(Yicai Global) July 31 -- China Evergrande Group plans to spin off its property management business in a USD2 billion initial public offering, according to a filing made to the Hong Kong stock exchange today, as the country’s largest property developers eye the huge gains made by the property management sector on the mainland and Hong Kong this year.
So far this year, nine property management firms have submitted their IPO prospectus’, five of which were in late June. Rival Sunac China Holdings announced its plans on July 21. Of the country's leading property developers, only China Vanke has kept mum about any such plans.
More listed property management firms is a sign that the sector is maturing, said Martin Ding, chief executive of real estate agency E-House China Enterprise Holdings. There will be about 50 such companies listed by the end of the year, according to the China Index Academy.
The sectors’ advances have been considerable. Nanjing-based Yincheng Life Service was the top performer with its stock price soaring more than five-fold since the beginning of the year. Zhong Ao Home Group’s stock has more than tripled while the share price of Binjiang Service Group, Times Neighborhood Holdings, Xinyuan Property Management Service and Ever Sunshine Lifestyle Services Group have all more than doubled.
The gains are predicated on solid performances. High revenue growth, stable cash flow, asset-light operations, weak reliance on economic cycles and other characteristics continue to boost the valuations of property management firms on the capital market. Last year, 25 property management firms averaged a 43 percent gain in operating revenue.
Revenue at the property services arm of Guangdong-based developer Country Garden doubled last year and it was the first company to reach a market capitalization of more than HKD100 billion (USD12.9 billion) on the Hong Kong stock exchange. Yesterday, it closed with a value of HKD126.7 billion. A-Living Services ranks second highest with HKD58.5 billion.
With such high valuations, China Evergrande is eyeing a market cap of at least HKD100 billion market cap if it can raise USD2 billion in the proposed IPO.
Leveling the Field
Property companies with high market valuations have a few things in common, according to CRIC Property Management. They all have a parent company that is among the top 30 property developers in China, they manage about 100 million square meters of real estate, have a CNY1 billion (USD143.1 million) plus operating revenue and over CNY100 million in net profit, it added.
Whether the industry as a whole can keep the valuations at a high level remains uncertain, Ding said. Current valuations already include investors' expectations for future growth in scale and value-added services, he added.
Once big players such as Evergrande and Vanke list their property management assets the prospects for the sector will level as the market is expected to price the industry as a whole more rationally, Ding said.
Editors: Tang Shihua, Kim Taylor