Takeaways from virtual property conference
? CR Mixc said Covid-19 impacted its mall operations more than its basic
property management; the former will affect its mall management fee.
? It will continue to seek out M&A opportunities but will be very selective,
especially if the target’s receivables could turn into bad debts.
? We think CR Mixc is one of the winners of the rapid market consolidation in
the sector. Maintain Hold given its unattractive valuation of 29x CY22F P/E.
Operational update
? Management participated in our virtual property conference this week. Below are some
of the key takeaways from meetings with its management.
? In 5M22, CR Mixc boosted its total managed gross floor area (GFA) by 87m sq m,
including 49m sq m from M&As and 13m sq m from third parties (3P). Total contracted
GFA added as at May was 120m sq m including 100m sq m from M&As and 16m sq m
from 3P.
? For mall operation, it opened four malls in 5M22, once each in Nanjing, Wuhan,
Shenyang and Jiahui. Management said Covid-19 had some impact on its mall
operations, especially in Mar and Apr, as some of its malls had to be partially or fully
closed due to social distancing measures adopted by local governments.
? Sales at its malls were seriously affected by Covid-19 in Apr, with overall tenant sales
falling about 17% yoy. May sales were better, at just 1% lower vs. May 2021, as the
Covid-19 situation in China improved. Management said sales improved further in Jun,
as life in Shanghai and some other cities gradually returns to normal.
Impact from Covid-19 on malls
? As CR Mixc’s mall management fees are linked to the respective malls’ sales (up to
5% of sales) and financial results (up to 10% of the mall’s EBITDA), its management
fee is inevitably affected by the malls’ weak sales and EBITDA.
? Management shared that its sponsor CR Land is likely to provide some rent waiver to
tenants similar to what it did during the first Covid-19 wave; this will affect the
management fees collected from CR Land. Management supplemented that CR Land
offered its tenants about 1.5 months of rent waiver in 2020. Management said it would
currently be difficult to quantify how much this will affect its revenue, and indicated that
some of the impact will be recognised in its 1H22 results.
Impact on residential property management
? The impact of Covid-19 on its residential property management revenue is relatively
small this time, and mainly on some value added services such as agency business.
? Meanwhile, costs related to overtime allowance and sanitation expenses have risen
but the total amount is not very big and one-off. Management added that the efficiency
of CR Mixc’s residential property management can be further improved to offset
negative impact of Covid-19.
Selective on M&As
? In the past 6-9months, CR Mixc concluded two M&As – Yuzhou PM and Zhong Nan
PM; the prices it paid for them translate to single-digit P/E valuations.
? Pricing for M&As has come down YTD and CR Mixc will continue to seek out M&A
opportunities but it will be very selective, especially if the target has receiveables that
could turn into bad debts.
Long-term guidance remains unchanged
? Management maintains its targets of 40% net profit CAGR over FY21-25, and total
managed GFA of 400m sq m and a mall operation with 150 malls by 2025.
? Given the much faster net profit growth in FY21, this would suggest a net profit CAGR
of about 27% over FY22-25.
Maintain Hold and PEG-based TP of HK$40.7
? We think CR Mixc is one of the key winners of the sector’s rapid market consolidation.
However, we remain neutral given its unattractive valuation of 29x CY22F P/E.
? Key downside risks to our call include unexpected spread of Covid-19 in China in
2H22F while more value-accretive M&As are an upside risk.