Diverse commercial market tests property manager

Shenzhen-based developer, Galaxy Holding Group, is splitting its commercial property management business, E-Star Commercial Management, to list in the Hong Kong stock market.

The mall operator in the Greater Bay Area aims to raise as much as US$150 million (HK$1.17 billion) through the initial public offering on the main board, IFR reported citing sources.

This comes after Galaxy Commercial Property, the company's predecessor, delisted from the mainland National Equities Exchange and Quotations last August, where it was restricted by relatively low liquidity, market observers said.

E-Star provides customers, such as the "Coco Park" in Shenzhen, with commercial operational services, including entrusted management, brand and management output, and sub-lease services.

The company provided services for 38 commercial property projects in 16 cities in China as of September 30 last year, with an aggregate contracted gross floor area of about 2.87 million square meters, 57.1 percent of which was developed by independent third-party property developers.

Founded in 2004, E-Star operates and manages projects under a brand system that covers various customer groups, including "Coco Park", "Coco city" and "iCo". It also runs "Top Living" high-end home furnishing shopping centers and has brands for themed shopping areas within commercial properties.

The company ranked first in terms of the number of shopping centers in operation in Shenzhen as of the end of last September, according to a commissioned report by China Index Academy.

However, it faces an increasingly crowded market, with the number of shopping malls in Shenzhen rising from 59 to 146 from 2013 to 2018, at a compound annual growth rate of 19.9 percent, according to the report by CIA.

Also, a fragmented commercial operational service market is expected to bring the company more competitive pressure, given that the top five commercial property managers accounted for only 12 percent of the total number of shopping centers in the GBA, and E-Star was ranked fourth with a market share of 1.7 percent, as of September 30 last year.

Revenue of the company grew by 25.31 percent from a year ago to 289.45 million yuan (HK$322.13 million) during the first nine months last year. Net profit also rose 30.67 percent year-on-year to 83.71 million yuan.

During the past three years, over 70 percent of E-Star's revenue was from the entrusted management services model, through which the company provides landlords and tenants services at all key stages of commercial projects, from positioning to value-added services.

It also warns that revenue from Galaxy Holding took up over 80 percent of total revenue in the past years. The company explains that it mainly provides brand and management output services to third-party developers, through which it only charges service fees at a pre-agreed percentage of the profit.

E-Star plans to use a part of the proceeds to pursue strategic acquisitions of and investment in other small- to mid-sized commercial service providers to scale up its business and expand the project portfolio. A part of the funds will be used for the decoration or renovation of retail commercial properties under its sub-lease services segment.

It will also spend a part of the proceeds on strategic investment of minority equity interest in project companies that own quality commercial properties, as well as the upgrade of its information technology systems to raise management service quality, reduce labor costs and improve internal control. The rest will be used as working capital and general corporate purposes.