What Underlies Desun Services' Growth as Its Revenue CAGR Exceeds 40% in the Past Two Years
CHENGDU, China, Dec. 24, 2021 /PRNewswire/ -- Desun Real Estate Investment Services Group Co., Ltd. (Desun Services) (02270.HK), formally debuted on the Hong Kong stock market on December 17.
In China, the history of the property service industry can be traced back to the early 1980s, and since then, the industry has grown rapidly. In 2007, the State Council officially promulgated the Regulations on Property Management, which provides the legal framework for regulating the entire industry. Correspondingly, a more sophisticated legal framework for the industry further fuels the rapid growth of China's property service industry.
Nowadays, the property service industry is stepping into the second stage of development, which means the industry landscape is rapidly evolving from a highly fragmented structure to a concentrated one. This also presents unprecedented development opportunities for property management service companies, one of which is Desun Real Estate Investment Services Group Co., Ltd. (Desun Services) (02270.HK), formally debuting at the Hong Kong stock market on December 17.
As a property management service company with a significant presence in the Sichuan-Chongqing Region, Desun Services ranks fifth in terms of commercial operational services market share in Chengdu. According to the prospectus, the company was awarded with several industry honors such as Top 10 Property Service Companies in Chengdu, and Top 100 Property Service Companies in China.
With the trend of accelerating concentration in the industry, the growing of Desun Services has just begun.
The twin driving factors behind the high growth
From the perspective of the business performance, Desun Services has experienced remarkable growth in the past few years. According to the prospectus, from 2018 to 2020, the company achieved revenue of RMB63.964 million, RMB69.116 million and RMB127.922 million, respectively, representing a CAGR (compound annual growth rate) of 41.4%. During the same period, the company's net profit grew from RMB31.394 million to RMB42.913 million, representing a CAGR of 16.9%.
The high growth in business performance is propelled by the twin driving factors, namely, the company's property management services and value-added services.
In terms of property management services, the relevant business revenue of the Company doubled from RMB30.153 million to RMB61.435 million between 2018 and 2020. Specifically, both the residential property management services and non-residential property management services maintained notable growth. The former grew from RMB11.303 million in 2018 to RMB27.794 million, while the latter increased from RMB18.850 million to RMB33.641 million.
Credit for it is owed to the increase in GFA (gross floor area) under management. According to the prospectus, from 2018 to May 31, 2021, the number of properties under the management of Desun Services grew from 4 to 30, and the GFA under management increased from 533,500 square meters to 4,154,200 square meters. Among them, the GFA under management for residential properties grew from 422,700 square meters to 1,858,500 square meters over the same period; the GFA under management for non-residential properties rose from 110,800 square meters to 2,295,700 square meters.
Based on the prospectus, there are two main reasons for the increase in the GFA under the management of Desun Services:
First, as the preferred property management service provider of Desun Property Group (Chengdu Desun Property Co., Ltd and its subsidiaries, joint ventures and associated companies), Desun Services has been cooperating with Desun Property Group for many years. Desun Property Group, as one of the top ten developers in terms of sales revenue in Chengdu, is able to provide considerable growth in the GFA under management for Desun Services every year.
Second, as a property management service company with a significant presence in the Sichuan-Chongqing Region, Desun Services is also on its way to gain further growth through mergers and acquisitions. Last year, Desun Services completed the acquisition of Zhongneng Group. As at the end of last year, the GFA under the management of Zhongneng Group for residential and non-residential properties in six cities in Sichuan Province amounted to 2,461,800 square meters, and the contracted GFA was 3,316,300 square meters.
Thanks to the synergistic benefits with Desun Group and the positive M&A (mergers and acquisitions) activities, as at May 31, 2021, the contracted GFA served by Desun Services reached an impressive figure of 7,365,300 square meters. The excellent contracted GFA reserve will bolster the Company's sustainable growth going forward.
In terms of value-added services, benefiting from the expansion of the GFA under management, Desun Services has also delivered an impressive result. Between 2018 and 2020, the Company's revenue generated from value-added services increased from RMB33.811 million to RMB66.487 million.
In particular, the growth of value-added services for property owners was outstanding. The relevant business revenue of the Company grew from RMB4.852 million to RMB10.721 million over the same period. In the light of the fact that the demand for value-added services in mid- to high-end property communities is greater than that in ordinary property communities, there is still much room for the Company's value-added services for property owners to increase its share.
Whilst the continuous growth of the GFA under management explains the immediate success of Desun Services, the presence of the Sichuan-Chongqing Economic Circle is the core impetus behind the data that boosts the company's long-term growth.
With evident geographical advantages, Desun Services embraces epic growth opportunities
As the saying goes, one's success, of course, depends on self-struggle, but one must also take into account the course of history. This is true for people, as well as for companies. Behind the high growth of the revenue of Desun Services, it is equally inseparable from its favorable geographical advantages.
Since the 21st century, western China has experienced rapid economic development, and the Cheng-Yu city cluster, located in the heart of western China, has emerged as one of the four major city clusters in China, alongside Beijing-Tianjin-Hebei region, and Guangdong-Hong Kong-Macao Greater Bay Area.
Since the "13th Five-Year Plan", the development of the Chengdu-Chongqing region has steered into the fast lane. By 2019, the annual average growth of the regional GDP (gross domestic product) of the Chengdu-Chongqing region exceeded 8%. The total retail sales of social consumer goods grew by more than 10% annually on average. The urbanization rate of the resident population exceeded 60%. The railroad density reached 3.5 km per 100 square kilometers. The passenger handling capacity of the airports surpassed 100 million passengers, and the proportions of the resident population and the total regional economy in the whole country continued to rise.
With the release of the <Outline of the Plan for the Development of the Chengdu-Chongqing Economic Circle> (Outline) in October this year, the Cheng-Yu city cluster will sustain its rapid development momentum.
According to the Outline, by 2035, the Chengdu-Chongqing region will establish a twin-city economic circle with strong strength and distinctive features, and Chongqing and Chengdu will make their way into the ranks of modern international metropolises. While greatly improving people's quality of life, the Cheng-Yu Economic Circle will also significantly enhance its capacity to support and drive the high-quality development of the country, thus establishing itself as an active growth pillar and robust power source with international influence.
The rapid economic development has created a great arena for the expansion of the property industry. In the past few years, the property management service market in Sichuan-Chongqing Region has always maintained considerable growth.
According to the prospectus, between 2015 and 2020, the total revenue of property management service companies in Sichuan-Chongqing Region increased from RMB31.2 billion to RMB55.1 billion, with a CAGR of 12.0%. By 2025, Total revenue for property management services in Sichuan-Chongqing Region is expected to reach RMB92.4 billion, representing a CAGR of 10.9% from 2020 to 2025.
While the market size was increasing at a high speed, the market concentration in Sichuan-Chongqing Region remained at a relatively low level. Taking Chengdu as an example, the market share of the top five property companies providing commercial operational services, ranked by revenue in 2020, stood at 4.5%. Among them, the market share of Desun Services ranked fifth.
In terms of development trend, the increase in concentration will be the key logic for the future development of the property management industry. Public information reveals that from 2015 to 2020, the market share of the TOP 100 Property Management Enterprises in terms of the GFA under management increased from about 20% to 30.8%. With the further increase of concentration in the industry, Desun Services, focusing on the Sichuan-Chongqing Region, undoubtedly possesses huge growth potential.
In parallel, Desun Services, a brand positioned as a mid- to high-end property management services, will fully reap the benefits of the rapid growth of the mid- to high-end property market in Sichuan-Chongqing Region. In the past five years, the growth rate of demand for mid- to high-end property management services in Sichuan-Chongqing Region was higher than that for ordinary property management services. According to the data, the CAGR of the mid- to high-end residential property management services market in Chengdu from 2015 to 2020 was 7.9%, which was higher than the CAGR of 4.7% of the total residential GFA under management in the city.
In the future, the high growth rate of the mid- to high-end property market will carry on. According to the prospectus, with the further development of mid- to high-end residential properties in Sichuan-Chongqing Region, the total GFA under management for the mid- to high-end residential property management services market is projected to reach 171.2 million square meters in 2025, with a CAGR of 6.5% from 2020 to 2025.
Thanks to its leading position in Sichuan-Chongqing Region, together with its mid- to high-end brand positioning, the company's performance will continue to maintain high growth.
Commercial operational and value-added services, underrated growth "engines"
In addition to geographical advantages, commercial operational and value-added services also play an important role in the subsequent performance growth of Desun Services.
Starting from the former that in recent years, with the increasing number of shopping malls and commercial streets in Chengdu, the commercial operational services market in Chengdu is expanding exponentially. According to the prospectus, the total GFA under management in commercial operational services in Chengdu increased from 7.3 million square meters to 16.1 million square meters from 2015 to 2020, representing a CAGR of approximately 17.2%; the market is estimated to grow at a CAGR of approximately 14.9% from 2020 to 2025.
This is why Desun Services has started to develop its business in this field. In 2020, Desun Services further extended its business to commercial operational services.
Given the vast space in the commercial operational market in Sichuan-Chongqing Region, the future performance of Desun Services in commercial operational services is highly anticipated. The expansion of service categories and service scenarios will also further boost the growth rate and stability of the company's overall business.
Apart from the commercial operational services, the value-added services of Desun Services also merit key attention. In the current property management industry, value-added services are still in the early stage of development, and each property management service company is seeking to monetize the private domain traffic of the community in different forms. In 2020, the company's value-added services for property owners generated revenue of RMB10.721 million, leaving plenty of room for improvement.
As far as Desun Services is concerned, its previous synergy with Desun Property Group has enabled it to provide a full cycle of services from early property planning and development to sales office services and post-delivery project operation. Such experience can also facilitate the company to fully tap the potential of value-added services down the road.
Over a long period of time, as the commercial operational and value-added services thrive, the value of Desun Services will be further released.