North America is a leader in real estate and residential services. The high growth rate and anti cyclicality of value-added services have been highly recognized by the capital market
FirstService is the largest residential community manager in North America, with two business segments. By 2020, FirstService residential has managed about 8500 communities, covering 1.7 million residential units and more than 4 million households, accounting for about 6% of the city; FirstService brands (value-added services) mainly focuses on housing demand, including customized home storage, house painting, floor covering, damage repair and reconstruction, house inspection, etc. there are nearly 1500 franchisees and self operated outlets of many companies.
Through the double line growth strategy of "endogenous + M & a", the company's performance grew steadily. From 2015 to 2020, the revenue increased from US $1.26 billion to US $2.77 billion, with an average annual CAGR of 17%; The gross profit margin increased from 30.1% to 32.5%, with an average annual increase of about 0.5 percentage points; GAAP EPS increased from US $0.59/share to US $2.04/share, with an average annual CAGR of 28.2%.
In the huge impact of covid-19 epidemic, the anti periodicity of FirstService has been better reflected. The company seized the opportunity of the increased demand of American residents for independent houses and the increased demand for house repair and transformation during the covid-19 epidemic, and its operating performance improved significantly. The revenue in the first three quarters of 2021 was $2.392 billion, an increase of 20% compared with the same period of last year and 38% compared with the same period of 2019.
The continuous high growth and anti cyclicality of the company's value-added services have been highly recognized by the capital market. As of the closing on January 14, 2022, the total market value of FirstService is about US $7.46 billion, and the PE TTM valuation is about 59 times (rolling P / E ratio, corresponding to the total rolling profits of the previous 12 months).
FirstService brands has distinctive characteristics of value-added services. The seven subdivided professional brands are leading in the industry. The revenue of value-added services sector was about $200 million in 2015. Although the starting base is low, it has maintained a high growth rate for many years. The five-year compound growth rate of revenue from 2015 to 2020 was as high as 40.7%, and the revenue of the sector was $1.357 billion in 2020, The proportion increased from 19.5% in 2015 to 49.0% in 2020.
The company guides strategic acquisition with the concept of partner, releases the control of front-line decision-making, and constructs a complete service system through the dual expansion of region and business scope, radiating the whole North America. The seven brands in the value-added service sector are highly specialized, focusing on customized home storage, house painting, floor covering, loss repair and reconstruction, house inspection, etc., all of which are in a market leading position in their respective industries. At the same time, the company uses the net recommendation system ("NPs") developed by Bain to measure the long-term focus and improvement level of customer service.
Compared with FirstService, the penetration rate and unit output value of community value-added services in China have more room to improve
China's property management is still in the early stage of development, with large market space, diversified demand, highly dispersed market and low industry concentration; Considering the differences in the structure of residential products and population density between China and the United States, from the perspective of management area, the projects managed by Chinese property enterprises are characterized by high regional concentration. Due to the characteristics of population base and population distribution, under the same property management area, the customer base is larger, and there is more room for the penetration of value-added services and unit output value. For example, in 2020, country garden served about 4.24 million households, with an operating revenue of 15.6 billion yuan, of which the revenue of community value-added services accounted for 11% (about 1.73 billion yuan, and the average value-added service amount per household was about 408 yuan / year); In contrast, in 2020, FirstService had about 1.7 million households under its management, with an operating revenue of US $2.77 billion (equivalent to about 17.7 billion yuan, including about 8.63 billion yuan of value-added service revenue and about 5076 yuan per household value-added service).
Investment suggestions: it is suggested to pay attention to four main lines: 1) platform companies with the scale of the first echelon and expected to export management and resources, recommend country garden services, and pay attention to green city services, elegant life services, rongchuang services and Jinke services; 2) For the growth target with the second tier scale and low valuation, Xincheng Yuet service is recommended, and it is recommended to pay attention to Jianye new life, Xuhui Yongsheng service and Shimao service; 3) Professional business management targets with high charging level and large profit elasticity, recommend ocean service, and pay attention to New Dazheng Property Group Co.Ltd(002968) , Baolong business and excellent business enterprises; 4) For the property management targets of central enterprises with outstanding resource endowment, it is recommended to pay attention to China Merchants Property Operation & Service Co.Ltd(001914) and China Resources Vientiane life.
Risk tips: labor cost risk, value-added service expansion risk, related party dependence risk and outsourcing risk.
