We think Vanke’s move to spin off property management would provide a strong boost to its stretched valuation. Based on our estimates, Onewo could be worth HKD100bn valuation. As Vanke owns 63% stakes, this would unlock at least HKD63bn value or 25% of its current market cap. We think the market would react positively on Vanke and suggest investors to accommodate.
Fundamentals walked through by numbers: The Company has 566mn sq m GFA under management and 751mn sq m contracted GFA in 2020 (up 26% and 17% YoY). Revenue recorded for was RMB9.7bn/12.7bn/18.2bn in 2018/19/20 implying 30% CAGR. Operating margin was at 9% in 2020A and 10% in 2021E (+1ppt YoY).
Fundamentals walked through by segment: Onewo focuses on below three segments, which contribute 90% of the recorded revenue in 2020: 1) Residential Property Management: the Company currently has 3490 projects under management across 100 cities with growth guidance within 30%. In 2020, the recorded revenue for this section is RMB10.1bn accounting for 55.2% of total revenue. 2) Commercial and Facility Management: the Company currently manages GFA of 110mn sq m. In 2020, recorded revenue was RMB5.3bn (29.2% of total). The growth guidance for this segment is at 30-60%. 3) City Services: the Company currently manages 31 projects in 21 cities with growth guidance of more than 60%.
Strengths and analysis: Onewo has its strengths in its partial-SOE background (Shenzhen Metro owns 28% of Vanke) and in technology development with Vanrui and 5th Dimension Technologies, which could bring BPaaS service on top of its traditional PM services. Below are the key analysis: 1) Reserved GFA is below industry average: The Company has reserved GFA ratio is at 25% in 2020, while the industry average is 75% . 2) Revenue growth has slowed from 36% YoY in 2018 to 27% YoY for 2021E. 3) Relatively low operating margin at 9%/10% in 2020/21E, while industry leaders’ at 20%. 4) Weakening performance of parent co.: In 3Q21, Vanke’s contracted sales was RMB479.1bn (-2.8% YoY) and earnings was at RMB5.64bn, down 23.3% YoY.
Valuation and comps: Onewo’s closest comp is CGS, which has 821mn sq m contracted GFA in 2020. Onewo has recorded RMB10.4bn revenue while CGS recorded RMB11.6bn in 1H21. However, Onewo’s profit margin is below CGS, we think a conservative 2021E PE should be around 30x (CGS’ 2021E PE at 34x).