Author | Huang Yu

Editor | Zhang Xiaoling

Mergers and acquisitions, which were once viewed as a means of expansion for the crop management industry, have been dormant for two years.

Yuexiu Services, which relies on Yuexiu Real Estate, is representative of a careful acquisition. Even though about 1 billion yuan of the capital raised from the listing was dedicated to mergers and acquisitions, there have been almost no actions since its listing for more than two years.

According to Yuexiu Service's 2023 interim performance report, as of the end of the first half of this year, Yuexiu Service had 416 contract projects, with a total contract area of 77.49 million square meters, an increase of 9.8% over the end of last year; there were 346 projects under management, with a total management area of 58.76 million square meters, an increase of 13.7% over the end of last year.

Continuing the previous expansion ideas, Yuexiu Service's expansion in the first half of this year was still dominated by third party outreach and delivery by related parties. Due to the stagnation of mergers and acquisitions, the pace of expansion of the scale of Yuexiu services has slowed down. There is still a certain gap with the target of 100 billion dollars of management area set at the time of listing.

At the interim results conference on August 22, Lin Feng, non-executive director and chairman of the board of directors of Yuexiu Services, pointed out that mergers and acquisitions account for 30% of the 100 million square meters in the company arrangement. Currently, the gap is mainly in this part. In fact, the parent company, the Guangzhou Metro delivery project, and third party expansion all exceeded the original plan.

Yuexiu Service still has a year to work towards the goal of 100 billion dollars, and will focus on closing the gap through third-party expansion.

In the two years that the real estate industry has entered a period of decline, the popularity of mergers and acquisitions has declined markedly. Lin Feng also reiterated his opinion, saying that there will be no mergers and acquisitions for the sake of mergers and acquisitions.

“The company has always been active in mergers and acquisitions, but it is still very careful when judging the target. It is necessary to evaluate whether the valuation and purchase price of the target object is reasonable, whether it has increased the concentration and density of the area already under the company's jurisdiction, and the future business potential of the acquisition target.”

In fact, since its listing in June 2021, Yuexiu Service has actually been exposed to quite a few targets, but it was eventually abandoned due to valuation issues or various reasons that did not overlap much with the region it manages.

Later market performance also proved that Yuexiu Service's prudence in mergers and acquisitions was the right choice.

As we all know, 2021 was the hottest year for mergers and acquisitions in the property management market. At that time, the valuations of property management companies were at their peak, and the targets being acquired also soared, as reflected in financial statements, intangible assets such as high goodwill.

However, since the second half of 2021, as developer sentiment has continued to decline, valuations in the property management sector have declined. In the past, high-premium mergers and acquisitions have posed challenges to the goodwill on the accounts. Country Garden Service and Wanwuyun, which had previously shown signs of differentiation in the mergers and acquisitions market, have both recorded significant impairment in goodwill.

Therefore, Lin Feng also specifically emphasized at the performance meeting that emphasis should be placed on considering the sustainability of the subject matter of the acquisition to avoid impairment of goodwill due to mergers and acquisitions. Because judging from Yuexiu Service's own profit situation in a year, once goodwill impairment is formed, it will have a very significant impact.

According to financial data from Yuexiu Services, in the first half of 2023, it achieved operating income of 1,512 billion yuan, an increase of 38.7% over the previous year; due to the downturn in the real estate industry, gross margin fell 3.6 percentage points to 28.1% year on year; net profit from Gimu was about 248 million yuan, up 17.5% year on year.

Benefiting from prudent mergers and acquisitions and stable revenue, by the end of the first half of this year, Yuexiu Service had reached 4.6 billion yuan in cash, making it one of the companies with the most cash holdings among listed property companies. In Lin Feng's words, the amount of cash on hand is probably already in the top three.

As the industry reshuffle intensifies, under the market's high expectations for mergers and acquisitions, Yuexiu Service, which is “not poor in money,” may seize a good deal in the near future to achieve a jump in scale rankings, just like its parent company, Yuexiu Real Estate.