Incorporating Onewo in its valuation
- Vanke’s key property management (PM) business, Onewo, is scheduled to be listed in HK on 29 Sep.
- Despite Onewo’s huge management portfolio of c.840m sq m of GFA, Vanke retains logistics, warehousing and some commercial PM services.
- Onewo’s core net profit margin was c.8% in FY21, below the 10-19% generated by COPL, CR Mixc, CGS and CIFI ES.
- Reiterate Add on Vanke-H with a new SOP-based TP of HK$24.5.
Vanke will own 56.6% stake in Onewo, assuming no overallotment
Vanke’s key PM subsidiary Onewo (2602 HK, NR) will be listed on 29 Sep. Assuming no overallotment, Onewo will be 56.6% owned by Vanke and its financials will still be consolidated into Vanke’s. Boyu Capital and Onewo’s employee shareholding scheme will hold 15.4% and 7.7% stakes, respectively, in Onewo based on listing documents.
Some non-residential PM businesses are retained by Vanke
As of end-Jun 22, Onewo had a managed portfolio of c.700m sq m of residential GFA and c.140m sq m of non-residential GFA, under business segments of “community space living consumption services” and “commercial and urban space integrated services”, respectively. In managing non-residential GFA, it mainly uses the brand “Cushman & Wakefield Vanke Service”, which is a partnership with Cushman & Wakefield (CWK US, NR) since 2020 and is 65% owned by Onewo. PM businesses excluded from Onewo and retained by Vanke include logistics and warehouse management, commercial operational services and SCPG Commercial Property Services.
Technology segment grew fast with parental support
Its IT services segment, AIoT and BPaaS solution services (artificial intelligence of things and business process as a service), saw 79% yoy growth in revenue in FY21 with a gross profit margin (GPM) of c.30%. It is worth noting, however, that Vanke and its JVs accounted for 61% of Onewo’s FY21 revenue from this segment.
Margin contraction due to third-party expansion
Onewo’s GPM was 17.0% in FY21, down 1.6% pts yoy, due to 1) expansion of third-party contracts in both residential and non-residential PM services and 2) absence of Covid-19- related social security relief after FY20. Its core net profit margin (NPM) hovered around c.8% in FY19-21, a level similar to Poly Property Serv’ GPM but below the 10-19% generated by China Overseas Property, CR Mixc and Country Garden Services.
Reiterate Add with a new SOP-based TP of HK$24.5
Assuming that Onewo is priced at HK$49.9/share (mid-point of IPO price range), we value Vanke’s interest in Onewo at HK$33bn. Incorporating this interest with a 50% discount due to its lack of direct control on the unit, we raise our TP for Vanke-H (now SOP-based) to HK$24.5 (see Figures 5-6 for valuation methodology and TP change). Reiterate Add with no EPS changes. Key risks to our Add call include slower-thanexpected recovery in China’s property market and Covid-19-related lockdowns, while
more supportive housing policies could be a potential share price re-rating catalyst.