China Property Management Sector Property Management Sector June 4, 2018 More Big Names Are Joining the Party and It s Not Over Yet; We Maintain Our P

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1 中国物业管理行业 2018 年 6 月 4 日更多大型企业进入行业, 趋势仍将持续 ; 维持对行业的正面看法中国物业管理服务业领先企业继续获得市场份额物业管理行业的权威研究机构 - 中国指数研究院发布了其 2018 中国物业服务百强企业的行业报告报告显示, 行业变得越来越集中, 龙头企业很可能会继续领先十大企业于 2017 年的市场份额为 11.1%(2016 年 :10.2%), 由于资产负债表较为稳健 ( 尤其是上市企业 ), 其市场份额很可能会透过并购活动进一步增加下一关注重点 : 碧桂园服务碧桂园通过分拆其物业管理服务公司 - 碧桂园服务, 并将以实物分派鉴于碧桂园具广泛的投资者背景, 再加上碧桂园服务名列前茅, 有关分拆应可吸引更多投资者关注行业国际投资者带动股价上涨自 2018 年 5 月起, 市场对中国物业管理行业的兴趣与日俱增, 行业一直录得强劲的股价表现这次的股价上涨有别于上一次, 现在是由本地和国际投资者带动, 而不是中国内地的沪深港通投资者相反, 沪深港通投资者实际上正在减持大多数股份物业市场政策收紧对该行业造成较少的周期性影响我们相信, 现在有更多国际投资者了解该行业的稳定增长潜力, 并意识到有关增长对房地产开发市场本身的依赖较少优质的物业管理公司也可以依赖由第三方开发的项目获得增长, 因此开发商的特有问题将不会损害物业公司的增长前景故此, 房地产政策和融资收紧带来的影响不太可能会对物业管理行业造成影响, 尤其是收入来源多样化的公司多样化的收入来源和规模经济将继续支持大型企业的增长尽管如此, 物业管理公司在若干领域将受到影响, 尤其是它们向物业开发商提供的服务 ( 例如物业协销占绿城服务和雅居乐雅生活的收入逾 10%) 然而, 我们相信更大型的物业管理公司可透过其他服务降低影响物业中介服务就是其中一个值得留意的例子它是行业中一个快速增长的收入来源 ( 例如其占绿城服务的收入约 10%), 并受惠于不断增长的物业租赁需求这也为物业公司带来更多样化的收入来源与此同时, 中国指数研究院的最新报告显示, 十大企业管理的平均在管面积相当于第 11 至 30 大企业管理的平均在管面积的 4.3 倍更大的客户基础将可提高规模经济效益和透过多项增值服务获利的能力李嘉豪, CFA 分析员 (852) tonyli@chinastock.com.hk 王志文, CFA 研究部主管 (852) cmwong@chinastock.com.hk 投资建议 : 该行业跑赢整体市场, 因为所有主要企业的股价于年初至今已上升逾 30% 不过, 我们仍然相信会有投资机会出现在我们覆盖的股份中, 如果首要关注的是目标价的话, 彩生活 [1778.HK; 买入 ] 的上升潜力最大 ( 我们的目标价 :9.00 港元 ) 我们预期, 彩生活受增值服务快速增长和新收购的万达物业管理作出贡献推动, 将于今年录得每股盈利增长约 30% 有关我们的最新报告, 请点击这裡行业估值 Company 公司股票代号 Ticker Rating 评级股价 Price PER(x) EPS 每股盈利增长 Growth (%) (%) E PBR(x) ( 港元 ) HK$ E 2019E 2018E 2019E CAGR (%) 2018E 2019E Greentow 绿城服务 n Service 2869 HK 买入 BUY Colour 彩生活 Life Services 1778 HK 买入 BUY China 中海物业 Overseas Property 2669 HK HOLD 持有来源 : 彭博, 中国银河国际证券研究部预测 1

2 China Property Management Sector Property Management Sector June 4, 2018 More Big Names Are Joining the Party and It s Not Over Yet; We Maintain Our Positive Sector View Leading players continued to gain market share. The China Index Academy, an authoritative industry organization on the property management industry, released its 2018 industry report on the Top 100 property management companies. It shows that the industry is getting more concentrated and that the top players are likely to continue to excel. The Top 10 companies had an 11.1% market share in 2017 (2016: 10.2%), and their market share is likely to increase further through M&A activity, thanks to stronger balance sheets, especially the listed players. Next to Watch: Country Garden Service. Country Garden approved the spin-off of its property management service arm, Country Garden Service (CG Service), which will be distributed in specie. Given the broad investor base of CG and CG Service s high ranking, the spin-off should draw more investor attention to this sector. International Investors Driving the Rally. The market s interest in the China property management sector has been increasing since May 2018, and the sector has recorded strong share price performance. This rally is different from the previous one. Instead of being driven by Stock Connect investors in mainland China, it is now driven by local and international investors. In contrast, Stock Connect investors are actually reducing their stake for most names. The Sector Is Less Cyclically Affected by Property Market Policy Tightening. We believe more international investors are now familiar with the sector s stable growth potential and realize the growth is less dependent on the property development market itself. Quality property management companies can also rely on projects developed by third parties for growth, so a developer s specific issues will not jeopardize the growth outlook of a property manager. As a result, the impact from policy tightening on the property market and financing is less likely to affect the property management sector, especially companies with a diversified revenue stream. Diversified income stream and economies of scale will continue to support the growth of large players. Nonetheless, certain areas of property management companies are affected, especially the services they provide to property developers (e.g. sales assistance accounted for >10% of the revenue of Greentown Service and A-Living). However, we believe the bigger property management companies can mitigate the impact with other services. Property agency service is a notable example. It is a fastgrowing revenue stream for the sector (e.g. it accounted for ~10% of Greentown Service s revenue), and could benefit from growing demand for property leasing. This also provides a diversified income stream for property managers. Meanwhile, the latest report from the China Index Academy shows that the average GFA managed by the Top 10 players is equivalent to 4.3x the average GFA managed by the Top players. The much larger client base will enhance the economies of scale and capability to monetize through various value-added services. Tony Li, CFA Analyst (852) tonyli@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) cmwong@chinastock.com.hk Investment Recommendation: The sector has outperformed the overall market, as the share price of all major players have risen >30% YTD. That said, we still believe there are investment opportunities. In our coverage universe, if target price is the focus, then the upside potential for Colour Life [1778.HK; BUY] is the largest (our TP: HK$9.00). We expect Colour Life to report ~30% EPS growth this year, driven by the rapid growth of value-added services and the contribution from the newly acquired Wanda Property Management. For our latest report, please click here. Valuation of the sector Company Ticker Rating Price PER(x) EPS Growth (%) E PBR(x) Sources: Bloomberg, CGIS Research estimates HK$ E 2019E 2018E 2019E CAGR (%) 2018E 2019E Greentow n Service 2869 HK BUY Colour Life Services 1778 HK BUY China Overseas Property 2669 HK HOLD

3 Industry Update Who Are the Top Players? The China Index Academy, an authoritative industry organization on the property management industry in China, released its 2018 industry report on the Top 100 property management companies. The three companies under our coverage continued to place highly in various rankings compiled by the China Index Academy. Fig 1: Top Property Management Companies Ranked by the China Index Academy Rank Company Company Name in Chinese Affinity 1 China Vanke Service 万科物业 China Vanke [2202.HK] 2 Greentown Service 绿城物业服务 3 Country Garden Property Service 广东碧桂园物业服务 Country Garden [2007.HK] 4 Changcheng Property 长城物业 5 Poly Property Management 保利物业管理 Poly Property [ CH] 6 Colour Life Services 彩生活服务 Fantasia [1778.HK] 7 Evergrande Property Service 恒大物业 China Evergrande [3333 HK] 8 Gemdale Property Management 金地物业管理 Gemdale Corporation [ CH] 9 Longfor Property Management 龙湖物业服务 Longfor [960.HK] 10 Jinke Property Management 金科物业服务 Jinke Property [ CH] 11 China Overseas Property 中海物业 COLI [688.HK] 11 CR Property Management 华润物业科技服务 CR Land [1109 HK] 11 A-Living Services 雅生活服务 Agile [3383 HK] Greenland Holdings [ CH] Note Founded by the management of Greentown China [3900.HK] Expected to be listed in Hong Kong soon (mid-2018) Shenzhen Centralcon [ CH] owns 19.49% of its stake Listed in NEEQ (Code: ) on 29 Aug 2017 Acquired Wanda Property Management in 2018 Aka Jinbi Property Management 金碧物业 Listed in HK on 9 Feb 2018 There were some notable changes in the Top 100 Overall Ranking, which considers various factors, such as scale, growth and service quality. COPL [2669.HK; HOLD] slipped to #11 (2017: #6), while Colour Life [1778.HK; BUY] advanced from #7 to #6 in Evergrande Property Service appeared in the Top 10 list for the first time and was ranked as #7. The highlights of the report are that the property management industry continued to expand in As in previous years, market concentration increased, as the top players became more aggressive and competitive. We maintain our view that the top players will continue to benefit from industry consolidation, as there are more acquisition opportunities available for leading companies with healthy balance sheets. Market consolidation in the property development sector should support the earnings growth of property management companies with strong support from their parent company, such as COPL and A-Living [3319.HK; NR]. This is particularly the case for A-Living, as it has strong support from both Agile and Greenland Holdings. 3

4 The Strong Continue To Get Stronger Fig 2: Total Market Size of Property Management Sector in terms of GFA (unit: bn sqm) estimates The study conducted by the China Index Academy provided some useful insights for investors on the overall property management sector in Based on their figures and our estimate, the total market size in terms of GFA managed grew 5.5% YoY to 19.52bn sqm which is largely in line with the growth of the GFA of properties completed nationally. Meanwhile, the market share of the leading companies continued to grow. The market share of the Top 100 companies grew from 29.44% in 2016 to 32.42% in The Top 10 companies continued to use their edge to gain market share as their market share increased from 10.18% in 2016 to 11.06% in Regarding the major companies listed in Hong Kong, we believe market consolidation should be the norm for at least a few years. In addition to the traditional way of expanding through public bids and acquisitions, companies like Greentown Service, Colour Life and A-Living have been lining up smaller property management companies to form alliances. The major advantage of this kind of alliance is that the know-how, such as management systems and IT infrastructure, of the industry leaders can be shared with the smaller companies. Once the smaller players adopt the system, the larger players can then acquire them more easily, and the business integration is more efficient and Fig 3: Market Share of Property Management Companies in terms of GFA 35% 30% 25% 20% 15% 10% 5% 16.28% 4.85% 19.50% 6.18% 28.42% 7.64% 29.44% 10.18% 32.42% 11.06% less costly. Therefore, industry consolidation is likely to accelerate. 0% Market share by Top 100 Market share by Top 10 4

Fig 4: 2017 Top 100 Companies - Average GFA under Management (unit: million sqm) 250 215.

5 Fig 4: 2017 Top 100 Companies - Average GFA under Management (unit: million sqm) Fig 5: 2017 Top 100 Companies - Average Revenue (unit: RMB million) , , Top 10 Top Top Top Top 10 Top Top Top The overwhelming advantage of the top players is also illustrated by their scale of operations. According to the China Index Academy, the average GFA under management for the Top 10 companies was 215.9m sqm in 2017, which is >4x larger than that of the Top11-30 and >10x larger than that of the Top players. The difference is also seen in the financials. The Top 10 companies on average had annual revenue of RMB4,320m, while smaller players generated only a fraction of that. As the industry is labour intensive, the top companies also enjoy economies of scale, which can be seen in the difference in the net profit margin. In addition to sharing labour resources, the bigger companies can more easily provide more profitable valueadded services to their large client base. This also means there will be room for cost savings in M&A, which is becoming more common among the top players. Fig 6: 2017 Top 100 Companies - Average Net Profit (unit: RMB million) % % 7.7% 7.3% 6.5% 9% 8% 7% 6% % Top 10 Top Top Top % 3% 2% 1% 0% Average Net Profit (RMB m) NPM (RHS) 5

6 Sources: Bloomberg, CGIS Research estimates for covered companies Fig 7: Sector Peer Comparison Company Ticker Trading Price Mkt Cap PER(x) PBR(x) ROE(%) Div YIeld(%) Currency US$m E 2019E E 2019E E 2019E E 2019E Our Coverage Greentow n Service 2869 HK HKD , Colour Life Services 1778 HK HKD , China Overseas Proper2669 HK HKD , Simple Average Property Services Peers A-Living Services Co L 3319 HK HKD , Shenzhen World Union CH RMB , Fang Holdings Ltd - AdrSFUN US USD , Hopefluent Group Hldgs733 HK USD Leju Holdings Ltd-Adr LEJU US HKD Riverine China Holdings1417 HK HKD Huiyin Smart Community1280 HK HKD Zhong Ao Home Group 1538 HK HKD Clifford Modern Living 3686 HK HKD Simple Average Sources: Bloomberg, CGIS Research estimates for covered stocks 6

7 免责声明此研究报告并非针对或意图被居于或位于某些司法管辖范围之任何人士或市民或实体作派发或使用, 而在该等司法管辖范围内分发发布提供或使用将会违反当地适用的法律或条例或会导致中国银河国际证券 ( 香港 ) 有限公司 ( 银河国际证券 ) 及 / 或其集团成员需在该司法管辖范围内作出注册或领照之要求银河国际证券 ( 中国银河国际金融控股有限公司附属公司之一 ) 发行此报告 ( 包括任何附载资料 ) 予机构客户, 并相信其资料来源都是可靠的, 但不会对其准确性正确性或完整性作出 ( 明示或默示 ) 陈述或保证此报告不应被视为是一种报价邀请或邀约购入或出售任何文中引述之证券过往的表现不应被视为对未来的表现的一种指示或保证, 及没有陈述或保证, 明示或默示, 是为针对未来的表现而作出的收取此报告之人士应明白及了解其投资目的及相关风险, 投资前应咨询其独立的财务顾问报告中任何部份之资料意见预测只反映负责预备本报告的分析员的个人意见及观点, 该观点及意见未必与中国银河国际金融控股有限公司及其附属公司 ( 中国银河国际 ) 董事行政人员代理及雇员 ( 相关人士 ) 之投资决定相符报告中全部的意见和预测均为分析员在报告发表时的判断, 日后如有改变, 恕不另行通告中国银河国际及 / 或相关伙伴特此声明不会就因为本报告及其附件之不准确不正确及不完整或遗漏负上直接或间接上所产生的任何责任因此, 读者在阅读本报告时, 应连同此声明一并考虑, 并必须小心留意此声明内容利益披露中国银河证券 (6881.HK; CH) 乃中国银河国际及其附属公司之直接或间接控股公司中国银河国际可能持有目标公司的财务权益, 而本报告所评论的是涉及该目标公司的证劵, 且该等权益的合计总额相等于或高于该目标公司的市场资本值的 1%; 一位或多位中国银河国际的董事行政人员及 / 或雇员可能是目标公司的董事或高级人员中国银河国际及其相关伙伴可能, 在法律许可的情况下, 不时参与或投资在本报告里提及的证券的金融交易, 为该等公司履行服务或兜揽生意及 / 或对该等证券或期权或其他相关的投资持有重大的利益或影响交易中国银河国际可能曾任本报告提及的任何或全部的机构所公开发售证券的经理人或联席经理人, 或现正涉及其发行的主要庄家活动, 或在过去 12 个月内, 曾向本报告提及的证券发行人提供有关的投资或一种相关的投资或投资银行服务的重要意见或投资服务再者, 中国银河国际可能在过去 12 个月内就投资银行服务收取补偿或受委托和可能现正寻求目标公司投资银行委托分析员保证主要负责撰写本报告的分析员确认 (a) 本报告所表达的意见都准确地反映他或他们对任何和全部目标证券或发行人的个人观点 ; 及 (b) 他或他们过往, 现在或将来, 直接或间接, 所收取之报酬没有任何部份是与他或他们在本报告所表达之特别推荐或观点有关连的此外, 分析员确认分析员本人及其有联系者 ( 根据香港证监会持牌人操守准则定义 ) 均没有 (1) 在研究报告发出前 30 日内曾交易报告内所述的股票 ;(2) 在研究报告发出后 3 个营业日内交易报告内所述的股票 ;(3) 担任报告内涵盖的上市公司的行政人员 ;(4) 持有报告内涵盖的上市公司的财务权益评级指标买入 : 股价于 12 个月内将上升 >20% 沽出持有 : : 股价于个月内将下跌没有催化因素, 由买入降级直至出现明确买入讯息或再度降级为立刻卖出版权所有中文本与英文本如有歧义, 概以英文本为准本题材的任何部份不可在未经中国银河国际证券 ( 香港 ) 有限公司的书面批准下以任何形式被复制或发布中国银河国际证券 ( 香港 ) 有限公司 ( 中央编号 : AXM459) 香港上环干诺道中 111 号永安中心 20 楼电话 :

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