Mainland property management firm Zhong Ao Home in HK$459 IPO

Zhong Ao Home Group, a mainland property management firm, will start a public offering of 224 million shares today to raise up to HK$459 million to support growth through mergers and acquisitions.

Trading on the Hong Kong stock exchange is expected to commence on November 25, with the initial public offering price range having been set at HK$1.72 to HK$2.05 per share.

The 10-year-old company, based in Guangzhou, competes with two major rivals already listed in Hong Kong – Colour Life and China Overseas Property Holdings – and many others that are preparing for such a move to fuel expansion.

It managed 33.7 million square metres of property space as of the end of September, versus 270 million square metres by top player Colour Life as of the end of June.

“We are an independent third-party property manager, which enables us to have a wider client base than those backed by developers,” Chen Zhuo, Zhong Ao Home’s vice-president and executive director, said on Thursday.

As the market was fragmented, with the top 100 players having a combined market share of less than 8 per cent, many regional developers would be happy to outsource property management services to a third-party firm like Zhong Ao Home, she added.

Fantasia became the first developer to spin off its property management business, Colour Life, in Hong Kong in June last year. China Overseas Land & Investment followed suit last month, with the listing of China Overseas Property Holdings.

Zhong Ao Home’s IPO comes as investors grow more interested in service firms related to the mainland’s housing sector, including those engaged in property management and financial innovation. In contrast, developers are now under valuation pressure as they suffer narrowing profit margins amid a struggle against overcapacity.

“Property management stocks are expected to outperform China property stocks,” Edison Bian, chief China property analyst at UOB Kay Hian, said in a report this week. “The property management services business has just begun to take off and there is enough room for more new entrants.

“It is worth keeping a close eye on Zhong Ao Home, which is a good property management player with an experienced management team and strategic internet applications.”

Many developers, including China Vanke and Evergrande Real Estate, are restructuring to add new business lines for future growth, while increasing efforts to sell down inventories, with rising policy support from government.

Zhong Ao Home intends to use about 60 per cent of the net proceeds, estimated at HK$178.8 million, for acquisitions, and another 25 per cent for development of its online-to-offline platform, which was launched in June.

The O2O platform might record losses in the first few years, but would help the company increase efficiency and cut costs as its users and services increased, and eventually turn profitable, said Luo Tao, a former executive from Chinese e-commerce giant Alibaba who is now in charge of Zhong Ao Home’s O2O development.

“In O2O, early starters are not necessarily better performers,” Luo said when asked competition with Colour Life and other rivals. “One should only start O2O efforts at a good time, with good resources and a good team.

Luo said Zhong Ao Home’s core competitive edge was its offline butler services, derived from the founding team’s experience in the hotel industry.

The company aims for its O2O platform to cover 600 communities by early next year.