01 overview of Longhu Zhichuang life business
Longhu Zhichuang life includes two core businesses of Longhu group: property management and commercial operation.
1) property management: as of December 2021, there are 1512 projects under management, with a management area of 254 million square meters, a contract area of 359 million square meters, and a contract area and strategic cooperation area of 440 million square meters. In 2020 and 2021q1-3, the revenue accounts for 84% and 77% of the total revenue respectively.
2) commercial operation: as of December 2021, there are 60 projects under management, 68 reserve projects, an area under management of 5.8 million square meters, about 5700 cooperative brands, and the annual passenger flow of the shopping center is 659 million person times. In 2020 and 2021q1-3, the revenue accounts for 16% and 23% of the total revenue respectively. The business model of Longhu Zhichuang can be summarized as 1) a membership plan of Longhu ecosystem; 2) Synergy at two levels; 3) Three kinds of technology application empowerment
02 analysis on sub item business of Longhu Zhichuang
Residential and non commercial property management: basic property management + value-added services (community value-added and non owner value-added)
Rapid income growth: from 2019 to 2020, residential and other non commercial income will account for more than 80% of the total income; 2021q1-3 decreased slightly to 77%. In 2020, the income of residential and other non commercial enterprises reached 5.45 billion yuan, a year-on-year increase of 40%; In 2021q1-3, the revenue was RMB 6.01 billion, with a year-on-year increase of 64%.
The share of value-added services expanded, and the 2021q1-3 income of community value-added services doubled year-on-year: among residential and non commercial income, the proportion of q1-3 value-added services in 2021 increased significantly compared with the same period in 2020, from 39% to 43%, with a year-on-year increase of 109% (see ppt12 for the analysis of value-added services).
Basic property management: residential property contributes the main income, and the geographical layout is strategically stable
1) in residential and non-commercial infrastructure property management, residential property is the main contribution to income, and the proportion of other non-commercial property is increased: the proportion of residential property income in 2019 and 2020 is 94.6% and 87.4% respectively, contributing to most of the income of residential and non-commercial property management. With the continuous expansion of different property types of Longhu Zhichuang, the proportion of non-commercial income gradually increased in 2019, 2020 and Q3 by 2021, which were 5.4%, 12.6% and 17.9% respectively. By Q3 of 2021, Longhu Zhichuang had provided property management services for 1189 residential and non commercial property projects in 93 cities in China, with a total construction area under management of more than 213 million square meters.
2) focus on the first and second tier high-energy regions: q1-3 from 2019 to 2021, the west is the primary income contribution region of Longhu Zhichuang, and the income contribution of the Bohai Rim region and the Yangtze River Delta region is equivalent; From the perspective of cities at different levels, from 2019 to q1-3 in 2021, the proportion of income contribution of cities at all levels remained stable, the proportion of income of second tier cities was about 74%, and the total contribution of income of first and second tier cities reached 85%. 03 financial analysis of Longhu Zhichuang
The company’s revenue has increased significantly, the business structure has been continuously optimized, and various costs have decreased steadily
1) rapid growth of revenue: benefiting from the continuous expansion of the scale of management business portfolio, the company’s revenue has a high growth rate. By 2021q3, the company had achieved a revenue of RMB 7.771 billion, a year-on-year increase of + 81.2%, of which residential and non-commercial revenue accounted for 77%, commercial operation and property management accounted for 23%, an increase of 7 percentage points over 2020. From the change of the company’s income structure since 2019, the proportion of the company’s business management income and the income from residential and non business community value-added services continues to increase, and the income structure continues to be optimized.
2) effective cost control: staff and subcontracting costs are the two major factors affecting the company’s operating costs, accounting for 38% and 39% of the operating costs respectively by 2021q3. In terms of the proportion of operating costs in revenue, the proportion of employee and division of labor costs in revenue shows a downward trend. In 21q1-3, employee and subcontracting costs account for 27.4% and 28.3% of revenue respectively, down 2.3pct and 2.5pct compared with the end of 2020.
Summary
Longhu Zhichuang life was established in 2018. The company’s business can be traced back to the establishment of property management department in 1998 and business management department in 2002. After years of deep cultivation and business expansion, the company has continuously cultivated and accumulated strong property management and business management capabilities, and gradually developed from serving within Longhu group into a leading intelligent life and space service provider providing property management and business operation services in China.
We believe that the company inherits the two core businesses of property management and commercial operation of Longhu group and has inherent competitive advantages. To sum up, we believe that the main highlights of the company are:
1) focus on high-energy cities. The company’s management and contract projects focus on the first and second tier high-energy areas. As of 21q3, the revenue contribution of property management and business management in the first and second tier cities of the company has reached 85% and 93% respectively. We believe that the focus of property companies on high-energy cities is conducive to the subsequent improvement of property management and business management unit prices, and the potential of value-added services is relatively large.
2) leading commercial operation capability. The company entered the commercial field earlier, created the “Tianjie” brand with market influence, and accumulated a large and diversified tenant portfolio. The company has excellent performance in terms of rental rate, passenger flow and sales of commercial projects. We believe that rich management experience and stable operation performance are the basis for the company to maintain strong brand strength in the field of business management, and also the core competitiveness that is difficult to replicate in the short term.
3) strong synergy with the parent company in diversified business. As the core member of the “one Longhu ecosystem”, the company cooperates with the parent company in business areas such as development, rental and sale. We believe that this has laid a good foundation for the company to provide diversified value-added services for housing business.
4) Longhu membership plan to improve customer stickiness. With the support of science and technology, the company’s “Longhu member program” helps managers accurately locate customer needs and provide corresponding services, which plays a strong role in improving customer interaction frequency, customer stickiness and further strengthening the company’s brand influence.
5) technology enabled whole chain service. The company’s long-term and sustained investment in science and technology has received good feedback. The information system built by the company has played an important role in improving management efficiency and service quality. We think it is an important competitiveness that is difficult to replicate in the short-term competition.
Risk tips
1) the intensified competition in the external expansion market leads to higher M & a price and higher goodwill
2) the maturity of value-added service business model leads to the second growth curve, which is longer than expected
