaping and engineering projects during the same period, with 87 projects under construction as of December 31, 2023. For the year ended December 31, 2023, the total number of projects under management in the commercial operation services segment was 50, with a gross floor area under management of 766,000 square meters.
Thanks to the business growth, the performance of Hongying Services has been stable and improving. From 2021 to 2023 (hereinafter referred to as the reporting period), the company's revenue will be 432 million yuan, 529 million yuan and 652 million yuan respectively, with a compound annual growth rate of 22.9%, and the annual profit in the same period will be 40.841 million yuan, 53.596 million yuan and 70.178 million yuan, with a compound annual growth rate of 31.1%.
In terms of business, the scale of urban services continued to grow, becoming the company's largest business. During the period, the revenue of this business was 185 million yuan, 275 million yuan and 353 million yuan respectively, accounting for 42.9%, 52% and 54.2% of the total revenue respectively, accounting for half of the revenue. The revenue of property management services grew at a slower pace, with revenue of RMB182 million, RMB207 million and RMB238 million respectively, accounting for 44.6%, 39.2% and 36.5% of total revenue respectively, while revenue from commercial operation services was RMB54.045 million, RMB46.337 million and RMB60.683 million respectively, accounting for 12.5%, 8.8% and 9.3% of total revenue respectively, accounting for a relatively small proportion of revenue. In short, the revenue structure of Hongying services has changed, with urban services becoming the largest main business, and the proportion of revenue from commercial operation services continuing to narrow, and the business becoming more focused.
It is worth noting that with the growth of business scale, the profit performance of Hongying Service is not impressive, and even declines. During the period, the Company's consolidated gross profit margin was 24.9%, 23% and 23.3% respectively. Among them, the gross profit margin of the fastest growing urban service business was 21.6%, 24.2% and 22.1% respectively, and the gross profit margin was relatively volatile. The gross profit margin of veteran property management services decreased significantly, to 20%, 14.5% and 15.2% respectively during the period.
It is worth mentioning that from the company's business development, it seems that it is not difficult to see that the trend of Hongying Service will mainly focus on urban service business in the future has been very clear, which has also formed a certain differentiation among the listed property management enterprises at this stage.
Confined to Changsha, the crux of high dependence is difficult to solve
As a regional property company, Hongying Service is rooted in Changsha, and its growth space is limited to the development of Changsha's local property industry.
During the Track Record Period, the majority of the revenue of Prosperity Services was derived from operations in Changsha City, Hunan Province. During the Reporting Period, the Company's revenue from Changsha City was RMB426 million, RMB523 million and RMB647 million respectively, accounting for 98.6%, 99.0% and 99.2% of the total revenue respectively. During the same period, in the property management services segment, the total GFA under management of the Company in Changsha City was approximately 10.1 million square meters, 9.7 million square meters and 10.5 million square meters respectively, accounting for approximately 95.1%, 95.0% and 95.3% of the total GFA under management in the property management services segment as at the relevant dates, respectively.
However, the property management market in Hunan Province, China, is highly competitive and highly fragmented. In terms of gross floor area under management and total revenue in 2022, the market share of all business segments of the Company was approximately 0.66% and 0.94% of the property management market in Hunan Province, respectively. In terms of urban service revenue in 2022, the market share of Hongying Services is only about 0.42% of the urban service market in Hunan Province.
In order to expand the market scale, Hongying Service transformed and developed urban services.
According to the research report of Oriental Securities, the current urban service market has a broad space, and in a narrow sense, the environmental sanitation expenditure of urban and rural communities in 2021 will be 252.1 billion, accounting for 1.0% of all fiscal expenditures, which increased steadily before 20 years ago, and declined in 20-21 years. Broadly speaking, with the gradual transfer of urban operation and management functions from government departments to market-oriented institutions, the expenditure on community management affairs is expected to promote the continued growth of the urban service market, with a total of 618.9 billion yuan in urban and rural community environmental sanitation + management affairs expenditure in 21 years, accounting for 2.5% of the total fiscal expenditure.
In addition, the source of urban service revenue is the government budget, the payment is guaranteed, the risk of default is low, and the demand is rigid and sustained, and the market is less affected by macroeconomic control factors. Therefore, at a time when the property management industry has entered a differentiated market, urban services have become the next growth point for major enterprises to explore.
According to the Zhitong Financial APP, in addition to expanding the growth space, the transformation of urban services from Hongying Service also has a lot to do with Urban Development Group.
According to the prospectus, the controlling shareholder of Hongying Services is Changsha Urban Development Group Co., Ltd. (hereinafter referred to as "Changsha Urban Development Group"), which is wholly owned by Changsha State-owned Assets Supervision and Administration Commission, and directly owns the rights and interests and has the right to exercise 95% of the voting rights of Hongying Services. In addition, Changsha Urban Development Group indirectly owns the remaining 5% interest in the total issued share capital of Hongying Services through another promoter, Yuelu Mountain Company.
Since the establishment of Prosperity Services, the long-term relationship with CDD Group has undoubtedly been the biggest driving force for its development. In the past three years, the total revenue of the Company from CDG and its associates (broken down by project source) was RMB212 million, RMB303 million, RMB349 million and RMB420 million respectively, accounting for 70.2%, 66.0% and 64.4% of the total revenue respectively.
To a certain extent, this has provided a stable and solid business source and revenue base for the development of Hongying Services, but on the other hand, it also means that its business is extremely dependent on Changsha Urban Development Group, and the high proportion of related party transactions means that the deep binding with the parent company will also be deeply affected by it: during the period, the largest customer Urban Development Group and its contacts contributed 42.4%, 44.4% and 44.4% of the revenue respectively, accounting for a considerable part of the total trade receivables.
To sum up, with the in-depth adjustment of the real estate industry in recent years, the property management industry has also entered a stage of differentiation. At this time, Hongying Service is different from general property enterprises because of its focus on urban services, however, unstable profitability and confinement in Changsha are also shortcomings in its development.