My Thoughts on CCNewLife Pt2 and XIRR

 


Please click and read this disclaimer if you wish to continue with the contents below.

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.



No comments :

Post a Comment