Xingye Wulian pins fortunes on parent

Xingye Wulian Service, a mainland property management services provider, is preparing to start trading on the main board next Monday after delisting from China's National Equities Exchange and Quotations, also known as the "new third board.''

The Henan-based company launched a Hong Kong initial public offering last week to raise up to HK$200 million. The retail tranche is 853 times oversubcribed, as property management services sector outperformed the Hang Seng Index and the service is essential amid the virus.

Chief financial officer Lu shuang, says the listing ceremony at the Hong Kong stock exchange will be staged as scheduled, but some directors will not be able to attend due to the 14-day quarantine measure.

Xingye Wulian was the fourth-largest non-residential property management services provider in Henan province by gross floor area for properties under management in 2018. But its market share was only 0.6 percent in the province, according to a Savills report.

The company would become the smallest property manager among all Hong Kong-listed players in terms of GFA area of properties under management. Its portfolio of properties under management covers 17 commercial buildings, three government buildings, and an industrial park. These are mainly in Zhengzhou, Henan province, with a total GFA of only about 2.4 million square meters, less than 9 percent of that of Poly Property Development (6049).

Xingye Wulian mainly provides property management, value-added, and property engineering services. Revenue from the property management services accounted for more than 82.8 percent of total revenue for the first nine months last year.

The company had been offering property engineering services since 2017, which include planning, design, and installation of security and surveillance systems, access control systems, carpark management systems, and construction site management systems. The segment contributed 11.6 percent of total revenue from January to September last year.

Xingye Wulian's commercial buildings under management were developed by its parent Zensun Group, which ranked among the top 50 property developers in mainland China in 2018 and 2019 by China Real Estate Association.

Xingye Wulian says future growth will depend on the prospect of Zensun Group, as revenue from properties developed by Zensun Group accounted for around 90 percent of revenue from property management and value-added services.

Total revenue grew from 47.27 million yuan (HK$52.42 million) in 2016 to 131 million yuan in 2018 with a compound annual growth rate of 66.4 percent. Net profit surged at a CAGR of 72.5 percent to 34.22 million yuan in 2018 from 2016.

For the first three quarters last year, revenue gained by 41.92 percent year-on-year to 127.3 million yuan and net profit rose 6.9 percent to 28.12 million yuan.

Xingye Wulian's gross profit margin is higher than most of the mainland rivals despite falling 3.4 percentage points to 46 percent for the first nine months last year, as it mainly engaged in commercial building projects with a high gross profit margin.

Chairman and chief executive Zhu Jie says the business is less affected by the virus epidemic as the property management service is vital for prevention and containment of the virus. He adds Xingyue has made contingency plans to maintain normal operations.

The company plans to use 72.3 percent of the net proceeds from the IPO for expansion through acquisitions. A part of the net proceeds will be used to improve property engineering services, property management services, and as general working capital.

Zhu says the company will focus on business in Henan province, and also plans to expand to neighboring provinces such as Anhui, Shandong, Hebei, and Shanxi. Expansion will also follow the parent company's development plans.