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STOCK FOCUS: New Hope Services (HKEX: 3658)

In this article, we introduce New Hope Services (新希望服务)(HKEX: 3658), a property management services provider under New Hope Group (新希望集团), one of China's largest agricultural companies.


Key Characteristics

  • Steadily growing revenue and profit

  • Track record shows a relatively high ROE and dividend yield

  • Negative exposure to some of the risks inherent in China’s real estate sector and competition in the country’s saturated property management services market

  • May be suitable for investors seeking a relatively high dividend income, moderate growth potential, and potential portfolio sector diversification


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Corporate History

What is now New Hope Services was originally founded in 2010 as Dingsheng Property Management (鼎晟物业) in Chengdu. Dingsheng Property Management was established as a subsidiary to conduct property management and other related services for mother company New Hope Real Estate (新希望地产), a subsidiary of New Hope Group (新希望集团), one of China's largest agricultural companies which specializes in animal feed, dairy and meat production. Dingsheng Property Management initially focused primarily on conducting business in Chengdu city and Sichuan province, where New Hope Group is based.


Starting in 2014, Dingsheng Property Management gradually expanded to other regions in China. In 2020, Dingsheng Property Management was renamed New Hope Services (新希望服务), and the company subsequently went public on the Hong Kong Stock Exchange (HKEX: 3658) in 2021.


Following the downturn in China's real estate sector, New Hope Real Estate has ceased developing new projects and did not acquire any new land in 2023. It is uncertain whether this is a temporary pause or if New Hope Real Estate will gradually wind down its business in the long run.


Business Summary

New Hope Services has four main operating segments:

  1. Property Management Services

  2. Lifestyle Services

  3. Commercial Operational Services

  4. Value-Added Services To Non-Property Owners


We describe the four segments in further detail below.


Property Management Services

Property Management Services is New Hope Services' core business. As of the end of 2023, the company is active in 33 cities across 14 province-level administrative regions in China, with Chengdu accounting for approximately 33% of total gross floor area (GFA) under management. Southwest China as a whole (including Chengdu) accounted for 52.4% of total GFA under management during the year, followed by eastern China at 32.9%, southern China at 8.0%, northern China at 5.6%, and central China at 1%*.


*the percentages do not sum to 100% due to rounding


Lifestyle Services

Lifestyle Services refer to the company's services centred around daily life.


There are three sub-segments:

  • Community Living Services - including advertising and events services in the community

  • Community Asset Management Services - including car park and property agency services

  • Online and Offline Retail Services and Catering Services – including the sales of food products from New Hope affiliated companies to residents living in properties managed by New Hope Services, as well as the provision of catering services to various commercial projects


Commercial Operational Services

Commercial Operational Services refer to the provision of operational services to commercial properties such as industrial parks and office buildings.


There are two sub-segments:

  • Market Research and Positioning and Opening Preparation Services

  • Commercial Operational Services – including tenant sourcing services, tenant management services, commercial management services, marketing and promotion services, and commercial properties leasing


Value-Added Services To Non-Property Owners

This segment refers to the provision of value-added services to clients who do not own the properties under consideration, such as real estate developers and other parties involved in the real estate development process.


There are three sub-segments:

  • On-Site Management Services

  • Preliminary Planning and Design Consultation, Pre-Delivery and Repair and Maintenance Services

  • Other Services - including construction site management services

Revenue for this segment primarily comes from development projects associated with New Hope Group.


Financial Analysis and Highlights

In this section, we present some key financial statistics for the company.


Company-Level Analysis


We first examine company-level revenue and profitability metrics.


Total Revenue and Profit Grew Quickly During 2018-2023

New Hope Services' revenue and profit grew rapidly from 2018 to 2023, with total revenue growing at a compound annual growth rate (CAGR) of 37.3%, operating income growing at a CAGR of 38.8%, and net income growing at a CAGR of 42.5% over this time period.


In 2023, New Hope Services recorded total revenue of RMB1.26 billion (up from RMB258 million in 2018), operating income of RMB268 million (up from RMB52 million in 2018), and net income of RMB241 million (up from RMB41 million in 2018).


New Hope Services Revenue and Profit
Raw Data Sources: Company Annual Reports

Different Profit Margin Metrics Exhibited Varying Trends During 2018-2023

New Hope Services' gross profit margin shrank from 42.6% in 2018 to 34.9% in 2023 due to increases in the relative revenue contributions of the Property Management Services and Lifestyle Services segments, with the former in particular exhibiting a noticeably lower gross profit margin than other segments.


In contrast, New Hope Services' operating profit margin remained relatively stable at a level of 20% to 23% between 2018 to 2023, due to declining operating expenses as a percentage of total revenue.


The company's net profit margin increased from 15.9% in 2018 to 19.1% in 2023, primarily due to rising net finance income.


New Hope Services Profit Margins
Raw Data Sources: Company Annual Reports

Segment Overview Analysis


We turn to a segment analysis of New Hope Services' revenue, starting with an overview picture.


>> Property Management Services Is The Most Dominant Revenue Driver

In raw monetary terms, Property Management Services generated an increasing amount of revenue each year. Lifestyle Services revenue increased to reach a peak in 2022 before declining slightly in 2023, while Commercial Operational Services revenue increased to reach a plateau in 2021 and 2022 before rising again in 2023. VAS To Non-Property Owners reached a peak in 2021 before declining in 2022 and 2023.


In relative percentage terms, there is a significant degree of variability in the revenue contributions of each segment from year to year. As a whole, Property Management Services contributed the most to total revenue each year. Lifestyle Services played a less dominant role from 2018 to 2020 but rose to become the second highest revenue contributor during 2021 to 2023. Commercial Operational Services generally declined in relative importance over the past six years, while VAS To Non-Property Owners played a more significant role from 2019 to 2022, but declined significantly in importance in 2023.


In 2023, Property Management Services accounted for 51.3% of New Hope Services' total revenue, followed by Lifestyle Services at 23.1%, Commercial Operational Services at 12.2%, and VAS To Non-Property Owners at 13.4%.


New Hope Services Revenue Breakdown By Segment
Raw Data Sources: Company Annual Reports

In the following sub-sections, we examine each segment in further detail.


Segment Analysis: Property Management Services


>> GFA Under Management Is Rapidly Growing

New Hope Services' gross floor area (GFA) under management increased 6.46-fold from 5.0 million square metres in 2018 to 32.3 million square metres in 2023.


New Hope Services GFA Under Management
Raw Data Sources: Company Annual Reports

>> New Hope Services Is Quickly Diversifying To Include Third-Party Developer Projects

Starting in 2020, New Hope Services began diversifying its Property Management Services projects to include more projects from third-party developers (as opposed to projects from parties affiliated with New Hope Group). In 2023, 39.6% of GFA under management and 38.5% of Property Management Services segment revenue were generated from independent third-party developers.


New Hope Services GFA Under Management By Developer Type
Raw Data Sources: Company Annual Reports

New Hope Services Property Management Services Revenue By Developer Type
Raw Data Sources: Company Annual Reports


>> The Property Management Services Portfolio Is Tilted Towards Residential Projects

New Hope Services' Property Management Services portfolio is more tilted towards residential (as opposed to non-residential) projects from 2018 to 2022, without any particular increasing or decreasing trend. In 2022, residential projects accounted for 63.5% of GFA under management and 56.4% of Property Management Services segment revenue. Management did not report a residential versus non-residential breakdown in 2023.


New Hope Services GFA Under Management By Property Type
Raw Data Sources: Company Annual Reports

New Hope Services Property Management Services Revenue By Property Type
Raw Data Sources: Company Annual Reports

Segment Analysis: Lifestyle Services


Community Living Services dominates the Lifestyle Services segment, albeit with a generally decreasing share as Online and Offline Retail Services and Catering Services continue to grow as a revenue driver. In contrast, Community Asset Management Services generally declined in terms of relative revenue contribution over the past six years.


In 2023, Community Living Services accounted for 50.0% of Lifestyle Services segment revenue, followed by Online and Offline Retail Services and Catering Services at 38.4% of segment revenue, and Community Asset Management Services at 11.7% of segment revenue.


New Hope Services Lifestyle Services Revenue Breakdown
Raw Data Sources: Company Annual Reports


Segment Analysis: Commercial Operational Services


The Commercial Operational Services segment predominantly comprises of core Commercial Operational Services (i.e. tenant sourcing and management services, commercial management services, commercial properties leasing, etc.), while Market Research and Positioning and Opening Preparation Services only contributed to a very small percentage of Commercial Operational Services segment revenue each year.


In 2023, core Commercial Operational Services accounted for 93.9% of Commercial Operational Services segment revenue, while Market Research and Positioning and Opening Preparation Services accounted for 6.1% of segment revenue.



New Hope Services Commercial Operational Services Revenue Breakdown
Raw Data Sources: Company Annual Reports

Segment Analysis: VAS To Non-Property Owners


Initially, the VAS To Non-Property Owners segment was dominated by On-Site Management Services, although the share of this revenue driver generally declined over the past six years. Consultation, Pre-Delivery, Repair and Maintenance Services generally fluctuated in terms of relative revenue contribution, albeit with a significant increase in 2023 due to the drop in raw revenue of On-Site Management Services. Other Services contributed very little to segment revenue except for in 2021 and 2022, during which the sub-segment contributed to 14% of VAS To Non-Property Owners segment revenue.


In 2023, Consultation, Pre-Delivery, Repair and Maintenance Services accounted for 60.2% of VAS To Non-Property Owners segment revenue, followed by On-Site Management Services at 38.0% and Other Services at 1.8%.


New Hope Services VAS To Non-Property Owners Revenue Breakdown
Raw Data Sources: Company Annual Reports

Additional Investor Metrics

In this section, we present some extra metrics that may be of relevance to investors.


EPS Is Increasing Steadily Each Year

New Hope Services' earnings per share (EPS) continually increased each year from RMB0.19 in 2020 to RMB0.264 in 2023.


New Hope Services EPS
Raw Data Sources: Company Annual Reports


ROE Is Moderately High And Gradually Rising

New Hope Services' return on equity (ROE) is in the moderately high range and showed a gradually increasing trend from 11.1% in 2018 to 19.2% in 2023.


Note: the outlier in 2020 was due to relatively low net assets that year


New Hope Services Return on Equity
Raw Data Sources: Company Annual Reports


Dividend Payout Is Growing Each Year

New Hope Services continually increased its dividend payout over the past three years, from RMB0.071 per share in 2021 to RMB0.12 in 2022 and RMB0.159 in 2023. As of the time of writing, New Hope Services has a stock price of HKD1.68, which translates to a dividend yield of 10.2% using the company's 2023 dividend payout. We note that management has not yet implemented a specific dividend policy.


New Hope Services Dividend Per Share
Raw Data Sources: Company Annual Reports

Management's Future Strategies For New Hope Services

We provide a brief summary below of management's key strategies for New Hope Services going forward.


A Focus On Quality Growth Over Scale-Guided Expansion

Management aims to continue prioritising client satisfaction over rapid scale expansion by enhancing efficiency and continually delivering high quality services to customers. Management believes that quality (over quantity) growth is particularly important given the downturn status of China's property market.


Increasing Regional Penetration

New Hope Services will further penetrate the Chengdu market where the company is based, as well as focusing on regional expansion in Wenzhou (a Tier 2 city in Zhejiang province) and Kunming (a Tier 2 city that is also the capital city of Yunnan province). Management plans to expand through both organic growth and acquisitions.


Leveraging The New Hope Group Supply Chain

Management plans to boost the company’s Lifestyle Services segment by further tapping into New Hope Group’s supply chain (i.e. the Group’s various subsidiaries and affiliates) and offering customers a greater variety of products and services.


Investor Summary

Key characteristics of the company include:

  • Property management services provider based in Chengdu

  • Relatively young company with moderate growth potential

  • Steadily growing revenue and profit


Key characteristics of the stock include:

  • Growing EPS

  • Relatively high ROE

  • Relatively high dividend yield*

*compared with other stocks listed on the Hong Kong Stock Exchange


Future opportunities include:

  • The general rise in income levels and urbanisation can benefit China’s property management sector

  • The high-end range of China’s property management sector has room for growth with the potential to bring in higher fees


Key risk factors include:

  • New Hope Services is exposed to China’s real estate sector, which is in a downturn state in the short to perhaps at least medium term

  • China’s property management services market is relatively saturated with substantial competition between industry incumbents

  • New Hope Services will probably turn to more third-party (i.e. not affiliated with New Hope Group) companies for growth opportunities, which is likely to result in lower fee revenue and lower profitability since New Hope Services would have to price its fees more competitively in order to bid for third-party projects


New Hope Services may be suitable for investors who are seeking:

  • Relatively high dividend yield* and moderate growth potential

  • Potential portfolio sector diversification

*we reiterate again that management has not committed to a specific dividend policy going forward

 

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