Country Garden Service – Initial Thoughts

Country Garden Service (6098.HK)

[August 24, 2019]

* Initial Thoughts *

Background

I came across this stock when reviewing post earnings release roadshow schedule. It showed up in various timeslots at different brokers’ venues. This indicates the market is interested in the stock and the company is happy to promote itself publicly.

Country Garden Service is a property management service provider and it has a related party, Country Garden (2007.HK) which is an HK-listed property developer / operator. Due to related party, there are basically two segments in Country Garden Service’s properties under management: 1st party (related party) and 3rd party. Before 1P / 3P mix becoming “balanced” in portfolio, path dependence governs the geographic cluster of properties and market segment of properties and their owners which has impact on the pricing and adoption of services offered.

Business Model

The company provides not only property management service but also property related services among daily demand and along the ownership life cycle. In addition, Country Garden Service engages in other property-related services and trajectory is to penetrate everywhere in the value network.

The business can be described as labor intensive but relatively less capital intensive. It can demonstrate economics of scale in area with high density of property under management and probably on higher geographic level. On the service side, it’s about up-sell and cross-sell to drive revenue contribution on top of basic management fee.

One of key characteristics of this business is high stickiness of customer. Generally, property owner is less likely to change property manager as the switching cost is high. The customer relationship gets deeper as time goes by. Low churn rate and cross-sell / up-sell opportunities will lead to healthy net dollar retention on property level. Long lifetime real estate and the net dollar retention will translate into impressive customer lifetime value. When you have a related party that is doing property development, you probably won’t spend a lot on customer acquisition. CLTV/CAC should be very attractive.

Company Specific before Meeting Management Team

  • I like their presentation. It seems the company has put some efforts on it.

Next Step

  • Basically, every leading property management player should be able to adopt similar business model. So why Country Garden Service? Maybe there are other more attractive targets. This needs a comp analysis.
  • What is the real customer experience? If actually reception is bad, the strong stock price development might attract short sellers with reports distributed.
  • See if I can meet the management team next week.
  • Not sure if on-site visit is needed.

* Related Posts After This *

[2019/8/26] Country Garden Service – Meeting Note 1

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