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For those who missed my previous post on Central China New Life written on 6th
Nov 2020 can click
here
CC New Life is a comprehensive property management company, integrating
offline and online development with their mature Jianye+ App. Looking at
the valuation, considering the cash on the account, the current trailing
valuation is only 19x PE. The second half of the financial report is
expected to be much better than its first half. As property management
companies earnings are highly certain, 2021 will be estimated to be around 12x
PE if the growth remains intact. This is a generous discount for a company
with a 4 years topline CAGR of 45.30% and bottom line of 88.89%.
On January 5th 2021, ten Chinese government departments jointly released a
notice on strengthening and improving residential property management,
provides solutions and directions for the current problems restricting the
development of property companies.
The day after release, property management companies rose collectively,
property management composite index rose 15.52%. CC New Life rose 24%.
Although the property management industry is developing fast, there are still
many problems to be solved as stated above.
On the issue of difficulty collecting property fees, the solution is for
property management company to explore the inclusion of owners who has
defaulted on the fees into the credit list. In addition, many old
communities due to historical reasons or various practical reasons are
difficult to achieve professional property coverage. As of 2019, the
maximum penetration rate of property management in urban housing in China
is about 65%. There are still many residential communities without
professional property services.
The solution is to encourage property service companies to unify
management of projects under surrounding communities. In the future,
companies that may encounter difficulties in managing old communities, may
be provided with multiple subsidies.
In regards to the issue of raising property fee, the notice clearly stated
that "property service prices are mainly formed through market
competition.".
The capital market has been worried that property prices cannot be
marketized before. It can’t create long-term profits, Owners are unwilling
to raise prices. Real estate companies have no choice but to lose money.
For areas that implement government property service prices, the notice
points out that the housing and urban-rural construction department sets
and publishes benchmark prices and fluctuation ranges. These measures will
fundamentally solved the problem of property fee price limit.
Four suggestions mentioned have completely hit the pain point of
property management. It can be said to have opened the ceiling to the
better development of the property company.
These solutions will undoubtedly benefit CC New Life. First of all,
Henan Province, where CC New Life is located, is rich in property
resources. According to the forecast of the National Bureau of
Statistics, the residential area under management in Henan Province will
be 1.23 billion square meters in 2021.
In contrast, CC New Life as of December 31, 2020, the area under
management and contracted construction area are 100 million square
meters and 186 million square meters respectively. Even though that's a
year-on-year increase of 75.5% and 62.2%, there is still huge room for
growth.
Simultaneously, CC New Life is a top brand in Henan Province, its
comprehensive services of Jianye+, have strong competitiveness. The
notice mentioned in improving the coverage of property management
community and to speed up the establishment of owners committee. In
fact, they are promoting the marketization of the property industry.
If management can be replaced easily due to inefficiency, CC New Life
due to its prominent brand and competitiveness will gain the upper
hand.
Take the recently completed acquisition of Hebei Hengshui as an
example, the partner is interested in CC New Life's comprehensive
resources and Jianye+ mature service system, so the whole merger
process went very smoothly. After the merger, both parties will
promote the application of Jianye + service system in existing
communities, and will work with CC New Life to expand surrounding
third-party properties.
CC New Life pointed out in the conference call that to improved
efficiency of property companies, property density per unit area is
very important.
The notice proposed to improve the coverage of residential properties.
It is convenient for the property company to promote the expansion of
the surrounding properties of the original community, increase the
density of properties in the area. For companies with a large number
of properties, property fees can be raised. This is a huge benefit for
companies like CC New Life. Due to its concentration in Henan, it can
now have better pricing base on size.
In the past few years, the company has deeply cultivated the Henan
market. At present, more than 95% of the projects under management are
distributed in 18 cities in Henan Province. On average, each city has
about 20 projects. The high-density project coverage will brings about
synergy effects. Help the company reduce operating costs, build a
shared service center, link more life service resources, and
continuously improve customer satisfaction.
The last part of the notice is on speeding up online and offline
integration, this is the second time that a national department put
forward this concept.
The notice proposed specific business directions that encourage
community value-added services, like nursery, housekeeping, culture,
health, housing agent, express delivery and other fields, It proposed
that the government will give preferential support for domestic
service and other life services.
CC New Life happens to be the most comprehensive property company
integrating online and offline development. Their Jianye+ app, which
covers the user’s meal, travel, entertainment, etc. is very mature yet
growing aggressively. In the future, Jianye+ has a high probability of
creating the core competitiveness that is most different from other
property companies.
As of November 2020, Jianye+ cumulative total transaction volume is
about 700 million yuan. Year-on-year increase of 87.7%, 1.1 million
monthly actives users. Jianye + users increased by 200,000 in a
single month, community group buying increased by 8% from October
2020. The business situation is not as bad as the stock price
performance.
More importantly, Jianye+ registered users are not limited to
households, In fact, there are more registrations for non-residents,
this explains the value of Jianye+ app. It also helps to form a
flywheel effect in the future.
Full disclosure, I have vested interest in CCNewLife and it is
currently down 4.22%
Snap shot of my portfolio performance as of today: Total profit
for 2021: S$48,077.47. Mainly due to Weimob which is up 15.54% and Chanjet which is up 18.61% today.
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