Property manager expands beyond Shanghai home turf

Ronshine China (3301) has planned to spin off its property management service arm, Ronshine Service, to raise up to US$150 million (HK$1.17 billion).

The Shanghai-based property manager has passed the listing hearing. It is expected to debut in early July after the second time IPO application in May.

The company has a strong foothold in the western straits region and Yangtze River Delta. Ronshine Service is expanding in the Yangtze River Delta, accounting for 22.8 percent of the total gross floor area of properties under management in 2020 from 7.2 percent in 2018. Meanwhile, the proportion of western straits region dropped from 92.8 percent in 2018 to 63.5 percent last year.

It is also rapidly expanding to other regions, such as Tianjin, Chengdu and Chongqing.

As of end-December last year, the group had 119 projects under management and 91 projects were contracted to manage but not yet delivered, covering 44 cities. The total GFA under the management of around 19.9 million square meters and a total contracted GFA of about 38.2 million sq m.

The group ranked 19th among the Top 100 Property Management Companies in the mainland in terms of overall strength in 2021, according to China Index Academy.

The company provides services to projects developed by parent Ronshine China. It has begun to provide property management services to projects developed by independent third-party property developers since 2016.

In the past three years, Ronshine China and its joint ventures and associates and companies beneficially owned by chairman Ou Zonghong accounted for over 35 percent of total revenue.

The company generated revenue mainly from three business lines, which are property management services, value-added services to non-property owners, and community value-added services. Last year, nearly half of the income came from value-added services to non-property owners, such as driving and vehicle dispatching and managing services.

The property management services contributed almost half of the income while community value-added services like community shopping services only accounted for 2 percent.

The overall average property management fee was 2.7 yuan (HK$3.27) last year.

Total revenue increased by 25.33 percent year-on-year to 518.43 million yuan in 2019. Turnover further jumped by 44.75 percent to 750.43 billion yuan last year due to growth from property management services and value-added services.

Net profit surged by 92.55 percent to 70.04 million yuan in 2019. The profit then increased by 17.81 percent to 82.51 million yuan in 2020. For the three years ended 2020, the compound annual growth rate was 31.39 percent.

The gross profit margin improved by 4.8 percentage points to 32.3 percent in 2019 and then fell by 3.5 percentage points to 28.8 percent for 2020, as the gross profit margin of the value-added services dropped. The company charged a discounted value-added service fee as a promotion strategy in response to the decreasing demand during the COVID-19 outbreak.

The company has developed an intelligent information technology platform named Ron-Intelligent service platform through its E-asy Living and E-asy Help mobile applications. These platforms are expected to improve profitability.

Its peer Yuexiu Services, which opened the retail book last week, had a higher gross profit margin in 2020 with 34.5 percent. It received a 2.1 times oversubscription last Friday.

The company will use the net proceeds for selective strategic investment and further develop strategic partnerships for expansion.

The net proceeds will be used to develop and upgrade hardware and software and further develop property management services provided to high-end properties under the ROYEEDS brand.