Country Garden Service – Meeting Note 1

Country Garden Service (6098.HK)

[August 26, 2019]

Meeting Note 1 @ One IFC

Background

The company posted strong 1H2019 earnings last Friday. Reaction in the market were quite positive reflecting in stock price movement and high attendance in the meeting.

Related post: Country Garden Service – Initial thoughts

Topics of Interest

  • Maybe it’s for the modeling purpose, fellow investors focused mainly on mix of business line, their growth rates, and profitability. From their questions on full year guidance and next year trajectory, their investment horizon might be around six to eighteen months. This industry is a secular growth story. Key is adjacent markets penetration will expand the total addressable market of a simple property management company. The management team indicates that a “mature” property management company can have more than hundred of business line. Just think about how many services the company can provide to its residential owners and their community. Thus, the core of my thesis, if I eventually come up with one, would be the service roadmap and execution plan.
  • Value-added service is difficult in commercial properties. It’s a to B business.
  • Mix of net addition of ~80M sqm: parent company ~60M sqm, 3P ~17-18M net, acquisition ~7M sqm.
  • Long-term gross margin of property management on existing properties will be around 28%-30%.
  • Value-added service gross margin is +60%.
  • Different kind of regulation can be translated into a new revenue source such as recycling regulation. Some clients are willing to pay a fee for recycling. The amount might be as high as property management fee in the long run.
  • It seem the company is fine with equity financing, only selectively on channel. It prefers to bring in new strategic investors in private placement rather than public offering.
  • There’s still no progress on overseas acquisition. The concerns are mainly post-acquisition integration and the reception of Chinese property manager abroad.
  • The average household spending for its customers is around RMB 10,000/month. The company estimates that around 50% is spent on related business. The total addressable market is large and the only question is how the company plans to capture the market.

Next steps

  • It seems the company will have other roadshows this week. Maybe get more exposure.
  • Build up a simple model to organize data points later this week.

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