Evergrande Property Hong Kong Stock IPO Launch Roadshow: 99% Of The Projects Under Management Come From Evergrande Group, And The Market Value Has Exceeded 75 Billion Before Listing

Evergrande property Hong Kong stock IPO roadshow was officially launched on November 16.

The previous night, China Evergrande announced that the divestiture listing of Evergrande properties had passed the hearing of the Hong Kong stock exchange. According to the data, from 2017 to 2019, the compound annual growth rate of Evergrande's net profit is as high as 195%, and it has successfully attracted Tencent, Yunfeng fund, CITIC Capital, Chow Tai Fook and other giants to take shares.

From the submission of the form on September 29 to the present review, Evergrande property has only lasted one and a half months, setting a new record of the shortest time for property management companies to go public in Hong Kong.

It is understood that Evergrande's Hong Kong stock IPO plans to raise up to US $2-3 billion (about HK $15.6 billion). Huatai international, UBS, ABC international, CCB international, CITIC Securities and Haitong international are co sponsors. The funds raised by the company will be used for strategic acquisition and investment, development of value-added services, upgrading of information systems and equipment, recruitment and training of talents and working capital.

In the view of industry insiders, the split listing of Evergrande property is an important measure for Evergrande group to reduce its debt.

On November 16, China Evergrande Hong Kong shares were up nearly 3%, but closed slightly lower by 0.24%.

From the point of view of the overall financial structure of Evergrande, whether it is due to the higher debt and the overall development of Evergrande, the financial structure will be affected. Because the valuation performance of listed real estate companies and property companies is different, the performance of property companies will be better. In addition, from the perspective of Evergrande's relevant diversification strategy, from commerce, tourism to the layout of the current property, are the paths of diversified development related to real estate, and the whole industrial chain can be covered. " Chen Sheng, President of China real estate data research institute, told reporters of the 21st century economic report.

Single dependence or "bottleneck" of valuation

According to public data, Evergrande property has a history dating back to 1997. As a full range of property managers, Evergrande property covers medium and high-end residential properties, commercial properties, theme parks, industrial parks, health care projects, characteristic towns and schools.

As of June 30, 2020, Evergrande has contracted to provide property management services, non owner value-added services and community value-added services for 1354 projects, covering 22 provinces, five autonomous regions, four municipalities directly under the central government and more than 280 cities in Hong Kong. The total area under management is about 254 million square meters, while the contracted area is 513 million square meters, serving nearly 2 million families. As of the last practical date, the total contracted area of Evergrande property is 527 million square meters, while the area under management is 269 million square meters.

From the perspective of financial data, Evergrande has abundant cash flow and fast growth in performance. In 2017, 2018, 2019 and as of June 30, 2020, Evergrande property realized operating revenue of RMB 4.399.4 billion, RMB 5.903.2 billion, RMB 7.332.7 billion and RMB 4.563.9 billion respectively, with a compound annual growth rate of 29.1% from 2017 to 2019, and net profits of RMB 106.6 million, RMB 239 million, RMB 935 million and RMB 1147.7 million respectively.

According to the data of China Index Research Institute, in 2019, Evergrande property ranked second in the number of cities covered by China's top 100 property service enterprises, ranked third in terms of total revenue, total gross profit and total net profit, third in terms of contracted area and fourth in terms of area under management. From 2017 to 2019, Evergrande's net profit increased at a compound annual growth rate of 195.5%, which was the highest among China's top 20 property service enterprises.

However, it can be clearly seen from the prospectus that the advantages of Evergrande in terms of scale and profitability mainly come from Evergrande group, but this single source of performance may expose Evergrande property to certain potential risks.

According to public information, most of the properties managed by Evergrande are developed by Evergrande group. As of December 31, 2017, 2018, 2019 and June 30, 2020, the area under management of properties developed by Evergrande group accounted for 99.6%, 98.8%, 98.4% and 98.9% of the total area under management respectively.

As of the end of June 2020, only 13 of the 716 projects under management of Evergrande property, about 1.024 million square meters, came from independent third parties, and more than 99% of the area under management was undertaken by the parent company and its joint ventures and joint ventures; correspondingly, nearly 100% of its property management service income came from related parties.

What's more, the single largest customer of Evergrande property is Evergrande group, which contributed 1.935 billion yuan, 2.440 billion yuan, 2.658 billion yuan and 1.597 billion yuan in 2017-2019 and the first half of 2020, accounting for 44.0%, 41.3%, 36.3% and 35.0% of its total revenue respectively.

"Evergrande property business mainly comes from Evergrande group, which is a very common phenomenon in the real estate industry, because it first manages the properties within the group. However, if it is listed, many of its business operations and sources of funds are operated independently, which will make it more market-oriented. It may also acquire other enterprises, and the relevance with Evergrande's real estate development business will gradually weaken. " Yan Yuejin, a well-known real estate analyst, pointed out in an interview.

However, in the view of some institutions involved in Hong Kong stock investment, the excessive dependence on a single developer will affect the property company's own hematopoietic capacity, and then affect the enterprise's valuation. Especially in the case of obvious Matthew effect in the current real estate industry, the independent business development ability of property management enterprises is the key to measure their core competitiveness.

"If a property company used to provide services to others, it is more valuable to us. However, if it relies on its own real estate projects in essence, its value is limited." A private equity firm in Shanghai was interviewed.

Market value exceeded 75 billion on the eve of listing

In addition to the performance, Evergrande property's "luxury" shareholder group attracted the most attention this time.

In August this year, Evergrande property introduced a round of strategic investment of HK $23.5 billion, with 14 investors including Huatai international Dawan District Co., Ltd., Chen Kaiyun, wife of Liu Luanxiong, founder of Chinese real estate, Yunfeng fund, Tencent, ABC international, CITIC, Everbright Holdings, Sequoia China and Zhou Dafu.

Among them, the shares held by Mr. Xu and his wife are HK $37.35 billion, and the shares held by Mr. Liu's wife are HK $37.35 billion and HK $43.5 billion respectively 597%.

On this basis, the valuation of the strategic investment Evergrande property is about HK $83.75 billion (about RMB 75 billion), which is considered by some investors to be at a higher level.

According to wind data, up to now, there are 35 listed companies engaged in property services in Hong Kong stock market. As of November 16, the average p / E ratio was about 30 times. Country garden, which is similar to Evergrande property, has always been the "top one" of Hong Kong stock properties, with a P / E ratio of 55.96 times and a total market value of 132.864 billion yuan (the net profit scale of country garden in 2019 is 1.718 billion yuan, about 1.8 times that of Evergrande); in the same period, the P / E ratios of Greentown and poly properties are 48.75 times and 40.38 times respectively, and the total market value is 30.765 billion yuan and 27.257 billion yuan respectively.

"Generally, the valuation of real estate listed companies will reach 5-6 times, but the corresponding valuation of property and asset companies will reach 10 times or even higher. This is the market has great expectations for the future operation of the property community, including derivative services. A lot of real estate companies will have higher valuations than the pure real estate companies Chen Sheng said in an interview.

In the view of industry insiders, whether Evergrande property can "stand out" among a number of property companies in the future and further drive up the valuation depends on whether the company can run a new track, such as the application and improvement of derivative services, community services and technology services in the property.

"If the property management company is only engaged in cleaning, security and preservation, it can not achieve such a high valuation. But now there is a new format. If we can derive life services around property, there will be a lot of imagination for the valuation of property companies. Therefore, the final decision depends on what route Evergrande takes, whether to expand its scale, or to explore more derivative business for the community stock. For example, we can imagine the relationship between Evergrande's cars and the people in the community. The key is to see whether Evergrande can get a place. " Chen Sheng further pointed out.