Not long ago, in a live broadcast event, Felix Wang, Chairman, ED & CEO of Central China New Life (9983.HK), mentioned several future development directions of Central China New Life, which include the strategy of exploring the lower-tier markets.
At present, Central China New Life is considered to be in low valuation. Can it break through involution by exploring lower-tier markets and other To-C businesses? Can this newly listed enterprise in HKEX realize its revaluation?
With a steadily growing foundation, the property management sector becomes the highlight in HKEX
Since last year, the capital market of Hong Kong stock market has paid more attention to the property management sector, where the share prices of many companies, including Poly Property Development Co., Ltd, have doubled. Central China New Life, which was listed in HKEX in May last year, also attracted lavishing attention recently due to the significant rise of its share price. Why does the property management sector become the focus of the capital market?
As a matter of fact, due to the epidemic situation, the shortcomings of many industries have been exposed. It is the honed enterprises and industries that can survive the storm. From the perspective of the nature of the property management industry, property management enterprises have the advantages of predictable short-term performance growth, sufficient cash flow, charging before service, etc. At the same time, the industry has great potential and low concentration, so it is very likely that bull stocks will appear in the future.
From the perspective of specific business, the most basic business of the property management company - property management, can basically achieve steady growth. It is the common sense that in general unless a property company performs too poorly, few owners will demand changing property management company. In other words, the renewal rate of property management companies is very high and stable.
We can confirm this point through the data provided by China Index Academy: the renewal rate of top 100 property management companies in China is maintained stably over 98%.
For example, the GFA under management of Country Garden Service is increasing year by year, from 122 million square meters in 2017 to 276 million square meters in 2019. In addition, according to the latest annual result of Central China New Life, at present, the GFA under management and contracted GFA of the company have reached 100 million square meters and 186 million square meters respectively, with an amazing increase of 75.5% and 62.2% respectively compared with the end of 2019.
It is worthwhile to note that the ceiling maybe low if a property management enterprise only rely on property management business.
In fact, the large number of property owners that property management companies owned is a treasurable resource envied by many Internet enterprises. The property management enterprises naturally have this flow advantage. If the property management enterprises can leverage the "user-centric thinking" of the Internet industry and think out of the box of traditional property management enterprises, treating every property owner as a separate network user rather than residents who pay management fees, the property management enterprises may achieve continuous breakthrough in its businesses.
For example, the "Central China Consumers Club", ran by Central China New Life, "memberises" the property owners, builds a membership system around different owners and provides customized services. The development potential of such business is much broader than the sole property management business.
Then, having shown strong ambition in the live broadcast activities, how will Central China New Life grow its "wealth" through To-C businesses?
How to operate the To-C business with upgraded "Jianye+"?
The news that Nice Tuan was fined caused a new round of panic in the community group purchase industry. Indeed, the group quickly captured a part of the market through price war, from Meituan Selected to Chengxinyouxuan of DiDi and Pinduoduo. It can be said that as a business that can approach the "last three kilometers" life circle of users, community group purchase business is bearing internet companies' dream of exploring market in lower-tier cities and counties.
However, lacking offline resources, internet companies usually utilise a large number of third-party forces, such as community leaders and delivery workers, which will increase costs when facing the business that needs a strong supply chain.
Compared with the internet enterprises, if property management companies enter O2O business, such as community group purchase, on the one hand, the property management companies can contact users face-to-face, and are "100 meters" away from users. They are closer physically and can serve the community users more intimately.
On the other hand, compared with the internet enterprises which need to build another distribution system, property management companies play the role of the last distributor, saving a lot of distribution costs. The personnel system of property management companies is more mature. Taking Central China New Life as an example, its offline high-density layout can reduce the cost of local life services, which is its obvious advantage.
It is understood that as a new and key business of Central China New Life, Jianye+ Platform has always been given high expectations and seen as facilitating transformation. Such a platform or APP can provide users with one-stop lifestyle services, including food, clothing, living and transportation. As of the end of 2020, the number of users of Jianye+ platform is about 3.6 million, and the GMV reached about 800 million RMB. It has great future potential.
Why would users choose Jianye+?
It's very simple. Unlike the ordinary property management platform, Jianye+ has a relatively unique business model. In addition to daily life payment, users can also shop at a low price on the platform.
For example, if users buy a popular Huawei smartphone on Jianye+, they can buy without extra pay or rush. In this way, the users of Central China New Life are more willing to shop on Jianye+.
Moreover, Central China New Life uses its own resources to obtain various membership benefit for platform users, such as movie town tickets, weekly car washing service, etc. The benefit is equivalent to an "88VIP" exclusive to Jianye+ members. Users can enjoy all kinds of joint benefit. And community group purchase is just one of its businesses.
Then why are brands like Huawei willing to cooperate with Central China New Life?
That is because these brands regard the high value of Jianye+as important. In addition, Central China New Life is operating its "Central China Consumers Club" membership system, which can provide high net worth users.
Jianye+ provides convenience for users, while digging deep into user value. Through such a complete closed loop, on the one hand, the platform benefits users, on the other hand, users feed the platform back. Why not?
Therefore, the positioning of Central China New Life seems to be very clear. Different from most property management companies, Central China New Life has a greater "ambition", which is to serve not only the residents of the community, but the entire society as well.
Exploring property management service markets in both low tier cities and other provinces than Henan, when will Central China New Life realize its "ambition" for revaluation?
Although Central China New Life has certain advantages in the lifestyle service sector, such as its offline high-density industrial layout which helps it reduce the cost of performance of contracts. Meanwhile, the business model of Jianye+ platform is relatively clear and can be replicated, which lays the foundation for its exploration in the markets in lower-tier cities and counties and the market outside the Province in the future.
However, considering the entire market currently, the P/E ratio of Central China New Life is less than 12 times, which is still undervalued.
Based on the current scale of Central China New Life, it is indeed possible to make some achievements: according to the research report of Guosen Securities, it is estimated that the company's revenue and net profit attributable to the parent from 2020 to 2022 will be 2.644 billion RMB, 3.993 billion RMB and 5.590 billion RMB respectively, and the net profit attributable to the parent will be 389 million RMB, 589 million RMB and 829 million RMB respectively.
These data show that the performance of Central China New Life is relatively stable, and it maintains such stable performance while launching new business.
However, the capital market wants to listen to more stories with higher growth potential.
Guosheng Securities focuses on the layout outside the province in its research report, which may become a major growth point for Central China New Life in the future. The company has local advantage in Henan Province and is going to expand the "Grand Central Plains strategy", including the surrounding eight provinces, which is bound to bring influence.
In addition, apart from the strategy of going out, prefecture-level cities are also uncultivated land for Central China New Life in terms of spatial layout. We learned from the live broadcast that Central China Real Estate has covered 122 counties and cities in the province in 2019, and will continue to expand its coverage in more cities in the future.
In fact, it is a wise move for Central China New Life to explore the lower-tier market. After all, it has obvious advantages in such market.
First of all, people are the key to the basic property management business. Labor cost in prefecture-level cities is lower. Central China New Life may operate its lifestyle service business while completing the basic property management business by managing and cultivating people. The same group of people can generate more output.
In terms of the overall cost of industrial layout, compared with the first and second tier cities, the industrial layout of prefecture-level cities costs less, so the layout density can be higher. Once the industrial layout density is higher, it will be easier to expand its lifestyle service sector.
In other words, the layout of the sinking market can bring higher ROI to Central China New Life.
Of course, Central China New Life should improve the service level of property management in order to gain a firm foothold in these lower-tier markets in the province. At the same time, exploration in the lower-tier market can provide Central China New Life with 360 consumption experience as well as data and resources for its Jianye+ TO-C business.
Therefore, Central China New Life is not only a traditional property management enterprise, but also a new platform with a whole set of internet service ecology.
Nevertheless, the core competitiveness of property management enterprises lies in brand, service and operation capability. Therefore, besides expanding the boundaries, the company must improve the level of property management services. Both quality and quantity are crucial.
Conclusion
Judging from the current stock price, the market value of Central China New Life is 10 billion HKD, which may be at a low valuation, as the market said. Therefore, Guosheng Securities, Industrial Securities, Everbright Securities, etc. maintained the "BUY" rating. In the future, if Central China New Life can upgrade the business of Jianye+ platform and make a breakthrough in other provinces and markets in lower-tier cities and counties, its will be revalued soon.
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