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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  China Evergrande Group    3333   KYG2119W1069

CHINA EVERGRANDE GROUP

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Behind China's Latest Property Boom: Doormen and Gardeners

10/07/2020 | 05:45am EST

By Xie Yu

Investors have seized on another way to profit from China's huge housing market: snapping up stocks in the companies that take care of apartment complexes and help residents with child care, groceries and repairs.

The rally in property-management companies contrasts with difficulties in China's far bigger real-estate-development industry, which has suffered as the pandemic disrupts sales and authorities take a tougher stance on debt. Measured by floor space, residential sales in the first eight months of 2020 were down 2.5% from a year earlier, official figures show.

A Refinitiv index of real-estate-services stocks listed in Hong Kong has gained nearly 66% this year through Tuesday, while a broader real-estate index that includes many mainland Chinese developers as well as some Hong Kong property companies has tumbled 16%.

Leif Chang, an analyst at Nomura, said sentiment toward property managers had been buoyed by better-than-expected earnings and their tapping new sources of income--reducing reliance on their parent companies, the big developers. The coronavirus pandemic also increased demand for stocks with records of fast growth, he said.

Investors worry about developers' debts, and whether authorities might impose restrictions such as controls on prices or sales, said Lung Siufung, an analyst with CCB International Securities. "The service providers are largely immune from such risks," he said.

Property-services companies' rising stock prices reflect not just their growing sales and profits, but investors' willingness to pay higher multiples: The stocks now trade at roughly 20 to 30 times expected earnings, up from 10 to 20 times a year ago, said Mr. Lung.

Shares in Country Garden Service Holdings Ltd., China's largest property-management company by market value, have surged 97% in the year through Tuesday, lifting its market capitalization to the equivalent of $18.4 billion.

China's property managers oversee a gross floor area exceeding 9,200 square miles--bigger than New Jersey--according to a listing prospectus for Evergrande Property Services Group Ltd. They offer "butler services"--essentially doormen and doorwomen--as well as cleaning, security and gardening for common areas of apartments, offices, theme parks, schools and other buildings.

For developers, they sometimes manage construction sites and sales offices. They have also branched into newer areas, such as providing charging stations for electric cars, helping property owners resell flats, selling advertising space in lobbies and elevators and organizing cultural activities like art classes for children.

Larger property managers have recently been able to grow sales by 40% to 50% a year, said Raymond Cheng, an analyst at CGS-CIMB Securities. He said they benefited as their parent companies completed new homes, giving them a bigger portfolio to service.

In addition, they are pushing into businesses with higher profit margins, such as organizing group purchases of groceries, Mr. Cheng added. "The sector has really evolved," he said.

Mr. Cheng and others also expect a wave of deals to fuel growth.

"We think the biggest driver for this sector is mergers and acquisitions, " said William Shek, the chief distribution officer of Zeal Asset Management Ltd., a Hong Kong-based hedge-fund manager. Mr. Shek said the 100 biggest companies make up less than half the market, leaving lots of room for quick growth through consolidation.

The positive reception for property-management companies is welcome for indebted real-estate company China Evergrande Group, which recently suffered violent swings in the prices of its stock and bonds. Evergrande is preparing to list its Evergrande Property Services subsidiary in Hong Kong, where it would join several competitors backed by other Chinese real-estate groups.

Evergrande isn't the only developer rushing to cash in on a hot market. Subsidiaries of Sino-Ocean Group Holding Ltd., Sunac China Holdings Ltd. and Shimao Group Holdings Ltd. are among others that have also filed listing prospectuses in the city.

Nomura's Mr. Chang said Evergrande is likely to sell some existing shares when the unit goes public, and could raise about 20 billion Hong Kong dollars, the equivalent of $2.6 billion, improving its debt ratios. Evergrande didn't respond to a request for comment.

Write to Xie Yu at Yu.Xie@wsj.com

(END) Dow Jones Newswires

10-07-20 0544ET

Stocks mentioned in the article
ChangeLast1st jan.
CHINA EVERGRANDE GROUP 3.59% 16.14 End-of-day quote.-25.28%
CIMB GROUP HOLDINGS 0.79% 3.81 End-of-day quote.-26.02%
COUNTRY GARDEN HOLDINGS COMPANY LIMITED -0.19% 10.32 End-of-day quote.-17.31%
NOMURA CO., LTD. -1.76% 780 End-of-day quote.-46.39%
NOMURA HOLDINGS, INC. -0.35% 536.6 End-of-day quote.-4.76%
SUNAC CHINA HOLDINGS LIMITED -0.85% 29.2 End-of-day quote.-37.27%
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Financials
Sales 2020 647 B 83 484 M 83 484 M
Net income 2020 33 544 M 4 328 M 4 328 M
Net Debt 2020 619 B 79 814 M 79 814 M
P/E ratio 2020 6,44x
Yield 2020 6,68%
Capitalization 222 B 28 690 M 28 691 M
EV / Sales 2020 1,30x
EV / Sales 2021 0,90x
Nbr of Employees 131 615
Free-Float 14,9%
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Mean consensus OUTPERFORM
Number of Analysts 15
Average target price 20,16 HKD
Last Close Price 16,78 HKD
Spread / Highest target 90,0%
Spread / Average Target 20,2%
Spread / Lowest Target -9,51%
EPS Revisions
Managers
NameTitle
Hai Jun Xia Vice Chairman & Chief Executive Officer
Shou Ming Shi President
Ka Yan Hui Chairman
Da Rong Pan Chief Financial Officer & Executive Director
Dong Feng Chen Head-Information
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