Company Profile

Nacity Property Service Co., Ltd. is a China-based company principally engaged in the management ofproperties. The Company’s main businesses include property services and value-added services. Theproperty services include package property management services, gratuity property managementservices, court services and consultancy services. The value-added services include home services,private afforestation services and indoor repair services, among others. The Company is primarilyinvolved in the provision of management and consultation services to complex properties, includingcommercial complexes, office buildings, industrial parks, large-scale residential properties and luxurymansions. （Source: Reuters）

Comments

Working hard in the Yangtze River Delta, Nacity Property Service （the company） achieved steady growththanks to multiple business layout.

The CAGR of revenue was 28% during 2015-2019.

The residential business and non-residential business accounted for 52% and 48% of the totalrevenue in 2019.

The company has a stable business structure and covers a wide business scope includingcommercials, office buildings and schools.

Focusing on the Yangtze River Delta and core cities in central China, the company actively expands itsmarkets. The Yangtze River Delta contributed 91% to the revenue with the CAGR of 25% and theCAGR of central China was 44%.

As organizational property management is in the growth period, the leading players reported fastperformance growth.

It is estimated that the overall market value of property management was worth CNY 1 trillion in 2018with the organizational property management taking up 55%.

It is a necessity to have higher demand for equipment management when the socioeconomicactivities develop to a certain level. Meanwhile, the empowerment of technologies including Internetof Things accelerated the enforcement.

Over the past three years, the leading players reported an accelerated growth in revenue with CAGRof 28%.

As the company’s value-added services posted a rapid growth and mainly served the main business,their outlooks are promising.

The company’s business expansion is mainly through the third-party and the value-added servicesmainly serve the main business.

According to the total volume, the value-added services contributed CNY 93 million to the totalrevenue in 2019, accounting for 8%. As the trial-and-error cost of value-added services for mainbusiness is relatively high at the early stage, the company can learn the advanced experience of theindustry in a fast manner in a bid to develop late-mover edges.

The revenue CAGR of value-added services posted 46% in recent years, with home services and spaceoperation services gaining a robust momentum.

Recently, by virtue of favorable policies of transforming narrow and timeworn communities published inZhejiang Province and having been working hard in Zhejiang Province, the company actively rolled outbusinesses.

Hangzhou planned to transform narrow and timeworn communities of 30 million square meters inthe upcoming three years and it is estimated that the number will be 50 million square meters in theentire province. As it has been working hard in Zhejiang Province and established multiplecooperation with the government, the company is expected to roll out new businesses.

Earnings forecast and investment recommendationWith a stabilized performance growth, rapid growth in value-added services of main business andhuge advantages and prospects of the organizational property management business, the company isestimated to turn in its EPS of CNY 1.08/CNY 1.34 for 2020/2021, implying a P/E ratio of 24x/19x,based on the closing price on May 21st 2020. Maintain “Outperform”。

Potential risks

slower-than-expected business expansion; a fast increase in labor costs; unclear developmentorientation of value-added services