With the Advent of the Policy Tailwind, Desun Services is Expected to Take Off

·11 min read

CHENGDU, China, Jan. 18, 2022 /PRNewswire/ -- In the past two years, the development of the new energy automotive industry chain has been in full swing, which is predicated on the support of policies. For example, in the past few years, policies have rendered assistance to new energy automotive enterprises in terms of credit allocation and tax subsidies.

Today, the policy tailwind is equally sweeping the property management services industry. According to Shengang Securities, in the first half of 2021 alone, the policies favoring the diversified development of the property management services industry have added up to four.

In response to the call of national policy, the property management services industry will usher in an era of diversified development. In this process, the exploration of diverse businesses will also play a pivotal role in the competition of property management service companies.

In fact, a parallel trend has been accentuated in some companies. One such example is Desun Real Estate Investment Services Group Co., Ltd. (Desun Services), which recently made its debut on the Hong Kong Stock Exchange (HKEX).

Over the past few years, Desun Services has been vigorously developing its residential and non-residential value-added service business and commercial operational service business. At the data level, the results are remarkable. Up to the end of May 2021, the revenue generated from the value-added services of Desun Services accounted for a whopping 48.4%, holding up almost half of the company's revenue.

In the long run, the prospect of the property management services industry is promising. However, dragged down by the overall Hong Kong stock market, the current performance of the property sector is not so impressive, albeit the decline is relatively small compared to other sectors. A number of property management service companies have also initiated buybacks due to their share prices not reflecting the value of the company.

Against this backdrop, Desun Services announced on January 6 that the over-allotment option was partially exercised. This also indicates to some extent that investors acknowledge the value of the company.

Intensive introductions of supportive policies paves the way for the long-term development of the property management industry

In 2021, the Ministry of Housing and Urban–Rural Development (MOHURD), the Ministry of Commerce and other authorities put in place various policies to support the accelerated development of the property management services industry.

On January 5, the MOHURD and other ten ministries jointly issued a Notice on Strengthening and Improving the Administration of Residential Properties, which encourages qualified property management service companies to explore the "property service + living service" model.

On February 21, the No. 1 Central Document titled Opinions of the Central Committee of the Communist Party of China and the State Council on Comprehensively Promoting Rural Revitalization and Accelerating Agricultural and Rural Modernization was officially released. The document establishes a series of policies to promote the shift of public management services towards a socialized, market-oriented and professional direction.

On March 12, Xinhua News Agency was authorized to release the Outline of the People's Republic of China 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2035, in which the property sector is mentioned six times, covering quality development of living service industry, improvement of urban governance, improvement of community management and service mechanism, and construction of digital China.

On May 31, the Ministry of Commerce, the MOHURD, and other 12 departments jointly issued the Opinions on Promoting the Building of 15-Minute Urban Community Life Circles, which aims to serve community residents and to satisfy their basic consumption and quality consumption in their daily lives, thereby building community business circles formed by multi-industry clusters.

The aforesaid policies indicate that the government is encouraging property management service companies to expand into the field of non-property management services. It is not much of a stretch to figure out the reason behind this. As the per capita income in the country keeps climbing, it is imperative to improve the quality of people's lives.

Statistically, the annual per capita disposable income of domestic residents reached RMB32,189 in 2020, twice as much as that in 2010. In the context of growing per capita income, people demand more personalized services from property management service companies in addition to the management services of communal areas, for instance, door-to-door cleaning, pet-sitting services, dry cleaning, and so on.

Taking a glance at the entire industry, Desun Services is undoubtedly taking the lead in the exploration of value-added services. In the past few years, boosted by the value-added service business, Desun Services has achieved rapid growth in its performance.

According to the data, between 2018 and 2020, the revenue of Desun Services increased from RMB63.964 million to RMB127.922 million, representing a CAGR (compound annual growth rate) of 41.4%. In particular, between 2018 and 2020, the company's value-added service business grew from RMB33.811 million to RMB66.487 million, making it the main force driving the surge in the performance of Desun Services.

With the intensive introduction of policies to bolster the development of the property management services industry, which has guided the direction for the long-term development of the property management services industry, Desun Services has been making active exploration in the field of non-property management services in the past few years, which has also laid a solid foundation for its long-term development.

With a focus on value-added services, Desun Services keeps pace with policy

In the past few years, by focusing on value-added services, Desun Services has gained the upper hand in the subsequent competition. To date, Desun Services has proven to be successful in both value-added services and commercial operations.

In terms of value-added services, Desun Services has established corresponding service systems tailored to each scenario.

As an example, in the residential property sector, Desun Services provides users with value-added services such as property condition inspection, commissioned maintenance, property sale, and domestic services. Additionally, the company offers renovation services to property developers, including sales office renovations.

In the non-residential property sector, Desun Services is committed to delivering branding and positioning consulting services across commercial promotion, sales agency and marketing for its clients. Subsequently, the company plans to promote value-added services for industrial parks and office buildings, such as leasing services, interior rentals and displays, conference hosting, and reception services.

In terms of commercial operational services, thanks to the long-term coordinated development with Chengdu Desun Property Co., Ltd and its subsidiaries, joint ventures and associated companies (Desun Property Group), Desun Services has successfully established a commercial operational service system across the entire industry chain.

Up to date, the commercial operational services provided by Desun Services encompass multiple aspects ranging from planning, tenant sourcing services to operation and sales.

In terms of planning, Desun Services is able to render services such as preliminary planning, commercial planning, and assistance in market expansion planning; in terms of tenant sourcing services, the company provides a variety of services such as tenant sourcing management and preliminary participation for its own commercial projects and expanded commercial projects respectively; in terms of operation, the company provides various services such as operations management and preliminary participation for its own commercial projects and expanded commercial projects respectively; in terms of sales, the company owns a sales team with omnichannel sales capability, allowing it to replace the traditional role of second-hand housing sales.

Furthermore, in the building of the commercial product model, Desun Services has also gradually formulated its own differentiated approach. For example, unlike other commercial operational service companies, Desun Services devotes more attention to customer segmentation and precise positioning, focusing on the creation of scenes that are scenario-based, sociable, thematic and with shopping streets.

As of now, Desun Services has created an impressive list of success stories. Taking the youth trendy play center as an example, the main target group of Huahuo Community (meaning Flowery Times, Lively Atmosphere in Chinese) aims at the Generation Z youth clientele. As for product form, Huahuo Community takes the form of themed shopping streets, with large stores matching with small stores + plaza as the carrier, fashion trends and niche socialization at its core, supplemented by basic living services, aiming to create themed commercial products characterized by folk culture and the hustle and bustle of the marketplace.

In conclusion, Desun Services has amassed a wealth of experience in value-added services and commercial operational services. Over the long term, this will also enable the company to gain a head start in the subsequent development of non-property management services.

Synergy with Desun Property Group emerges to anchor long-term growth

While embracing the policy benefit, Desun Services enjoys the potential resources from Desun Property Group, which is an essential guarantee for its subsequent growth.

According to the official website of Desun Property Group, the company was founded in 1999 and is a residential developer specializing in mid- to high-end housing. Up to date, Desun Property Group, whose asset size reaches RMB40 billion, has developed and served more than 200 investment projects with business coverage across more than 30 cities. The development area exceeds 10 million sq.m. and the land reserve amounts to 4 million sq.m..

In terms of its industry position, Desun Property Group is ranked among the top 100 real estate companies in China and the top 10 real estate companies in Chengdu, and has been awarded honors such as 2021 Top 10 Chinese Real Estate Residential Development Companies with Leading Brand Value, Annual Valuable Real Estate Enterprise in the 2021 Chinese Valuable Real Estate Overall Ranking, and Top 100 Chinese Real Estate Enterprises with Product Power in 2020.

Since 2010, Desun Services has forged a close and long-term relationship with Desun Property Group, and both companies are well versed in their specific needs and expected deliverables to achieve a mutually beneficial outcome. Specifically, Desun Property Group supplies a steady stream of projects to Desun Services, which in turn continues to enhance the brand image of Desun Property Group and the value of its property development projects through quality services.

According to the data, as at December 31, 2020, three of the properties under the management of Desun Services were mid- to high-end residential properties in Chengdu; seven of the contracted projects were mid- to high-end residential properties in Chengdu, all of which were mainly mid- to high-end projects developed by Desun Property Group. As at May 31, 2021, the residential properties developed by Desun Property Group under the management of Desun Services constituted a total GFA (gross floor area) of 1.1 million sq.m..

When reflected in the financial data, for FY2018, FY2019, FY2020 and 5M2021, the company's revenue generated from Desun Property Group accounted for 53.4%, 51.0%, 47.3% and 38.8%, respectively. In addition, 100%, 100%, 68.8% and 43.4% of its revenue from property management services was generated from properties developed by Desun Property Group for the said periods.

In the extended cycle, as the number of projects developed by Desun Property Group keeps increasing, a steady stream of the GFA under management will be provided to Desun Services for the subsequent years.

According to CRIC's data, between 2019 and 2021, Desun Property Group recorded sales of more than RMB10 billion for three years in a row and ranked fifth in Chengdu in terms of sales in 2021. Bearing in mind that it generally takes two to three years for real estate companies to progress from sales to delivery, the projects sold by Desun Property Group in the past three years will gradually be converted into the GFA under the management of Desun Services in the next three years, thus facilitating the sustained growth of the company's performance.

Given that most of the residences developed by Desun Property Group target the mid- to high-end market, the customer base has a high level of spending power in general, and these high-income customers often tend to have personalized consumption needs. Over the long term, this will also further spur the revenue from the company's value-added services to grow at a high rate.

Backed by the multiple incentives, Desun Services is poised to make further progress and deliver substantial returns to investors who have been with the company all along.

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SOURCE Desun Real Estate Investment Services Group Co., Ltd.