New stock outlook | Aulon Services: 370,000 competitors are waiting, how did the "Guangdong Army" of property services settle in Hong Kong?

1981, the first property management company in China was established in the Shenzhen Special Economic Zone. Since then, the scale of the property management industry in China has continued to expand. According to data from China Index Academy, by 2023, the market size of the property management industry in China, based on managed floor area, reached 302 billion square meters. It is important to note that in the Chinese property management industry, while there are companies with "billion" counts, the market landscape is characterized by dispersed and intense competition. In 2023, there were approximately 375,000 participants in the industry, and that same year, the top 100 property service companies in China accounted for about 18.4% of the market share in the property management industry. In such a market environment, in order for property management companies to stand out in the capital market and become leading companies in regional markets, it is an important prerequisite. It is worth noting that in a industry landscape where opportunities and challenges coexist, a new "challenger" has recently submitted an application to the Hong Kong Stock Exchange Main Board Aolian Services Group Limited ("Aolian Services") with Bank of China International as its sole sponsor. Independent Property Management Service Provider According to the prospectus of Aolian Services, the company is an independent provider of commercial and urban spatial services and community life services, with its business mainly concentrated in Guangdong Province and headquartered in Guangzhou. Since 2010, the company has been providing community life services to residential communities, and expanded its services to commercial and urban spatial areas in 2014, achieving revenue diversification. After years of development, the company has established a solid market position in related service industries in Guangdong Province and expanded its business footprint to 25 provinces in China. According to data from China Index Academy, Aolian Services ranked 16th and 11th among the top 100 independent property management service providers in China in terms of total revenue and net profit respectively in 2024. During the past performance periods (for the fiscal years ended December 31, 2022, 2023, and 2024), Aolian Services' main businesses included commercial and urban spatial services, as well as community life services. In the commercial and urban spatial services sector, the main clients include enterprises, commercial property developers, public agencies, and government institutions. The types of properties serviced include commercial banks, state-owned enterprises, private enterprises, commercial office buildings, educational institutions, hospitals, etc., providing basic property and facility management services, commercial and urban spatial value-added services, and municipal management services. The main clients of community life services are property developers, owners, and residents of residential communities, with services including basic residential property management services and community value-added services. As of December 31, 2024, the company's business covered several regions such as South China, Central China, and West China, forming a relatively extensive business network. During the past performance periods, Aolian Services' business scale and financial performance achieved stable growth, with revenue increasing from 342 million yuan in 2022 to 476 million yuan in 2024, and net profit increasing from 27 million yuan in 2022 to 45 million yuan in 2024. During the same period, approximately 40.6%, 40.5%, and 40.4% of the company's revenue came from Guangdong Province. The company expects that in the near future, Guangdong Province will continue to account for a significant portion of its revenue and business. Looking at the business sectors, commercial and urban spatial services have always been the backbone of the company's business. In 2022, 2023, and 2024, the revenue from this sector was approximately 247 million yuan, 302 million yuan, and 307 million yuan, contributing 72.2%, 70.1%, and 64.6% of the total revenue, respectively. During the same period, community life services had revenues of approximately 95 million yuan, 129 million yuan, and 168 million yuan, representing a increase in proportion of total revenue from 27.8% to 35.4%. Steady Growth in the Guangdong Property Management Industry Observations show that Aolian Services has achieved stable growth in performance, with a favorable external environment providing good support. In terms of market size, the total managed floor area of property management service providers in Guangdong Province increased from 1.6 billion square meters in 2018 to 2.3 billion square meters in 2023, with a compound annual growth rate of 7.6% from 2018 to 2023. According to China Index Academy's forecast, by 2029, the total managed floor area of property management service providers in Guangdong Province is expected to reach 3 billion square meters, with a compound annual growth rate of 4.9% from 2023 to 2029. This indicates that the management scale of the property management industry in Guangdong Province is in a phase of continuous expansion, providing companies like Aolian Services with more opportunities to acquire projects and expand their managed floor area. In terms of revenue, the total revenue of commercial and urban spatial services in Guangdong Province, China increased from 85.3 billion yuan in 2018 to 144.9 billion yuan in 2023, with a compound annual growth rate of 11.2%. By 2029, the total revenue of the commercial and urban spatial services market in Guangdong Province, China is expected to reach 207.4 billion yuan, with a compound annual growth rate of 6.2% from 2023 to 2029. Continuous Optimization of Cost Control Capability The steady growth in industry revenue reflects the continuous strong demand for property management services in the market. This is conducive for Aolian Services to increase its business revenue in this market, enhance its market share with its service advantages, and further increase its revenue. However, industry competition is intensifying, and the company needs to continuously improve the quality of its services, enhance its market competitiveness, optimize its business layout, and control costs in order to improve performance quality. According to the prospectus, service providers in the commercial and urban spatial services sector face escalating labor costs. During the period from 2018 to 2023, the monthly wages of employees in the commercial and urban spatial services market increased at a compound annual growth rate of 4.1%. The growth in labor costs is also reflected in Aolian Services. In 2022, 2023, and 2024, the company's labor costs were approximately 117 million yuan, 181 million yuan, and 181 million yuan, accounting for about 40.0%, 49.2%, and 46.7% of the total sales costs during the same period, respectively; subcontracting costs were approximately 125 million yuan, 128 million yuan, and 135 million yuan, accounting for about 42.7%, 34.8%, and 34.7% of the total sales costs, respectively. This indicates that the company faces the challenge of cost control.Fixed costs, especially as business scale expands, controlling manpower and subcontracting costs effectively is crucial to the company's profitability.In addition, Aolian Services also face some financial risks. As of December 31, 2022, 2023, and 2024, our trade receivables were 0.81 billion yuan, 1.29 billion yuan, and 1.83 billion yuan respectively; during the same period, the overall turnover days of trade receivables were 54 days, 89 days, and 119 days respectively. As of December 31, 2023, the annual operating cash flow was negative, which may have some impact on the company's liquidity and business expansion. From the external environment perspective, the development of Aolian Services also faces many challenges. In terms of market competition, the relevant service markets in China and Guangdong Province are highly fragmented and fiercely competitive. Its competitors are mostly national or regional property management companies, many of which are associated with property developers and have advantages in financial, technical, and other resources, which may restrict Aolian Services' market share expansion. At the same time, the industry's development continues to attract new competitors, increasing competitive pressure. In terms of business operations, Aolian Services face certain contract renewal risks. From 2022 to 2024, the retention rate of commercial and urban space services reached 100%, but the renewal rates were low at 32.3%, 20.3%, and 32.4%; the retention rate of community life services was acceptable, but the renewal rate decreased from 91.1% to 73.3%. Due to the fixed-term nature of some service contracts, there are concerns about renewals upon expiration, directly threatening revenue sources. However, if Aolian Services successfully goes public, financing will provide a blood transfusion for business expansion, increasing investment in key regions such as South China, and enhancing brand influence to attract customers. Furthermore, going public can enhance the company's reputation, strengthen attractiveness to strategic investors, and improve sustainable development capabilities.