Founded in 1999 and having market reputation and a premium brand, Excellence Commercial Property & Facilities Management Group Limited (ECM) focuses on providing commercial property management services. We believe its future earnings will be driven by managed GFA expansion, commercial property management fees hike and VAS business expansion. Our Target Price is HK$13.34, equivalent to 28x 21E P/E. Initiate with BUY rating.
- Leading commercial property management service provider in Greater Bay Area. As of 31 May 2020, the Company had 331 projects in 34 cities under management with an aggregate GFA of 25.8mn sq m. In 2019, commercial properties made up 52.3% of total GFA under management, and 75.9% of total revenue from property management. The Company’s continuous growth has also been supported by Excellence Group. As of 31 May 2020, the Company managed 45 projects developed by Excellence Group with an aggregate GFA of 10.7mn sq m, accounting for approximately 41.6% of the GFA under the Company’s management.
- Business expansion plans. Geographically speaking, ECM plans to focus on the Great Bay Area and the Yangtze River Delta Region and enhance its penetration in other regions in China. Secondly, the Company aims to further expand the scale of operation in target cities through strategic acquisitions and investments. Finally, it will continue to improve existing value-added services and develop new innovative value-added services to provide more comprehensive services to its customers.
- Three earnings drivers. On the back of successful business strategy, we believe earnings of ECM will be driven by managed GFA expansion, commercial property management fees hike and VAS business expansion.
- Initiate with BUY for TP of HK$13.34. We forecast total revenue to be RMB2,835mn, RMB3,837mn and RMB4,867mn in 2020-22E, respectively. We also project overall gross margin to be 24.2%, 24.0% and 24.7% in 2020-22E, respectively. At last, we forecast net profit attributable to shareholders to be RMB324mn, RMB511mn and RMB721mn in 2020-22E, respectively. Using peers comparison, they are on average trading at 21.4x 21E P/E with 6.6x standard deviation. ECM is a leading commercial property management company and deserved a premium valuation to peers. We set target price at HK$13.34, representing 28x FY21E P/E.
