Country Garden Service – Meeting Note 1

Country Garden Service (6098.HK)

[August 26, 2019]

Meeting Note 1 @ One IFC


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.

Country Garden Service – Initial Thoughts

Country Garden Service (6098.HK)

[August 24, 2019]

* Initial Thoughts *


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

Pinterest – Initial Analysis

Pinterest (PINS.US)

[August 14, 2019]

Initial Analysis

[0] Analysis Background | Approach Selection

While Pinterest has been a listed company since April this year, it is still in early stage and is more like a pure play of something. If you think runway left is enormous, a bottom up approach to follow the company increases the conviction for a long term bet.

[1.0] How Pinterest Describes Itself and Its Vision

Pinterest is the visual discovery engine to bring everyone the inspiration to create a life they love

[1.1 ] Business Model

Pinterest is an image/video-oriented user generated content site (UGC) with visual discovery engine as key feature for its users to get ideas/inspiration created by other users.

Users generate content by Creating a Pin or by Saving others’ Pins and they can organize their Pins by creating Boards.



There’re two interesting features on adding content page 1) Add a destination link; 2) Save from site. Pinterest not only helps users to find ideas/product but also encourage content creators to show where the ideas/products come from. Pinterest help content creators leverage its discovery engine to direct traffic to their sites.

Below is the content of a Pin. Blue circle shows Pinterest’s priority is to encourage to save a pin (engagement and content creation). It also shows which user saved the pin, how it categorizes the item (it’s under “quilted tote bag” board) and how many time it’s been saved. Commercial intent of user can be satisfied as destination link shows this product appeared on Etsy, an e-commerce marketplace. User can follow the link to find the product or similar products available for sale and the shop/person who made the product.


While Pinterest has social features that allow users to view other Pinner’s profile, follow them, follow their boards and leverage users’ social graph on Facebook to send message to friends and see their activities on Pinterest… It seems those features were not emphasized when I tried the product on web browser. Apparently, core value of Pinterest is not social networking, news feed based on social graph or communication tool. New user doesn’t need to have a friend on the platform to start experiencing the product. This is important when making comparison between products that have social elements: Facebook, Instagram, Twitter, Pinterest, Whatsapp, Snapchat… Different products have different user behavior which reflects in metric. If someone wants to gauge user engagement by DAU/MAU (number of daily active users divided by number of monthly active users), Pinterest might rank lowest on this metric. This is normal because you would not expect Pinterest’s users to visit the site on a daily basis given current product offering. Higher DAU/MAU might be good and being low might not be a problem.

I feel the core of Pinterest is a crowdsourced visual database where data is either originally generated or saved from internet by users. Users add information or “curate” by adding title and description to each Pin and creating relationship among Pins via organizing Pins under Boards. Those curation help text / visual data science on discovery engine and other features. It’s important for Pinterest to reduce the friction of generating / organizing content, coming up with use cases and finally monetizing traffic and intent on the platform. Maybe Pinterest is a Google in a visual-dedicated user-curated universe.

Theoretically, this platform has direct network effect while it is not as strong as products based on social network.

[2.1] Products (Pinterest website) / Features / Function


[2.2] Ad Formats (Pinterest website) – Monetization


[3.1] Traction and Metrics







[4.1] Geographic Exposure and Demographic 

Around 28% of Pinterest users come from US and the company doesn’t provide further breakdown on international users. Pinterest has penetrated around one third of social networking population in US. The primary Pinterest users demographic in US is female. Currently, US MAU shows saturation. To further penetrate US market, Pinteret might foster categories or come up with use cases appealing to potential male users.

The majority of revenue is generated from US market because its the first market Pinterest choose to monetize. The company also starts monetization initiatives in Canada and some Western Europe markets. Among international markets, I think Japan has huge potential to become a major revenue contributor.

[5.1] Competing Products

Basically, the technical entry barrier is low and Pinterest is competing with large companies that can offer similar features in their product. The moat, if any, comes from Pinterest having what users want and users being able to find what they want or get inspired. Pinterest needs to keep flywheel running fast: User Generated Content – User Curation – Search/Recommendation.


[6.1] Other Info for


[7.1] Reference Model and Benchmark


Partnership between Tencent & Nintendo to launch Nintendo Switch platform in Mainland China

Re: Partnership between Tencent & Nintendo to launch Nintendo Switch platform in Mainland China

Note to: Public

Distribution:  Direct | @yuinausicaa | Futu Niu Niu | Slideshare

* The Console Business *

Two-sided platform

Gaming console is a two-sided platform with specific hardware specs and operating system that connects user and game software. Users first buy gaming consoles on which they play game software, a version specifically developed for the platform. Users buy console because they want to play existing game library and expect game developers to release more games on the platform in the future. Concerns for users to purchase a console include upfront cost, existing library, and future support of software developers to the platform. Developers create games, distribute their content on the platform to reach audience, and then benefit from various monetization methods. Concerns for developers to create games for platform include estimated audience base (installed base and its user profile), resources to put into development (upfront development costs, time to market, how easy it is to develop on the environment…), and other incentives provided by platform holder.

Indirect & direct network effect

A key characteristic of this two-sided platform is indirect network effect which creates a classic chicken-and-egg problem at launch and noises in the first one to two years for a platform with non-mainstream hardware specs. Generally, this problem is solved by subsidizing both the demand and supply by pricing the console at or slightly below the cost and reaching exclusive deals with third party developers. However, it’s not enough to only have third party content so platform holders also create first party games to attract users particularly at launch.

With widespread of internet, connectivity creates direct network effect in multiplayer games. Users can play with others around the globe or around the region (Mainland China is more likely to be the case). Since Nintendo Switch is a hybrid gaming console (home x handheld), the portability gives this console a social aspect unseen in other competing consoles in current / next generation.

Physical and digital distribution of hardware and software

Sales of hardware involve physical distribution no matter the transaction is made online or offline. Hardware inventories are either stocked in “warehouses” or “retail stores.” Software might be either distributed physically or digitally. Life cycle of console might last more than 5 years, and customer relationship built might last for decades. Thus, customer service/support and repair are inevitable. When the business involves physical distribution, supply chain / logistics capabilities become imperative.

Legally introducing Nintendo Switch to the new market

Understanding abovementioned fundamentals is key to evaluation of a platform launch. The goal we’re trying to reach now is to legally introduce an established gaming console to a market dominated by other gaming style and regulated differently. The market share of console gaming in China in 2018 was probably less than 3%. To unlock market is very challenging but this is also a once in a generation opportunity for execution team to create a multi-billion dollars business and make history. What I see here is there’s limited downside for responsible individuals as everybody knows the task is tough while the upside is enormous.

* Go-to-Market & Ecosystem Coordination *

Market penetration before official operation

Before Nintendo’s decision to collaborate with any company to enter China market, I think their most efficient way to penetrate the market was localizing the system and games as many as possible and then just let the market mechanism work for them. The limit of strategy above is obvious – the user base probably would not go beyond early adopters. Those hardcore/enthusiastic gamers have figured out how to enjoy the system without official support. With high penetration of social network/media, communities that facilitate information exchange and transactions are built. However, it’s still not enough for the product to take off and diffuse further without the help from platform holder/ecosystem coordinator. Apparently, gaming console is not a product that can sell or scale by itself in Mainland China. For a system without official support, frictions are too large for potential users to adopt, let alone we have country specific challenges for gaming consoles. Looking at numbers of Xbox and PlayStation with official support, it seems they’re still struggling to gain traction. What the team needs to do includes coming up with a sophisticated go-to-market strategy, testing different growth hacking tactics, coordinating previously unmanaged ecosystem, cultivating Nintendo’s IP…

Since Nintendo knows which game is first enjoyed by a new user, I believe the team has the information about how many wild Nintendo Switch there are in Mainland China. By depicting ecosystem and social graph, it is not difficult to find fair number of existing users belong to different communities to conduct user research. Understanding those early adopters adds value to some extent even though their user profile (demographics, user behavior…) and user stories might be significantly different from that of those primary target audience that the team will spend most time and resources on.

Customer acquisition

  1. Marketing channels
  • Online
    • Device
      • Mobile: Super App / Apps / Browser
      • Desktop
      • Console: Nintendo eShop (post acquisition)
    • Traffic sources (owned/third party): Social Media (UGC), Social Network, Vertical Media Site, Store in Super App, Channel in Super App, App, Website
    • Current China-related owned channels
      • – ~300K monthly unique visitors in last 3 months (~60% traffic from Mainland China)
      • Nintendo HK Limited @ WeChat
      • NintendoHK @ Weibo – ~169K fans
      • Nintendo HK Limited @ Youku – ~2K fans
      • HK @ Facebook – ~55K followers
      • Nintendo HK @ Youtube – ~30K subscribers
    • Offline/Traditional channels: while the amount of traffic/impression, information diffusion efficiency, timeliness of performance measurement, data collection in offline channels are inferior, clever initiatives might leverage better leading to attractive return on investment. These channels are needed in brand/IP recognition building.
  1. Conversion

It will take longer or much longer compared to other markets where potential mainstream users are familiar with the IPs and value proposition. Current user bases in other markets are more akin to reactivation than acquisition. Cumulative advertising expenses per unit shipped between FY17/3-FY19/3 in other markets was around JPY 5,664. I think even with rigorous budgeting the number in Mainland China probably will be probably three times until the team finds magic formulas on conversion. As potential users are price sensitive, it’s reasonable to expect different subsidies, discounts, bundles to drive demand. Thus, all-in customer acquisition cost (CAC) should be even higher.

  1. Sales channels
  • E-commerce
    • Direct-to-Customer – storefront/marketplace/Nintendo eShop
    • Third party
  • Brick-and-Mortar (geographically selective, density calculated, capital intensity)
    • Wholesale
    • Retail
    • Direct-to-Customer (maybe Nintendo SH/BJ/SZ)

Launch of platform

  1. Exiting internal resources for initial business planning and new recruitment for on-going platform operation and forward strategy formulation/execution
  2. Determination: models (NS, NS Lite, or rumored NS upgrade/Pro), Accessories, SKU, software pre-install (if any) and account integration (if any)
  3. Hardware / software regulatory application and approval
  4. Channels / logistics / supply chain / customer support / backend ready
  5. Timing determinants: global software pipeline / hardware launch schedule, global seasonality, local seasonality, regulatory approval, regulatory application in pipeline
  6. Games officially available at launch and software lineup subject to approval for both retail and digital version

By that time, we will officially know how strong Nintendo as a brand and their IP are in Mainland China beyond early adopters.

  1. On-going operation, business intelligence and strategy planning

Customer engagement & retention / customer lifetime value (CLTV or LTV)

Customer engagement and retention is key in nowadays gaming business (from single game in any device, to gaming console, to digital gaming storefront, to cloud gaming service). Thanks to internet and various monetization methods adopted, on-going revenue streams from specific user after games being installed or services being used become possible. Game operators want to keep their users active (prevent them from churn) to benefit from DLC/season pass or in-game monetization. It’s even more important for massive multiplayer online game and games with strong social aspect as user activity determines whether network can reach critical massive and its sustainability. Key financial metric migrates from contribution profit from one-time software sales to customer lifetime value.

Because of supply aggregation and higher customer acquisition costs on gaming console, loss from customer churn multiplies. In the past, the platform holder would just keep bringing high quality games to the platform (better if they’re exclusive) until it’s time for next generation hardware with limited channels for customer engagement. With widespread of social network/media site/UGC site (adjacent platforms) …, channels to reach players increase while competition for user’s interest and time spent become fierce than ever. Like user behavior in gaming console, users generally multi-home on those adjacent platforms. I expect competitive landscape would be described as market-sharing with clear power law which might impact how the primary platform builds relationship and collaborates with adjacent platforms.

Ecosystem and communities

By visualizing participants in the primary gaming platform, adjacent platforms and sales and marketing, the concept of ecosystem is easy to grasp. By zooming into social network and micro level interaction, online and offline communities (meetup, unofficial tournament…) can be identified.

Ecosystem coordination might benefit not only customer engagement and customer acquisition but future platform business. Coordination involves policy implementation, regulation enforcement, and resource allocation.

* Business Intelligence, Traction & Metrics *

        Information to be gathered, shared and monitored, and data to be collected and analyzed are shown below.

Supply information

  • Hardware (plan→suppliers→shipment→sell-in→sell-through)
    • Nintendo production plan
    • Nintendo product roadmap
    • Supplier capacity – assemblers and component suppliers
    • Inventory level in supply chain: work in progress, finished goods, in transit
    • Inventory level in sales channel
    • Sell-through
    • Grey market supply
    • Second-hand market activity
    • Customer support and repair
  • Software
    • Software pipeline and release schedule
    • Approval pipeline and schedule
    • Retail version allocation and inventory level
    • Sell-through

User behavior information

  • Engagement & retention
    • Number of systems activated (system/sell-through)
    • Number of active users (DAU, WAU, MAU…)
    • Engagement (DAU/MAU…)
    • Power user (L7, L30…)
    • Definition of churn: natural and bricked
  • Gaming preference & behavior
    • First Party/Third Party/Nindies
    • Retail/Digital
    • Title/Series/Genre
    • DLC/in-game purchase
    • Time spent
  • Demographics & profile
    • Cohort analysis
    • Segmentation analysis

Platform performance and unit economics

  • Marketing channel conversion
  • Sales channels performance
  • Installed base (cumulative sell-through or cumulative activated systems or cumulative activated accounts)
  • Active user
  • Customer acquisition cost (all-in sales and marketing expenses/sell-through)
  • Software attach rate (cumulative software sell-through/installed base)
  • Accessories attach rate (cumulative accessories sell-through/installed base)
  • Average software revenue per user (cumulative software revenue/installed base or software revenue in given time horizon/active user in given time horizon)
  • Average accessories revenue per user
  • Customer lifetime value (estimation: ongoing contribution profit from user, its churn, retention/supporting cost, and CAC)

Social network/media, media site, UGC sites, owned channels

  • Traffic (existing and new sites)
  • Follower (existing and new channels)
  • Engagement (existing and new channels)
  • Customer feedbacks

Traction, milestone and target

  • Early indicator for outsiders: followers or fans on owned channels (threshold for primary channel: 1 million), and regulatory application and approval records
  • Meaningful shipment jumps in Other area in Nintendo’s quarterly report. Hopefully Nintendo will carve out Greater China eventually
  • Time to million sold (new user acquired and existing user migration or second console)
  • First year target: triple current user base in Mainland China
  • Timing: hopefully sync with Pokemon Sword and Shield (if officially approved) or around 2020 Chinese New Year