Company Profile

Nacity Property Service Co., Ltd. is a China-based company principally engaged in the management ofproperties. The Company’s main businesses include property services and value-added services. Theproperty services include package property management services, gratuity property managementservices, court services and consultancy services. The value-added services include home services,private afforestation services and indoor repair services, among others. The Company is primarilyinvolved in the provision of management and consultation services to complex properties, includingcommercial complexes, office buildings, industrial parks, large-scale residential properties and luxurymansions. （Source: Reuters）

Event

According to a recent news report, HIKVISON inked a strategic cooperation agreement with NacityProperty Service （the company） that the two sides will carry out deep cooperation programs in termsof products and businesses with the building of smart communities as a focus.

Comments

The cooperation with HIKVISION will greatly help the company provide better services.

The conventional security and protection system is unable to recognize persons and objects in thesecurity and protection scenarios in an accurate and timely manner, making it easier for suspiciouspeople to hack.

As a leading player in security and protection, HIKVISON improved its security standards with theintelligent devices and big data analysis. It also made multiple optimizations in fields including devicemanagement, which is conducive to the business expansion of the company.

The projects in the charge of the company will be the priorities to implement hard technologies.

Except security and protection, HIKVISON is expected to facilitate the company to realize technologiesimplementation in multiple smart scenarios, including intelligent security and protection,advertisements delivery, smart household, residential community information, vendors in residentialcomplex, household facilities for the old age and social activities among neighbors.

The cooperation goes well beyond the residential complex and extends to commercial buildings andindustrial parks with customized applications being carried out.

With the application of a great deal of technologies, the property management companies aregradually shaking off the conventional labor-intensive mode, laying a foundation for multiple newvalue-added services in the future.

The application scenarios not only mean the hardware input in the first stage, but also refer to theimplementation of technologies including big data and AI in the second stage.

The technological empowerment in the property management industry, not only refers to thehardware input including cameras but also points to the capabilities for system integration and datamining.

With the development of 5G, AI and big data, the smart communities gradually transit from hardwareequipment to data management in the middle and back offices. For example, in the security andprotection field, 5G and big data can help recognize the suspicious criminals in seconds and providedirect evidence to high-rise littering; in the health and old age field, the smart font-ends can quicklyrecognize the health state of the old via AI and 5G, forming abnormal alarms.

Scientific and technological empowerment can help lift the profitability of enterprises and improve thesatisfaction of owners.

According to our previous analysis, based on the current estimation of input intensity of science andtechnology, the gross margin will exceed 10 percentage points in the property management industryin the future.

The empowerment of science and technology will not only lift the overall operation performance ofthe industry, but also improve the satisfaction of owners continuously, creating more smart livingmode.

The recent operation with HIKVISON will greatly improve the areas in the charge of the securityemployees, and effectively recognize the hidden danger. In the meantime, in the equipmentmanagement field, the cooperation will obviously improve the working efficiency.

All the improvements will be eventually transferred into the rise in gross margin of the company.

Earnings forecast and investment recommendation

As it enjoys stable performance growth, the value-added services of its main business grow at a rapidpace and the organizational property management boasts advantageous position and developmentpotentials, the company’s EPS is expected to be CNY 1.08 / CNY 1.34, implying a P/E ratio to be 27X/21X, respectively, based on the closing price on June 5th 2020. We give an “Outperform” rating for thecompany.

Potential risks

a fast increase in labor costs; slower-than-expected business expansion; a decline in gross margin ofthe projects