Kaisa Prosperity Holdings HK:2168
Property Management Services, One of the most interesting businesses in China
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In this report, you will find a very detailed analysis of the property management services business. It summarizes much information from different sources and annual reports. To make the reading easier, the analysis of peers has been moved to the Appendix, but please do not underestimate that Section, which will put you in the current context of the sector. Please take a cup of coffee/tea and read it with special attention.
Our View: We see in the Chinese Property Management Service the perfect environment for potential multi-baggers. Low valuations, high growth, high ROCEs, consolidating sector, many M&A’s, etc.
Key Points and Catalysts:
Low valuation ratios for a company with top tier assets and locations. The current market is not reflecting the high quality of Kaisa Prosperity (P/E x10) in comparison with its peers (x50). This report shows the misunderstanding of the market based on the management fees, exposure to third-party property developers and non-residential properties.
The growing middle-class in China and proactive regulations from the PRC government. The sector has been growing at double digits helped by the growing middle-class in China over the last 10 years, expected to continue over the next decade. As well, the People’s Republic of China (PRC) government has helped the sector by requiring properties to be managed by a private company, motivating the business to grow.
Very optimistic revenue and income plan for 2023. The company has announced their plan for 2023, which is reaching 7B¥ revenues and 1B¥ net income for the FY2023. This means an annual revenue growth of 55% and an annual compounding profit of 60% from FY2020 results. Valuating by a P/E ratio of x18, will give a price target of HK$145.38, 482% upside from current prices.
Great cash position to finance M&As. In June 2020, the company raised capital by issuing shares at a price of HK$32.55 (9% of the existing ones) to finance M&A’s. Since then, the company has acquired 2 companies and has a very strong cash position of over 1BHK$.
Kaisa Jiake App and Internet of Things. During the last years, the company has put more effort into their line of business called Smart Solutions which integrates the Internet of Things concept into the property management services. We think digitalization will increase rapidly the revenues of this line of business. Indeed, we see Kaisa two steps ahead of competitors.
Rerating from Small Cap to Mid Cap. Kaisa Prosperity is under 500M€ of market cap. If the company continues growing its net income more institutions and investors could take a position in the company, thus a rerating from the market.
Inflows coming back to Asia. In the last years, Asia Pacific has experienced relevant outflows from foreign investment due to the commercial war, China Hustle, Hong Kong protest, COVID-19, etc. We believe there is plenty of noise in the region. The investor should be patient and expect that the situation will come back to normal. In our opinion, Asia Pacific is the region with the highest growth potential in the next decade and this should be sooner or later reflected in the market.