Shimao Services (873.HK) recorded revenue of RMB 4,098 million in 2023 H1, starting to make a profit with an 11% year-on-year increase in profit attributable to equity holders

 

On August 31, Shimao Services (873.HK) announced its 2023 interim report. During the reporting period, Shimao Services recorded revenue of RMB 4,098 million with a gross profit of RMB 863 million. The profit attributable to equity holders was RMB 155 million, representing an 11% year-on-year increase. The core net profit margin attributable to equity holders was 7.7% among other significantly improved profit indicators. In terms of size, the Group’s contracted GFA increased to 346 million sq.m., of which 77.6% came from third parties, hitting a record high.

 

 

Keeping high-quality development with optimized business structure and profitability

 

As of June 30, 2023, Shimao Services recorded a positive net cash generated from operating activities of RMB 351 million. The net cash-to-profit rate increased notably to 1.72, hitting a new high. Compared to end-2022, the Group’s management fee, sales fee, and financial fee rates all lowered significantly by eight percentage points, demonstrating the effectiveness of cost control measures. The core net profit margin attributable to equity holders increased from 5.8% in 2022 to 7.7% in interim 2023, showcasing substantial improvement in operating ability.

 

Shimao Services emphasizes comprehensive and independent development. Overall, in the first half year, Shimao Services’ comprehensive property management services recorded income of RMB 2,613 million, an 11.5% year-on-year growth, as a steady revenue driver for the Group. Value-added services to non-property owners generated RMB 121 million, hitting the record low in the Group’s overall revenue at 3.0%, meaning that the Group continues to break away from the real estate industry to achieve independent development. Community value-added services brought in RMB 709 million. In particular, revenue from the elderly care business grew to RMB 71.94 million, recording a remarkable year-on-year increase of 45.3%. The Group has achieved an unstoppable market expansion with the home-based elderly care business as a key driver. City services recorded revenue of RMB 655 million, with gross margin up approximately one percentage point compared to the full year of 2022. In the first half of 2023, Shimao Services not only optimized its overall revenue structure but also effectively enhanced its profit quality.

 

Ye Mingjie, President and Executive Director at Shimao Services, pointed out that the Group’s strategy is to refocus on the true value of operating activities and create value for customers. Shimao Services has been working to establish a customer-centered organization since 2021. As of today, Shimao Services has maintained higher than 85% customer satisfaction for three years. Customer satisfaction has in turn enabled the Group to achieve higher retention rates, collection rates, and average property management fee. In the first half of 2023, Shimao Services led the industry in the aspects of retention rate at 94% and the average property management fee at RMB 2.2 per sq.m. per month.

 

Strong performance in third-party market expansion brought the first RMB 100 million property management contract

 

During the reporting period, Shimao Services added 26.35 million sq.m. of new contracted area through third-party market expansion, resulting in an annualized contract amount of RMB 727 million, up 20.6% over the same period of last year. The bid-winning rate for third-party market expansion projects increased to 36%, indicating continuously enhanced third-party market expansion ability. As of June 30, 2023, third-party contracted GFA accounted for 77.6% of the total, injecting strong momentum for the Group’s independent development.

In the first half of 2023, through third-party market expansion, the Group successfully won China Mobile Fujian Company’s procurement tender for property management services in Fujian Province. This tender was the first contract exceeding RMB 100 million in the Group’s history. The Group also secured several dozens of premium projects valued at over RMB 10 million. In particular, Zhengzhou Horus Mall & Business Tower is the largest single complex in the Central China region, integrating leisure, entertainment, business, social networking, and a few other functions. Lanzhou Daqingshan agricultural and sideline products logistics center is the first-tier wholesale and supply base for agricultural and sideline products and the largest food supply center in Lanzhou. A breakthrough was made in the Shenzhen residential market by winning the Shenzhen Aoyuan Feicui East Bay tender. In Wuhan, the Group secured a project of the People’s Procuratorate of Hubei Province. As of today, Shimao Services has built a presence in the professional services market for Wuhan’s public buildings of government organs and judicial institutions, including Huangpo District People’s Court, Wuchang District People’s Court, and Wuhan Economic & Technological Development Zone People’s Court.

 

While adding new contracted GFA through third-party market expansion, Shimao Services has also been focusing on specific key cities. It has skewed resources to enhance the density of projects in these key cities as well as lower costs and increase efficiency. In the first half year, 55% of Shimao Services’ annualized contract amount came from 19 deeply-rooted cities. Also, Shimao Services achieved higher revenue per unit area as a result of switching gear towards business forms and projects with huge potential and also first-tier, second-tier, and new first-tier cities that have high growth momentum. In terms of newly-added GFA, 47.2% of the contracted GFA came from residentials, universities and colleges with huge potential and 68.3% from projects in cities that have high growth momentum, which all provided broader space for further increasing revenue per unit area.

 

Becoming the industry leader in school and hospital services fields

 

Shimao Services has continuously enhanced its capabilities in serving segmented markets in recent years. Zheda Sinew, a subsidiary of the Group, ranks the first in China for college property management. Jili Property, with over 20 years of experience in hospital property management, occupies a 30% plus market share of all grade A tertiary hospitals in Changsha.

 

In the first half of 2023, Zheda Sinew laid out the strategy to expand from Zhejiang into the broader Jiangsu, Zhejiang, and Shanghai region along the eastern coastline. During the reporting period, new projects in the region accounted for 92% of Zheda Sinew’s total annualized contract amount, highlighting the regional concentration. Meanwhile, new colleges and parks projects accounted for 88% of its annualized contract amount, indicating effective business concentration.

 

As of June 30, 2023, Zheda Sinew has provided services to 270 universities and parks in 38 cities, covered 23% of Project 985 universities. In the first half of this year, through strategic focusing, Zheda Sinew secured several large amount contracts with premium partners, including Zhejiang University-Hangzhou Global Scientific and Technological Innovation Center for a RMB 51.7 million contract and Capital Normal University Liangxiang Campus for a 41.34 million service contract.

 

In terms of hospital property management, in the first half year of 2023, Shimao Services focused on providing value-added services, including “specialized property management for public buildings” and “scenario-based value-added services”. In particular, leveraging its unique expertise and advantages in hospital property management, Jili Property launched various value-added-services, such as hospital accompaniment service, sofa bed rental, and catering services for hospital employees and the public. It also explored business opportunities in property management of rehab. As of June 30, 2023, Jili Property registered a 61% increase in the contract amount at the time of renewal. In particular, in addition to full coverage over Hunan “Xiangya Family” hospitals, Shimao Services also provided hospital property management services to many grades A tertiary hospitals in Shandong Province, including Weihai Municipal Hospital, Yantai Hospital of Traditional Chinese Medicine, and Binzhou Medical University in Muping.

 

Pushing forward city services on the basis of large existing contract amount

 

As of June 30, 2023, Shimao Services’ city services recorded RMB 655 million, accounting for 16% of the total revenue. Currently, Shimao Services’ city services have reached 54 cities nationwide, mainly in the Yangtze River Delta region and the Greater Bay Area. It provides services to more than 130 projects with the accumulated contract amount exceeding RMB 6.8 billion. City services projects featured premium quality and large existing contract amount

 

In terms of city services, Shimao Services is committed to being the “city manager”, leveraging its advantages in providing city environment services to develop comprehensive service capabilities in all scenarios. In upstream, Shimao Services has one product R&D center, two manufacturing plants, 36 types of intelligent devices products, and holds more than 30 national certificates and over 50 patents.

 

In the first half of 2023, Shimao Services secured several large contracts for city services in multiple cities, demonstrating a strong momentum. In particular, the Group signed two RMB 100+ million contracts, including an environment and sanitation integration project in Qindu District, Xianyang City. It also entered into several contracts of over RMB 10 million, such as a special license for the environment and sanitation integration project of Qingyang, Gansu Province, and the environment and sanitation market-oriented cleaning services for Wangling Street Office, Quanshan District, Xuzhou City. These projects are a proof that the Group has gained the ability to expand businesses nationwide independently.

 

Maintaining strategic stability to keep high-quality development over the mid- to long-term

 

In the first half year, Shimao Services focused on the true value of operating activities and achieved progress in cash flow management, profitability enhancement, and market expansion through “eight major campaigns”. Given the supportive policies and positive market responses, Shimao Services’ management team believes the property management industry still sees strong certainty and visibility as the macro-economy recovers slowly. The vast land and huge existing market have provided the industry with any possibility. The long-term positive outlook on the property management industry remains unchanged.

 

“focusing on the true value of operating activities” is critical to Shimao Services’ operation and management. “Delivering value to shareholders” will act as a key criterion in Shimao Services’ future selection of businesses. Looking ahead, Shimao Services remains committed to becoming “a leading full-scenario provider of city life services in China”. It will further enhance its operating strength, improve profitability, and insist on longtermism. It will cultivate its core competencies, embrace opportunities and challenges with a down-to-earth attitude, and ensure long-term value-creation through effective operation.