UBS Equities-First Read China Property Management _Read-across from Huaf...-108443633.pdf

ab28May2024GlobalResearchandEvidenceLabFirstReadChinaPropertyManagementRead-acrossfromHuafaServicesprivatizationHuafaServicesprivatizationat31%premiumOn27May2024postmarket,HuafaPropertyServicesGroup(982.HK,HuafaServices)announcedthattheoffererHuajinInvestment(whollyownedbyHuafaProperties(600325.SS))privatizedthecompanybymeansofanagreementarrangement.HuafaPropertieswasthelargestshareholderofHuafaServices(42.56%,Figure1Shareholderstructurebeforeandaftertheproposedprivatization).TheacquisitionpriceisHK$0.29pershare,representinga31%premiumoveritsclosingpriceonthelasttradingday.Theproposalwouldinvolvethecancellationof5.78mnsharesandthetotalconsiderationwouldbeHK$1.68bn(seedealdetailsinFigure2HuafaServicesprivatizationdetails).TheimpliedP/Ewas10.7x,basedonHuafaServices2023earnings.Wethinktheprivatisationat10x2023ex-cashP/Emayprovideasectorread-acrossonsectorvaluation.RobustgrowthandearningsvisibilityDuring2019-2023,HuafaServiceshadarevenueCAGRofc.20%andnetprofitCAGRofc.40%.Asofend-2023,companyhadarevenue-bearingGFAof31.44mnsqmandreservedGFAof29.20mnsqm.Comparedtoourcovereduniverse,HuafaServiceshadthehighestportionofreservedGFAovertotalcontractedGFAat48%(seeFigure3HuafaServiceshadthehighest%ofreservedGFA).Inaddition,itsparentdeveloperHuafaPropertiesrecorded3.99mnsqmcontractsalesin2023,7%ofitscontractedGFA(seeFigure4...andsupportfrombackingdeveloper).Inthe2023resultsbriefing,companyguidedadoubledigitgrowthin2024.Read-acrosstosector;impliedex-cashvaluationof9.9xP/EAsofend-2023,HuafaServicesheldanetcashofRmb0.21bn.Its2023netOCFwasRmb0.18bn,butnodividendsweredeclaredwhilstthesectorsawageneraldividendimprovementin2023(seeFig6...butnodividenddeclaredin2023).Excludingthenetcash,theacquisitionpricewouldimplyanex-cashP/Emultipleof9.9x,basedon2023earnings.Ourcovereduniverseofpropertymanagersweretradingat7.8x2025Eex-cashP/Ewitha2023-2025EEPSCAGRof26%,implyinga2025EPEGratioof0.51x.ThisreporthasbeenpreparedbyUBSSecuritiesAsiaLimited.ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURES,includinginformationontheQuantitativeResearchReviewpublishedbyUBS,beginonpage5.UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.EquitiesChinaRealEstateJohnLam,CFAAnalystjohn-za.lam@ubs.com+852-29716358VeraGongAssociateAnalystvera.gong@ubs.com+852-29718950MarkLeungAnalystmark.leung@ubs.com+852-29718636JessicaHanAnalystS1460524050002jessica.han@ubs.com+86-21-38668346LiBao,PhDAssociateAnalystli.bao@ubs.com+852-37122594FirstRead:ChinaPropertyManagement28May2024ab2Figure1:ShareholderstructurebeforeandaftertheproposedprivatizationOntheannouncementdateHuafaProperties(Offeror)HeZhichengOtherpublicshareholders42.56%8.56%48.88%HuafaServicesAftertheproposedprivatizationOfferor(HuafaProperties)100%HuafaServicesSource:HKEX,UBS.HeZhichengisfromIDGCapital.Figure2:HuafaServicesprivatizationdetailsHuaf