Property manager rides on parent's projects

Mainland property management company New Hope Service was at nearly 2 times oversubscription in the retail tranche in Hong Kong.

The mainland billionaire Liu Yonghao's management service arm is on course to raise as much as HK$940 million by going public, attracting at least HK$276 million through margin financing for the retail tranche, which represents 10 percent of the offering.

Liu chairs one of China's biggest pig breeders New Hope Group which owns businesses in the food, dairy, and real estate sectors. Liu's family ranked 31st on Forbes' 2020 " China Rich List".

New Hope Service closed its retail book last Friday with an indicative price range of between HK$3.8 and HK$4.7 apiece, suggesting a minimum investment of HK$4,747.36, and is expected to debut on May 25.

Xiaomi (1810), Fosun International (0656), and US-listed KE Holdings are among six cornerstone investors to subscribe to US$49.4 million (HK$385.32 million) worth of shares.

Founded in 2010, New Hope mainly provides property management services, value-added services to non-property owners, commercial operational services, and lifestyle services.

Property management services accounted for 32.3 percent of the total revenue, while the value-added services made up 28.6 percent, as of end-2020. Meanwhile, commercial operational services took up 19.2 percent, and lifestyle services occpuied 19.9 percent of the total amount.

The overall gross profit margin fell by 0.7 percentage point to 41.9 percent in 2019 before rebounding to 42.1 percent in 2020, of which commercial operational services offered the highest gross profit margin ranging between 54.8 percent and 75.4 percent.

Covering 17 cities in nine provinces, it managed 65 projects with a total gross floor area of nearly 10.2 million square meters, as of end-2020, of which 33.4 percent were in the Chengdu-Chongqing urban agglomeration and 28.9 percent were in the eastern region. As of May 3, its total GFA under management further increased to 11.4 million square meters.

It warns the business could face pressure in the event of any adverse development in government policies or business environment in the southwest and east.

The group grew its net profit by 56 percent year-on-year to 63.93 million yuan (HK$76.95 million) in 2019. Profit further increased by 71.6 percent to 109.77 million yuan in 2020, thanks to increases in business scale and the average property management fee, as well as the expansion of services with higher gross profit margins, etc.

Revenue increased by 47.5 percent to 380.5 million yuan in 2019 and then jumped by 54.6 percent to 588.3 million yuan in 2020.

Most of the income comes from the sister company New Hope Property Group, which accounted for 79 percent of total revenue in 2020. The portion was even higher at 89.8 percent in 2018 and 90.3 percent in 2019.

New Hope Service also warns that it may fail to diversify the customer base and an adverse development in the business or financial position of New Hope Property Group and related parties may affect its ability to procure new property management services from them.

It plans to use 70 percent of the net proceeds for strategic acquisition and investment, 15 percent for the upgrade of information systems and equipment, 5 percent for talent recruitment and team building. The remaining 10 percent will be for working capital.

The company ranked 39th in the 2020 Top 100 Property Management Companies in China in terms of overall strength, according to a commissioned report by EH Consulting. It enjoyed around 20 percent of the market share by total revenue.

The property management market in China increased from 17.4 billion square meters in 2015 to 21.3 billion square meters in 2019 at a compound annual growth rate (CAGR) of 5.2 percent.

According to a forecast by Savills and EH Consulting, the CAGR for the management area of the Chinese property industry from 2020 to 2024 will be 4.5 percent.