Xinyuan Real Estate’s property management business, Xinyuan Science & Technology (XST), was approved for listing on China’s National Equities Exchange and Quotations (NEEQ) “New Third Board” in March (LINK). Broker coverage is a strong signal that a public offering of shares by is planned. Benefits of an offering to Xinyuan Real Estate (XRE) would be:
- Accretive to book value. XST book value per share was 2.12 RMB at 6/30/17. An offering would probably come at least 2X book.
- Draws investor attention to the stable asset-light property management subsidiary of the more cyclical property development business
- Enables XST to grow through acquisition of management contracts for properties not originally developed by Xinyuan
The current ownership structure of XST is:
There has been no indication of whether XST would place newly issued shares to enlarge its capital or whether Xinyuan Real Estate would sell part of its holding. Public trading on the NEEQ requires 2 market makers. Dongxing Securities initiated coverage of XST on July 31 (report) and Shanxi Securities began coverage on September 29 (report).
Highlights of the Shanxi report:
- Gross Margin ranked #6 among the top 20 property management companies approved for NEEQ listing
- Overhead expense was higher than the average of the top 20 property management companies approved for NEEQ listing
- ROE ranked #10 among the top 20 property management companies
- Operating Cash flow ranked #3 among the top 20 property management companies approved for NEEQ listing. Most were negative.
- Target price for XST of 8.82 RMB/share using 18 P/E set with reference to current multiples of other property management companies trading on NEEQ.
Additional information about XST is available at its website