We expect Shimao Services, along with other new listings in 2H20, to bring increased selectiveness to the sector. The Company fits the fast-growing, mid-sized PMco archetype, while being more M&A-inclined than its peers. The Company is a relative late-starter in terms of third-party bidding, but needs to rely on its rapid growth to deliver target of est. 37mn sq m new contracted GFA in 2021, vs. 25mn sq m from Shimao Group (813 HK) and 38mn sq m from M&A.
- Backed by notable property developer. Established in 2005, Shimao Services is a notable property service provider with strong exposure in key economic regions, and is backed by leading developer Shimao Group. As of 1H20, managed GFA was 85.7mn sq m, 58% of which was developed by the parent group. The Company does not manage commercial properties due to non-competition with other Shimao subsidiaries.
- Aiming to accelerate growth through quality M&As. Shimao Services plans to increase contracted GFA by 100mn sq m each year from 2019-2021E, relying on M&As especially in the near term. Since 2019, Shimao Services has made seven PM-related M&As with a total managed GFA of 45mn sq m. Most deals were priced at around 12x historical P/E. The Company seeks to gain 68/38mn sq m new contracted GFA through M&A in 2020E/21E, mainly targeting other PM companies with complementary geographical presence. Notably, the Company does not usually enter profit guarantee arrangements with its M&A targets, which is a sign of confidence but also a test on its post-acquisition management ability.
- Ambitious targets for relatively unproven third-party bidding. Compared to its extensive M&A record, the Company is relatively unproven in third-party bidding. Overall the Company targets 100mn sq m of new contracted GFA per year in 2019-21E, With Shimao/third-party bidding/M&A making up est. 25%/37%/38% of new contracted GFA by 2021E.
- Cooperation with strategic investors to further tech integration. Sequoia Capital China and Tencent (700 HK) made strategic investments in Shimao Services in May 2020, which may drive improvements in information systems and further application of smart technologies in property management services. Furthermore, the Company plans to form with its strategic partners a JV that explores the concept of smart city services, which involves traffic management, parking allocation, etc.
