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Real Estate· Markets· Equity

China’s property managers under tough scrutiny during homestay quarantine, 20 such companies expected to list on HKEx in 2020

Chua Ser Miang
minutes 2020/03/02 07:01:54
6,720

Besides a hotbed for China mainland’s property developers, the Hong Kong Stock Exchange (HKEx) is also fast becoming the ‘second home’ for these counter’s property management (PM) businesses. Since 2018, five listed real estate companies had spun off their property management companies for a separate listing on the Hong Kong bourse.

New record was set last year, with 11 PM companies successfully launched their IPO, including Binjiang Service (3316), Aoyuan Healthy (3662), Hevol Services (6093), Xinyuan PM (1895), Languang Justbon (2606), Yincheng Ls (1922), Poly Ppt Dev (6049), Times Neighbor (9928) and Powerlong Commercial Management (9909). On a different path, China Merchants Ppt (001914) and New Dazheng Ppt (002968) chose to list on Shenzhen Stock Exchange (SZE).

As of Feb, 25 PM companies have listed on the HKEx. See the table below.

A week after the start of Lunar New Year (Jan 25), Hongkun Ruibang Property Management Company submitted its prospectus to HKEx on 31 Jan, which has just passed the hearing. A similar IPO candidate is Xingye Wulian Service Group (9916) which has also passed the hearing with exchange to become the first listed property management stock.

In addition, five property management companies including Financial Street Property Management Company, E-Star Commercial Management Company, Zhenro Services Group, Sundy Services, and Central China New Life are also waiting in line for listing. Meanwhile, China Resources Land (1109), Landsea Group (0106) and Excellence Group are also rumored to split their PM businesses for separate listing in the near future. From our research as many as 20 PM companies; mostly from the mainland will long the list of companies in this market segment.

Benefitting from China’s new and stricter regulations and control policies on residential properties compound in terms of security, personal asset protection and provision of basic amenities including car parking, PM providers; especially those listed on the exchanges see their values rising. A notable one among these listed counters is Country Garden Services, which has the largest contract management area, is worth HKD 82.7 bln (USD 10.6 bln) by market capitalization recorded last week.

The COVID-19 epidemic outbreak that resulted in a long period of compulsory homestay quarantine in China from mid-Jan to end of Feb put the PM companies under the toughest scrutiny, all on litmus under the hawkish surveillance of ‘locked-in residents’ and various local authorities. This crisis highlights and puts the PM companies in the spotlight when, for many years, they have seemingly little relevance or noticed by residents (users). The homestay quarantine that stretched over 4 weeks; and many even longer, provided a rare opportunity these enterprises to re-examine their role, and users (residents) the services that could be enhanced and improvised. Branding also becomes an important marketing effort to differentiate one from a plethora of providers in a very fragmented market.

One other benefit for better prioritizing of PM services could come from the increased willingness of residents to accept better technologies in managing the services in their compound. The strict imposition of entry permits into the residential company that requires proof of ownership or residency during the quarantine increase the personal protection from the potential spread of epidemic which can prevent transmission.

Other value-adds could be the use of face or voice recognition to allow entry instead of low-tech card access, and more thorough sanitization and cleaning technology (cleantech) adoption that could uplift the overall hygiene level.

If direct investment into real estate developers is not a viable option in the midst of a slowing economy, the proxy to the property stocks’ auxiliary services companies and independent PM providers could an alternative consideration on China’s real estate sector on a longer term. The next challenge for PM companies is docking on the capital market, and explore value-added services or new income streams in the future which is an easy pitch after this COVID-19 outbreak.

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Chua Ser Miang
Finance professional with over 20 years of experience, primarily in investment banking

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