Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<ul>
<li>Stocks in the China Property Services industry have taken a beating over the last year on heightened regulatory fears, placements and potential stake sales by their large property developer holders.</li>
<li>The Hang Seng Property Service and Management Index (HSPSM) has underperformed the Hang Seng Mainland Property Index (HSMPI) over the last 3 months and there could be some recovery.</li>
<li>We take a look at some pair trades that could provide outperformance in the short-term with a lower level of risk.</li>
</ul>


Stocks in the China Property Services industry have taken a beating over the last year on heightened regulatory fears, placements and potential stake sales by their large property developer holders.
The Hang Seng Property Service and Management Index (HSPSM) has underperformed the Hang Seng Mainland Property Index (HSMPI) over the last 3 months and there could be some recovery.
We take a look at some pair trades that could provide outperformance in the short-term with a lower level of risk.


China Property Services: Pair Trades in a Beaten Down Industry

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

Sichuan Languang Justbon Service Group / Event-Driven

<p><a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> has despatched the composite document in relation to <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> base and enhanced offer. Currently, Country Garden owns 71.17% of the outstanding shares comprising 66.99% of the domestic shares and 71.20% of the H Shares. </p><p>The base offer is an unconditional mandatory cash offer for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share. The enhanced share offer, which is payable only if the delisting is approved, is HK$54.3000 per H-share (RMB45.5768 per domestic share). </p><p>Unsurprisingly, the IFA considers the base and enhanced offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the peer multiple comparisons could be improved. </p><p>The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Satisfaction of the minimum acceptance condition is the key hurdle. We note the privatisation proposals for <a href="https://www.smartkarma.com/entities/beijing-jingneng-clean-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:16316:1" rel="noopener">Beijing Jingneng Clean Energy (579 HK)</a> and <a href="https://www.smartkarma.com/entities/harbin-electric-co-ltd-h" target="_blank" data-smartkarma-citation="entities:11116:1" rel="noopener">Harbin Electric Co Ltd H (1133 HK)</a> have previously failed due to the inability to meet the 90% minimum acceptance condition.  </p><div class="content-highlight"><p>Country Garden Services has bought itself some leeway by having the right to extend the closing date from 17 June to not later than 3 September. In theory, the extended time period should provide a greater chance of meeting the 90% threshold. At the last close, the gross spread to the enhanced offer price of HK$54.3000 stands at 4.9%.</p></div>

Sichuan Languang Justbon Service Group (2606 HK) has despatched the composite document in relation to Country Garden Services Holdings (6098 HK) base and enhanced offer. Currently, Country Garden owns 71.17% of the outstanding shares comprising 66.99% of the domestic shares and 71.20% of the H Shares. The base offer is an unconditional mandatory cash offer for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share. The enhanced share offer, which is payable only if the delisting is approved, is HK$54.3000 per H-share (RMB45.5768 per domestic share). Unsurprisingly, the IFA considers the base and enhanced offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the peer multiple comparisons could be improved. The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Satisfaction of the minimum acceptance condition is the key hurdle. We note the privatisation proposals for Beijing Jingneng Clean Energy (579 HK) and Harbin Electric Co Ltd H (1133 HK) have previously failed due to the inability to meet the 90% minimum acceptance condition.  Country Garden Services has bought itself some leeway by having the right to extend the closing date from 17 June to not later than 3 September. In theory, the extended time period should provide a greater chance of meeting the 90% threshold. At the last close, the gross spread to the enhanced offer price of HK$54.3000 stands at 4.9%.

Languang Justbon’s Composite Document, IFA Opinion and Extended Closing Date

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> has corrected sharply over the last 6 months despite showing stellar results. We believe that the correction in the stock is due to: </p><ul>
<li>A small probability of the parent ( <a href="https://www.smartkarma.com/entities/times-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:8085:1" rel="noopener">Times China (1233 HK)</a> ) breaching the three red lines.</li>
<li>Tightening by the Chinese government in the property sector.</li>
<li>IPO fatigue in the sector. 2020 featured the listing of several property management companies that raised lots of cash, casting doubt on the companies ability to make acquisitions at good prices to fuel its future growth.</li>
<li>Pivot by the company from a more acquisitive to a third party strategy + expansion of community VAS services.</li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/199/869/original/image_15589350561618115623007.png?1618115619" class="editor-image img-responsive" data-smartkarma-image-id="199869"></figure><p><em>Source: Bloomberg</em></p><h3>Why do we like <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a>?</h3><ul>
<li>We believe that with the current valuation of 12.4x FY21/8.6x FY22 and 5.8x FY23 implying &gt;50% CAGR EPS growth from FY21-23,  <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> could potentially be an acquisition target for larger groups like <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>, <a href="https://www.smartkarma.com/entities/china-resources-mixc-lifestyle-services" target="_blank" data-smartkarma-citation="entities:29285:1" rel="noopener">China Resources Mixc Lifestyle Services (1209 HK)</a>, <a href="https://www.smartkarma.com/entities/a-living-services-co-ltd" target="_blank" data-smartkarma-citation="entities:26728:1" rel="noopener">A-Living Services (3319 HK)</a> or <a href="https://www.smartkarma.com/entities/sunac-services-holdings" target="_blank" data-smartkarma-citation="entities:29239:1" rel="noopener">Sunac Services Holdings (1516 HK)</a> that are targeting aggressive growth over the next 2-3 years. We admit that we don't know if the controlling shareholders of <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> desire to sell out. Recently though, with the <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> founders having sold out to <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK), </a>we believe this may be the first step towards increased M&amp;A activity in the listed company space. We believe this acquisition's consummation will lead to a rerating of the cheaper companies like <a href="https://www.smartkarma.com/entities/aoyuan-healthy-life-group-company-limited" target="_blank" data-smartkarma-citation="entities:29130:1" rel="noopener">Aoyuan Healthy Life Group (3662 HK)</a>, <a href="https://www.smartkarma.com/entities/central-china-new-life" target="_blank" data-smartkarma-citation="entities:28953:1" rel="noopener">Central China New Life (9983 HK), </a>and <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a>.</li>
<li>
<a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a>  has demonstrated good execution in its short time period as a listed company. </li>
</ul><p>We believe that <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> could double from here, trading up to 25x FY21 with a target PEG of 0.6x.</p>

Times Neighborhood (9928 HK) has corrected sharply over the last 6 months despite showing stellar results. We believe that the correction in the stock is due to: 
A small probability of the parent ( Times China (1233 HK) ) breaching the three red lines.
Tightening by the Chinese government in the property sector.
IPO fatigue in the sector. 2020 featured the listing of several property management companies that raised lots of cash, casting doubt on the companies ability to make acquisitions at good prices to fuel its future growth.
Pivot by the company from a more acquisitive to a third party strategy + expansion of community VAS services.
Source: BloombergWhy do we like Times Neighborhood (9928 HK)?
We believe that with the current valuation of 12.4x FY21/8.6x FY22 and 5.8x FY23 implying &gt;50% CAGR EPS growth from FY21-23,  Times Neighborhood (9928 HK) could potentially be an acquisition target for larger groups like Country Garden Services Holdings (6098 HK), China Resources Mixc Lifestyle Services (1209 HK), A-Living Services (3319 HK) or Sunac Services Holdings (1516 HK) that are targeting aggressive growth over the next 2-3 years. We admit that we don't know if the controlling shareholders of Times Neighborhood (9928 HK) desire to sell out. Recently though, with the Sichuan Languang Justbon Service Group (2606 HK) founders having sold out to Country Garden Services Holdings (6098 HK), we believe this may be the first step towards increased M&amp;A activity in the listed company space. We believe this acquisition's consummation will lead to a rerating of the cheaper companies like Aoyuan Healthy Life Group (3662 HK), Central China New Life (9983 HK), and Times Neighborhood (9928 HK).

Times Neighborhood (9928 HK)  has demonstrated good execution in its short time period as a listed company. 
We believe that Times Neighborhood (9928 HK) could double from here, trading up to 25x FY21 with a target PEG of 0.6x.

Times Neighborhood - Value+Growth, Could It Be an Acquisition Target?

<p><a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> has entered into agreements with three vendors to purchase a combined 71.17% of outstanding shares in <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> for RMB42.8546 (equivalent to HK$51.0569).</p><p>As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. On 11 March, the MOU was updated such that Languang Hejun will sell Country Garden Services 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The acquisition price was modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. </p><p>On completion of the agreements, Country Garden Services will be required to make an unconditional mandatory cash offer under Rule 26.1 of the Takeovers Code. The unconditional mandatory cash offer (base offer) for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share). Notably, Country Garden Services proposes to delist Languang Justbon by offering an enhanced cash offer of HK$54.3000 per H-share (RMB45.5768 per domestic share). The enhanced share offer, which is payable only if the delisting is approved, is a 3.6% premium to the last close of HK$52.40 and a 39.41% premium to the unaffected price of HK$38.95 (22 February 2021 prior to the first trading halt). </p><div class="content-highlight"><p>The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Independent H-shareholders shareholders represent 51.0 million shares which are 28.62% of outstanding shares. Consequently, the 10% blocking stake is 5.1 million shares which is 2.86% of the outstanding shares. Overall, as we think that the enhanced offer price is reasonable, the delisting proposal will likely succeed. </p></div>

Country Garden Services Holdings (6098 HK) has entered into agreements with three vendors to purchase a combined 71.17% of outstanding shares in Sichuan Languang Justbon Service Group (2606 HK) for RMB42.8546 (equivalent to HK$51.0569).As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. On 11 March, the MOU was updated such that Languang Hejun will sell Country Garden Services 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The acquisition price was modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. On completion of the agreements, Country Garden Services will be required to make an unconditional mandatory cash offer under Rule 26.1 of the Takeovers Code. The unconditional mandatory cash offer (base offer) for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share). Notably, Country Garden Services proposes to delist Languang Justbon by offering an enhanced cash offer of HK$54.3000 per H-share (RMB45.5768 per domestic share). The enhanced share offer, which is payable only if the delisting is approved, is a 3.6% premium to the last close of HK$52.40 and a 39.41% premium to the unaffected price of HK$38.95 (22 February 2021 prior to the first trading halt). The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Independent H-shareholders shareholders represent 51.0 million shares which are 28.62% of outstanding shares. Consequently, the 10% blocking stake is 5.1 million shares which is 2.86% of the outstanding shares. Overall, as we think that the enhanced offer price is reasonable, the delisting proposal will likely succeed. 

Languang Justbon’s Mandatory Offer and Voluntary Delisting Proposal from Country Garden Services

Equity Capital Markets

Evergrande Property Services / Equity Capital Markets

<div>
<p><a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Services (EGS HK)</a> is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>.</p>
<p>At the proposed IPO price range of HK$8.50-9.75 per share, Evergrande will have a market cap of HK$91,891.9-105,405.4 million ($11.9-13.6 billion). At the mid-point of the IPO price range, the total proceeds are HK$14,797 million ($1.9 billion) which is equally split between a primary and secondary raise. The selling shareholder is CEG Holdings, which is owned by China Evergrande Group. </p>
</div><div><p>21 cornerstone investors will subscribe for HK$7,207.9 million worth of the offer shares (48.68% of the offer shares at the IPO mid-point). The cornerstone investors are mostly "friends-and-family" accounts and over half have business ties with Evergrande Group. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/evergrande-property-services-ipo-initiation-standing-out" target="_blank" data-smartkarma-citation="insights:45554" rel="noopener">Evergrande Property Services IPO Initiation: Standing Out</a>, we stated that Evergrande’s fundamentals are strong. Our valuation analysis suggests that the IPO price range is attractive. </p></div></div></div>


Evergrande Services (EGS HK) is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is Evergrande Real Estate Group (3333 HK).
At the proposed IPO price range of HK$8.50-9.75 per share, Evergrande will have a market cap of HK$91,891.9-105,405.4 million ($11.9-13.6 billion). At the mid-point of the IPO price range, the total proceeds are HK$14,797 million ($1.9 billion) which is equally split between a primary and secondary raise. The selling shareholder is CEG Holdings, which is owned by China Evergrande Group. 
21 cornerstone investors will subscribe for HK$7,207.9 million worth of the offer shares (48.68% of the offer shares at the IPO mid-point). The cornerstone investors are mostly "friends-and-family" accounts and over half have business ties with Evergrande Group. In Evergrande Property Services IPO Initiation: Standing Out, we stated that Evergrande’s fundamentals are strong. Our valuation analysis suggests that the IPO price range is attractive. 

Evergrande Property Services IPO: Valuation Insights

China

A-Living Smart City Services Co., Ltd. offers property management services. The Company provides hydropower maintenance, parking management, home cleaning, and other services. A-Living Smart City Services also engages in interior decoration works, landscaping works, and others.

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A-Living Smart City Services C (3319 HK)

China Property Services: Pair Trades in a Beaten Down Industry

Stocks from the China Property Management industry have been beaten down over the last year on increased regulation and potential stake sales by...

Brian Freitas

Languang Justbon’s Composite Document, IFA Opinion and Extended Closing Date

Satisfaction of the minimum acceptance condition is the key hurdle. At the last close, the gross spread to the enhanced offer price of HK$54.3000...

Arun George

Times Neighborhood - Value+Growth, Could It Be an Acquisition Target?

This insight highlights an opportunity in the property management company Times Neighborhood, having a 50% CAGR in profits from 2020-23 and trading...

Sameer Taneja

Languang Justbon’s Mandatory Offer and Voluntary Delisting Proposal from Country Garden Services

CGS has announced a voluntary delisting proposal at HK$54.3000 per H-share subject to shareholder approval and min acceptance conditions. We think...

Arun George

Evergrande Property Services IPO: Valuation Insights

Evergrande has launched its IPO to raise total proceeds of $1.9 billion at the mid-point. Our valuation analysis suggests that the IPO price range...

Arun George

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