Dialogue with Savills Zhou Zhipeng: The threshold for listing of property companies has been raised, and valuation differentiation is inevitable

Source of this article: Time Weekly Author: Liu Ting

When the real estate industry is facing high pressure, the property sector has sprung up and become a capital outlet. Since the beginning of this year, the number of property companies listed in Hong Kong has reached a record high, and the "big year of property" has quietly arrived.

According to the data of Keer Property Management, as of the beginning of September, a total of 52 property management companies have successfully landed on the capital market. Among them, 11 property management companies were successfully listed during the year, nearly double that of the same period last year. At present, there are still 24 property companies lined up, and the end of this year to the beginning of next year will usher in the peak of listing.

At the same time, the property industry is becoming increasingly differentiated. The head of the enterprise with the parent company's strong blood transfusion ability to lead in scale: rely on financial strength to quickly close mergers and acquisitions, through the "big fish eat small fish" way to increase market share. In this context, the valuation of the industry's head and tail enterprises is hundreds of times different, and the enthusiasm for new stock subscription has plummeted.

The property industry has entered a period of deep differentiation, and listed property companies urgently need to find new models in the changes in the overall environment. How can enterprises of different sizes gain an advantage in the fierce competition? As the M&A boom heats up, will the "winner-take-all" situation not be broken? With all kinds of questions, the Times Weekly reporter interviewed Zhou Zhipeng, assistant director of Savills Guangzhou Valuation and Professional Advisory Services Department.

Zhou Zhipeng set foot in the property industry in 2008, witnessed the industry from rarely asked for to be popular, personally experienced the listing of a number of property companies, and deeply experienced the changes in the industry under the new situation.

Zhou Zhipeng believes that the number of listed property companies this year has grown rapidly, and the growth rate has reached a high level. In the future, the number of listed property companies will still increase, but the growth rate will decline compared with the past. In the future, the choice of capital will become wider, and the valuation differentiation of property enterprises is an inevitable trend. Small and medium-sized enterprises need to build core competitiveness according to their own characteristics in order to obtain customs clearance opportunities in the industry reshuffle.

The market is more rational

Times Weekly: The number of listed real estate companies this year has reached a historical peak, will the future growth rate fall? What scale do you expect the number of listed property companies to reach?

Zhou Zhipeng: After the increase in the number of listed property companies, the market has many choices of targets. Recently, the newly listed property enterprise stocks have declined in the oversubscribed multiple and the price has fallen. The funding side is more rational, and it cools down the market in disguise. At present, the market value of the head property enterprises is approaching HK$200 billion, and the market value of some enterprises is only hundreds of millions of Hong Kong dollars, and the capital preference is obvious.

Despite the decline in heat, there will still be housing companies that choose to spin off properties and list them. First of all, under the "three red lines", many housing companies will split the property sector separately and list, which can achieve the effect of "deleveraging". Secondly, after the listing of property enterprises, the price-to-earnings ratio is higher than that of unlisted enterprises. From the perspective of the capital market, many industries have been affected during the epidemic and the cash flow has fluctuated greatly, but the property industry has shown anti-cyclicality, and the cash flow is very stable and favored by funds.

Times Weekly: This year, the Hong Kong Stock Exchange raised the listing threshold on the Main Board, placing higher requirements on profitability, market capitalization requirements and management stability. How will this affect the listing of Hong Kong stocks of property enterprises?

Zhou Zhipeng: This year, the Hong Kong stock market has put forward higher requirements for corporate profitability, which reflects that the capital market is raising the selection criteria. The profitability or operating income of listed enterprises must be improved, and it will become more and more difficult to list. The market in the property industry is not as good as when it first started, and now it is necessary to look at the operational results of the company. The market becomes more rational, and the difficulty of listing property companies will also increase.

Times Weekly: Property companies are paying more and more attention to scientific and technological investment, and some property companies will use 10%-20% of the funds raised from the listing for scientific and technological construction. Why do property companies attach so much importance to the application of science and technology?

Zhou Zhipeng: The importance of enterprises to technology is related to the wave of the Internet, and various industries are increasing their efforts to participate in big data or Internet +, and the operational thinking of enterprises is also changing, hoping to improve their competitiveness through the application of science and technology.

Traditional property management enterprises are manpower-intensive industries, and the gross profit margin is not high. Therefore, property companies need to improve their profitability through technological change and reduce their dependence on traditional manpower. The addition of big data or smart hardware makes the work of the property enterprise more efficient and is conducive to reducing costs.

Industrial chain cooperation has increased

Times Weekly: Scale expansion is still an important strategic direction for the development of property enterprises, and mergers and acquisitions are the most direct methods for scale growth. This year, mergers and acquisitions between property companies are frequent, and some people think that the industry is seriously involved, and enterprises merge and acquire for mergers and acquisitions, raising prices, what do you think about this?

Zhou Zhipeng: Some demanders are willing to pay higher prices to acquire targets, because such enterprises have a clear purpose and need to expand the regional territory and increase the scale. The total volume of the supply side (the received shopping enterprises) has changed little, and the supply exceeds demand, resulting in price increases.

It should be noted that each acquisition will affect the income of the property company, the purchase price increase is equivalent to the cost increase, and the final performance is the decline in indicators such as return rate and profit margin.

Times Weekly: With large-scale mergers and acquisitions, the gross profit margin of property companies has declined to varying degrees. How should real estate enterprises do post-investment management after mergers and acquisitions?

Zhou Zhipeng: For large-scale and nationwide enterprises, the acquisition action is mainly to fill the business gap, and the synergy effect will be generated after the business line is completed. In addition to the traditional property management business, property enterprises also have services such as housekeeping, decoration, and pension, and value-added services may be the focus of mergers and acquisitions. In this case, even if it does not make money after the acquisition, if it can produce synergies with the original platform, there is still room for incubation.

Times Weekly: In August, all shareholders of Sunshine Zhibo, a property company under Sunshine City, planned to strategically invest in Vanke's Wanwuyun with 100% of the shares held by Sunshine Zhibo in exchange for 4.8% of the shares of Wanwuyun. This "share exchange" opens up a new way of cooperation between materials and enterprises. How replicable is the "swap" model?

Zhou Zhipeng: I think it is difficult. At present, the listed property companies have basically been listed, and there are relatively few large unlisted property companies and fewer selectivity. Secondly, the "stock exchange" requires the same concept and the same direction between the enterprises. This model plays a good exemplary role for the industry, but it is not realistic to simply replicate this model.

Sunshine Zhibo is not small in scale, if listed separately, it is necessary to strengthen the competitive advantage of a certain aspect, if it is a "stock exchange" model, it is mutually beneficial to both parties and can expand the scale of both parties.

The subsequent challenge of such cooperation is the run-in of the business philosophy of the two teams, the two sides need to have a consistent culture, development direction and values, and it takes a lot of time and energy to promote the integration of both sides.

Times Weekly: Will there be more cooperation between property companies in the industrial chain in the future?

Zhou Zhipeng: I think there will be more cooperation between the upstream and downstream of the industrial chain in the future. Housekeeping, pension, home improvement and other businesses can make each enterprise form an interconnection and complementarity, and in the future, more cooperation between enterprises will focus on business line complementarity.

The way for small and medium-sized enterprises to survive

Times Weekly: Among the listed property companies this year, many companies have distinct labels. For example, Xingsheng Commercial is mainly based on commercial real estate operation, and excellent commercial enterprise services are known for office property operations. Will there be more companies to create distinct IP in the future?

Zhou Zhipeng: After 2018, property companies have been listed one after another, and the market has gradually saturated. At this time, if the listed property companies want to attract market attention, they must show their competitiveness.

Its own competitiveness can be built from two aspects, from the perspective of service objects, the main business line gathered in commercial, commercial enterprises have distinct characteristics, and the main residential enterprises have obvious differences. On the other hand, the company can also create a distinct geographical characteristics, if the capital has good expectations for a certain area, the company can highlight its competitive advantage.

In the future, the competition between property enterprises will be more refined, and the core competitiveness will be placed in a more prominent position.

Times Weekly: The competition in the industry is fierce, and the winners of the head enterprises are all-you-can-eat. Do SMEs still have room to live?

Zhou Zhipeng: Enterprises of different magnitudes have their own way of playing. The most important thing is that enterprises should be clear about their core competitiveness. When the head of the enterprise does mergers and acquisitions, it focuses on extending the business line, and if the residential management is stable, it will extend the business line to such as commercial management.

However, small and medium-sized enterprises can not compete with the head housing enterprises in all aspects of the acquisition industry chain, at this time, small and medium-sized enterprises should focus on the main business, based on an industrial line, and do a thorough job of the industrial line they are good at, so as to highlight their competitiveness. Only by highlighting the distinctive characteristics of material enterprises can we get the attention of capital. The greater the market competition, the more enterprises need to find their own positioning.

Times Weekly: Is platforming a major trend in the future development of property companies?

Zhou Zhipeng: Platformization is the main trend of future development, with the help of the platform, the company closely links the demand side, products and suppliers, and also lays the foundation for providing value-added services in the future.