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Original title: New Year’s first property stock,Rong WanjiaThe compound annual growth rate exceeds 30%
Image source: company official microReporter | Tao Ting
The first property stock in the new year did not achieve a “good start”, and Rongwanjia started the wave of property listings in 2021 with a break.
On January 15, Rongwanjia Life Service (02146.HK) (hereinafter referred to as “Rongwanjia”) was officially listed in Hong Kong, with an opening price of HK$12.8, a 4.9% drop from the issue price.
According to follow-up observations, Rongwanjia’s stock price performance has been green throughout the morning on the first day of trading. As of the close of the afternoon market, Rongwanjia quoted 12.4 Hong Kong dollars, down 7.88%, with a total market value of 4.66 billion Hong Kong dollars. As of press time, its stock price is still falling.
After the almost frenetic wave of property listings last year, the capital market has entered a rational stage. The property companies listed in 2021 have to show strong strength in the capital market.
From the perspective of basic operating conditions, the income of Rongwanjia has increased year after year. The company achieved revenue of 765 million yuan in the first half of last year, an increase of 37.4% year-on-year, and the compound annual growth rate of revenue from 2017 to 2019 was 32.3%.
However, under the situation of intensified industry homogeneity, Rongwanjia, born out of Rongsheng’s development, still has a long way to go.
As of the end of June 2020, Rongwanjia has a total area of 52.4 million square meters under management and a total of 272 property management projects; the contract area is approximately 80.6 million square meters, covering 53 cities in 19 provinces, municipalities and autonomous regions in China.
In the area under management, the proportion from related parties reached 98.6% during the same period. Correspondingly, the proportion of property income from related party development is as high as 99.3%.
Looking at the land reserves of Rongsheng Development in the past two years, Rongwanjia can indeed continue to enjoy the benefits of related parties. Data show that in 2019, Rongsheng Development achieved 10.98 million square meters of contracted area, an increase of 11.7% year-on-year; last year, the company accumulated 11.74 million square meters of contracted area, an increase of 6.96% year-on-year.
But the last thing the capital market looks at is Rong Wanjia’s own hematopoietic ability.
Rongwanjia is still a “newcomer” in the Waituo market. In 2017, the company had no projects developed by independent third-party property developers. In 2019, the area under management contributed by this part just exceeded 1%.
However, in the first half of last year, when Rongwanjia participated in the bidding of third-party property developers, the winning rate rose sharply from 33.3% in 2019 to 80%.
Among the funds raised after the listing, Rongwanjia will also devote 60% to identifying strategic investment and acquisition opportunities to further expand the company’s business scale, geographic coverage and company service portfolio.
The company’s deputy general manager Meng Qingbin once said that starting from 2021, the company will expand through three methods: single-project expansion, joint ventures with third-party developers, and mergers and acquisitions. It is expected to bring about 40% annual area growth.
In addition to deep bundling with related parties, low gross profit margin is another weakness of Rongwanjia.
From 2017 to 2019, Rongwanjia’s overall gross profit margin was 16%, 16.7% and 18.2%, which are at the low level of the industry. Although it increased to 28.6% in the first half of last year, it still did not reach the average 29% of listed property companies in the first half of 2020.
Taking a closer look at its three businesses, the growth point of the company’s gross profit margin last year came from property management services, while community value-added services were the drag.
From 2017 to the first half of last year, Rongwanjia’s revenue from property management services accounted for 62.7%, 61.3%, 54.8% and 58% of total revenue, respectively.
Correspondingly, the gross profit margin of property management services in the first half of last year increased significantly from 18.7% at the end of 2019 to 32.5%.
As Rongwanjia stated in the prospectus, there are three reasons for the obvious increase in the gross profit margin of property management services. One is that the company reduced costs and the number of on-site service personnel during the epidemic; the other is that it benefits from property management services. The scale of outsourcing has been expanded and employee welfare expenses have been reduced by 34.4%; the third is from the government’s relief measures.
In contrast, community value-added services, which have generally the highest gross profit margin in the industry, account for a small proportion of their business.
The data shows that from 2017 to 2019, the revenue of community value-added services only hovered around 10%, which were 10.2%, 9% and 11.5% respectively. In the first half of last year, the proportion fell further to 9.2%.
The gross profit margin of this part of the business also fell from 35.5% in 2017 to 31.5% in the first half of last year.
It can be said that to a certain extent, the Rongwan family has benefited from the preferential policies during the epidemic. But the epidemic will eventually pass. With the restoration of personnel services and the retreat of favorable policies, Rongwanjia still needs internal strength to improve its profitability.
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