2017 5 17 彩生活 [1778.HK]img3.gelonghui.com/pdf201705/pdf20170519111435443.pdfChina Property Sector Property Management Waking the Sleeping Giant. Initiate with BUY May 17, 2017

3

买入

收盘价: 4.55港元 (2017年5月16日)

目标价: 5.50港元 (+20.9%)

股价表现

市值 5.836亿美元

发行在外股数 9.991亿股

核数师 Deloitte

自由流通量 27%

52周交易区间 4.24-6.56港元

三个月日均成交量 13.5亿美元

主要股东花样年控股

来源: 公司, 彭博

中国房地产行业 – 物业管理沈睡的巨人正在苏醒；首次覆盖并予买入评级

2017年5月17日

李嘉豪, CFA—分析员

(852) 3698 6392

[email protected]

王志文, CFA—研究部主管

(852) 3698 6317

[email protected]

来源: 彭博

彩生活 [1778.HK]

在管面积作计算，彩生活是中国最大的物业管理公。公司在市场面临估值下调已有一段时间，

我们相信情况会快将结束。虽然公司业务转型、潜在的万达物业管理的注入有待观察，但我们

相信公司在毛利稳定增长，及期权费用较低下，能在2017E年回复较高的盈利增长至32%。我

们也留意到公司有意改善股东回报。首次覆盖并给予“买入＂评级。我们的目标价5.50港元是

建基于20倍的2017E市盈率。 _

投资亮点

全球最大的物业管理公司。截至2016年底，彩生活的在管面积为3.951亿平方米。公司所

管理的物业覆盖大量的居民和业主，这让公司有机会提供各种增值服务。公司的2017年在

管面积目标为5亿平方米，即是相同增加约1亿平方米或26.54％。我们认为这目标可以实

现，主要有两个原因：（1）公司有完善的商业模式，并有良好的往绩；（2）公司有充裕

的财务资源进行并购。

输出O2O平台。彩生活的彩之云是业内比较成熟的在线平台，公司现时向其他物业管理公

司提供平台，并赚取使用费。随着彩之云吸引更多的关注，预期更多的服务供应商（如零

售商）将加入该平台，并支付软件使用费以进行在线推广。我们估计，彩之云在2017财年

的收入将开始占增值服务收入的50％以上及达到1.12亿元人民币，同比增长52％。

有机会获注万达物业管理的资产。花样年控股[1777.HK]于2016年8月收购了万达物业管

理。目前，彩生活的子公司为万达物业管理的住宅分部提供物业管理咨询服务。花样年控

股管理层提到，需要待项目有足够的盈利能力才将其注入彩生活，这可能需要两年时间。

我们估计，如果计划顺利进行，该资产注入将最早在2018年发生，对盈利将有刺激作用。

我们估计有机会使毛利润提升超过10％。

估值：根据我们的2017年每股盈利预测（0.25元人民币），彩生活的2017年市盈率为

16.05倍。我们预计公司将在2017年和2018年恢复增长势头，每股收益将增长超过30％。

我们认为，20倍的2017年目标市盈率对彩生活是合理的，因为公司过去的市盈率远高于现

时水平，但最近却有所下跌。我们相应的目标价为5.50港元。

风险：（1）O2O平台未能有效率地产生现金流；（2）万达物业管理公司的资产注入延

迟；（3）新业务收入增长放缓；（4）市场竞争激烈。

Key Financials (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Revenue 828 1,342 2,028 2,744 3,379

YoY Change 112.6% 62.2% 51.1% 35.3% 23.2%

Net Profit After Tax 168 188 248 319 414

YoY Change 15.6% 11.5% 32.2% 28.3% 30.0%

EPS (RMB) 0.17 0.19 0.25 0.31 0.41

YoY Change 0.9% 11.4% 30.9% 27.2% 29.9%

ROE 15.7% 14.9% 17.0% 18.4% 20.2%

P/E 24.0x 21.6x 16.5x 13.0x 10.0x

Dividend Yield 2.1% 2.2% 3.0% 3.9% 5.0%

0

5

10

15

20

25

30

35

40

0

1

2

3

4

5

6

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(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

来源: 公司, 中国银河国际证券研究部

收入

同比变动

税后净利润

同比变动

每股盈利（人民币）

同比变动

股本回报率

市盈率

股息收益率

主要财务指标（百万元人民币）

1

BUY

Close: HK$4.55 (May 16, 2017)

Target Price: HK$5.50 (+20.9%)

Price Performance

Market Cap US$583.6m

Shares Outstanding 999.1m

Auditor Deloitte

Free Float 27%

52W range HK$4.24-6.56

3M average daily T/O US$0.135m

Major Shareholding Fantasia (72.09%)

Sources: Company, Bloomberg

Sources: Company, CGIS Research

China Property Sector

Property Management

Waking the Sleeping Giant. Initiate with BUY

May 17, 2017

Tony Li, CFA—Analyst

(852) 3698 6392

[email protected]

Wong Chi Man, CFA—Head of Research

(852) 3698 6317

[email protected]

Source: Bloomberg

Colour Life Services Group [1778.HK]

Colour Life, the largest property manager in China in terms of GFA managed, has been de-rated by the market for some time, but we believe the de-rating will come to an end soon. While the outcome of its business transformation and the potential asset injection of Wanda Property Management have yet to be seen, we believe the Company is likely to resume higher profit growth of 32% in 2017E on the back of steady growth in gross profit and much lower option expenses this year. We also note that management has been focusing on enhancing shareholders’ return. We initiate coverage with a BUY rating and a target price of HK$5.50,

based on 20x 2017E PER. _

Investment Highlights

The World's Largest Residential Property Manager. As at the end of 2016, the con-

tracted GFA under Colour Life management was 395.1 million sq.m. The wide base of residents and property owners provides the Company with an entry point for offering various value-added services. The target of contracted GFA under management for 2017 is 500 million sq.m., implying an increase of roughly 100 million sq.m. or 26.54% YoY growth. We see this as an achievable target for two reasons: (1) the Company has a sound and proven business model, and (2) it has a strong war chest for acquisitions.

An Exporter of a Mature O2O Platform. Colour Life's online platform Caizhiyun is a

comparatively mature online platform in the industry, and the Company is now offering it to other property management companies to earn a platform usage fee. As the Caizhiyun platform gains traction, more services suppliers, such as retailers, are also expected to join the platform and pay software usage fees for online promotion. We estimate that it will start contributing more than 50% of value-added services revenue in FY2017, reach-ing RMB112m, implying 52% YoY growth.

Potential Injection of Wanda Property Management's Assets. Fantasia [1777.HK]

acquired Wanda Property Management in Aug 2016. Currently, a subsidiary of Colour Life is providing property management consultancy services for the residential portion of Wanda Property Management. Fantasia management mentioned that it would wait until the acquired projects were sufficiently profitable before injecting them into Colour Life, which may take two years. We estimate that the earnings-accretive asset injection for Colour Life could be in 2018 at the earliest if the plan is on track. We estimate it may boost gross profit by >10%.

Valuation. Based on our 2017 EPS forecast of RMB0.25, Colour Life is now trading at

16.05x 2017 PER. We expect the Company to restore its growth momentum in 2017E and 2018E with more than 30% EPS growth. We believe a 20x 2017E multiple target is justified, as Colour Life traded at a much higher multiple in the past, but was de-rated recently. Our corresponding target price is HK$5.50.

Risks: (1) Failure of effective monetization of its O2O platform; (2) a delay in Wanda

Property Management's asset injection; (3) lower revenue growth from new markets; and (4) keen competition in the market.

Key Financials (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Revenue 828 1,342 2,028 2,744 3,379

YoY Change 112.6% 62.2% 51.1% 35.3% 23.2%

Net Profit After Tax 168 188 248 319 414

YoY Change 15.6% 11.5% 32.2% 28.3% 30.0%

EPS (RMB) 0.17 0.19 0.25 0.31 0.41

YoY Change 0.9% 11.4% 30.9% 27.2% 29.9%

ROE 15.7% 14.9% 17.0% 18.4% 20.2%

P/E 24.0x 21.6x 16.5x 13.0x 10.0x

Dividend Yield 2.1% 2.2% 3.0% 3.9% 5.0%

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Turnover (RHS) Price (LHS)

2

Key financials

Sources: Company, Capital IQ, CGIS Research estimates

Revenue (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Property management services 586 1,059 1,673 2,318 2,881

Engineering services 135 126 139 153 168

Community leasing, sales and other service 106 157 216 273 331

Total 828 1,342 2,028 2,744 3,379

GP (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Property management services 275 377 527 681 817



Total 454 586 803 1,018 1,216

Segement Profit (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Property management services 206 234 370 512 637



Total 340 403 589 781 956

Income Statement (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Balance Sheet (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E

Revenue 828 1,342 2,028 2,744 3,379 Bank Balances and Cash 419 755 668 856 733

COGS (373) (756) (1,225) (1,726) (2,164) Restricted Bank Deposits 551 493 493 493 493

Gross Profit 454 586 803 1,018 1,216 Trade Receivables 179 271 340 460 566

SG&A (233) (311) (362) (434) (499) Inventories 2 2 1 2 2

Other Operating Items 28 41 11 4 (3) Other Current Assets 436 932 981 1,185 1,367

Operating Profit 249 316 453 588 713 Total Current Assets 1,589 2,453 2,483 2,995 3,161

Finance Costs (11) (38) (86) (81) (52) PP&E 167 181 228 276 319

Other Income 14 20 9 10 11 Investment Properties 89 93 93 93 93

Net Profit Before Tax 252 298 376 517 672 Goodwill & Intangible Assets 728 960 1,085 1,225 1,373

Income Tax (69) (82) (103) (142) (185) Other Non Current Assets 147 337 344 356 370

Net Profit After Tax 168 188 248 319 414 Total Non Current Assets 1,131 1,570 1,750 1,950 2,155

Minority Interest (After Tax) 14 28 24 56 73 Total Assets 2,719 4,023 4,233 4,945 5,316

EPS (RMB) 0.17 0.19 0.25 0.31 0.41

DPS (RMB) 0.08 0.09 0.12 0.16 0.20 Trade Payables 80 114 157 222 278

Short-term Borrowings 303 214 551 573 536

EBITDA 249 313 489 641 782 Other Current Liabilities 690 954 857 1,141 1,400

EBIT 221 275 441 584 717 Total Current Liabilities 1,074 1,282 1,565 1,936 2,214

Long-term Borrowings 290 1,124 735 661 286

Revenue Growth 112.6% 62.2% 51.1% 35.3% 23.2% Other Non-current Liabilities 55 84 103 138 177

Operating Profit Growth 19.0% 26.8% 43.2% 29.9% 21.3% Total Non-current Liabilities 345 1,208 838 799 463

Net Profit Growth 15.6% 11.5% 32.2% 28.3% 30.0% Total Liabilities 1,418 2,490 2,403 2,735 2,677

EPS Growth 0.9% 11.4% 30.9% 27.2% 29.9%

Gross Margin 54.9% 43.6% 39.6% 37.1% 36.0% Total Common Equity 1,259 1,459 1,731 2,056 2,412

Operating Margin 30.1% 23.6% 22.3% 21.4% 21.1% Minority Interest 41 74 98 154 227

Net Profit Margin 20.4% 14.0% 12.2% 11.6% 12.3% Total Equity 1,301 1,532 1,829 2,210 2,639

Total Equity & Liabilities 2,719 4,023 4,233 4,945 5,316

Cash Flow Statement (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Ratios FY2015 FY2016 FY2017E FY2018E FY2019E

Net Profit After Tax 168 188 248 319 414 ROE 15.7% 14.9% 17.0% 18.4% 20.2%

D&A Add-back 28 51 48 57 66 ROA 10.5% 6.9% 6.2% 7.5% 8.4%

Share-based Payment Expense 88 79 50 50 5

Net Change in Working Capital (90) (93) (159) 47 50 Net Debt / Equity 12.3% 34.3% 30.9% 14.3% 0.2%

Other Operating Items 44 97 166 208 211 EBITDA Interest Coverage 22x 8x 6x 8x 15x

CFO 239 322 353 681 746

Rec. Turnover Days 73 61 61 61 61

Purchase of PP&E (51) (65) (95) (105) (109) Other Rec. Turnover Days 40 71 71 71 71

Acquisitions of Subsidiaries, net (486) (221) (125) (140) (148) Payables Turnover Days 52 47 47 47 47

Other Investing Items (364) (329) 9 10 11 Other Payables Turnover Days 292 246 149 149 149

CFI (901) (615) (212) (235) (246)

Current Ratio 1.48x 1.91x 1.59x 1.55x 1.43x

Dividends Paid (71) (85) (90) (125) (159) Quick Ratio 1.48x 1.91x 1.59x 1.55x 1.43x

Net Change in Debt 465 728 (52) (52) (411) Valuation FY2015 FY2016 FY2017E FY2018E FY2019E

Other Financing Items 1 (15) (86) (81) (52) P/E 24.0x 21.6x 16.5x 13.0x 10.0x

CFF 395 628 (228) (258) (623) P/B 3.2x 2.8x 2.4x 2.0x 1.7x

Total Cash Flow (268) 335 (87) 188 (122) EV / EBITDA 24.0x 19.7x 10.9x 8.1x 6.3x

Free Cash Flow (434) (121) (0) 297 397 Dividend Yield 2.1% 2.2% 3.0% 3.9% 5.0%

3

(1) The World's Largest Residential Property Manager

Colour Life is the world's largest residential property manager in terms of GFA

managed, and we believe this will become the most valuable asset in the Company's

future development. As at the end of 2016, contracted GFA under Colour Life

management was 395.1 million sq.m., providing services to 2,339 communities. The

wide base of residents and property owners provides the Company with an entry point

for offering various value-added services.

The target of contracted GFA under management for 2017 is 500 million sq.m, implying

an increase of roughly 100 million sq.m or a 26.54% YoY growth. Although growth has

slowed down in recent years due to the increased scale of operations, we believe the

target is achievable for several reasons:

(I) Secure organic growth through a proven business model. We believe the

Company has a strong ability to secure new contracts through open bidding. Colour

Life has been consistently ranked as a leading property management company by the

China Index Academy, an authoritative research institute in the Chinese real estate

market. For example, in 2016, the Company was ranked 7th in

the category "Comprehensive Strength" and 6th

in the category "Customer Satisfaction". Its proven track record provides a strong

foundation for the Company to be selected by property developers.

Colour Life's recent expansion focus has been in smaller cities in eastern and

southern China, and we believe these regions could be the engine of growth for the

Company's contracted GFA under management.

In addition, with years of experience in developing O2O applications and applying

automation techniques, Colour Life’s cost controls have been effective. This will be an

advantage for the Company to secure new projects.

Investment Thesis

Contracted GFA (sq.m.):

2016: 395.1m

2017E: ~500m (26.54% YoY)

Source: Company, CGIS Research

Figure 1: Total Contracted GFA And No. of Residential Communities Managed

Total Contracted

GFA ('000 sq.m)Number

Total Contracted

GFA ('000 sq.m)Number

Shenzhen 9,745 132 753 18

Southern China (excluding

Shenzhen)69,657 473 7,265 29

Eastern China 109,323 711 12,994 51

Southwestern China 56,701 342 1,993 5

Northeastern China 10,284 49 4,554 25

Northwestern China 19,265 92 275 2

Northern China 16,880 83 4,589 25

Central China 64,639 236 5,176 12

Non-mainland China 40 16 – –

Singapore 987 38 – –

Total 357,521 2,172 37,599 167

Managed by the CompanyUnder the Company's consultancy

service arrangements

4

(II) Ample liquid assets for acquisitions. The Company had cash on hand of

RMB754.8m as at the end of 2016, which is sufficient to acquire smaller property

management companies to achieve growth of contracted GFA under management.

As a reference, Colour Life acquired Shenzhen Kaiyuan International Property

Management (深圳市開元國際物業管理) in June 2015 for a consideration of

RMB330m. Kaiyuan International is a property management company targeting the

high-end segment and was ranked 35th by the China Index Academy in 2014, when

Kaiyuan International managed more than 130 communities in 41 cities with total

contracted GFA of around 29.3m sq.m. The consideration implies a 11.6x PER ratio (an

earning-accretive acquisition, as Colour Life was trading far above 11.6x PER). It also

implies the Company paid RMB11.3 per sq.m. in the transaction.

Although it is unlikely Colour Life will acquire another sizable property management

company in 2017, it is plausible for the Company to acquire smaller companies at a

lower cost and less expensive valuation to secure additional growth.

Source: Company, CGIS Research estimates

Figure 2: Transaction Details of Shenzhen Kaiyuan International Property Management

Background Informatioin

Date of Annoucement 16 Feb 2015

Consideration RMB 330m (HKD 410m)

Communities Managed130

(as at 31 December 2014)

GFA Managed29.3 million sq.m.

(as at 31 December 2014)

Valuation

Cost per sqm RMB 11.26

P/E 11.56x

P/B 3.26x

Acquisition in 2015 has supported

growth

5

(2) Provider of A Mature O2O Platform — Caizhiyun

Apart from its traditional growth model, Colour Life is leveraging its well-developed

platform to secure growth in an alternative way. Colour Life's online platform Caizhiyun

彩之云 is a mature online platform in the industry, and the Company is now making it

available to other property management companies to earn a platform usage fee. As

the Caizhiyun platform gains traction, more services suppliers, such as retailers, are

expected to join the platform and pay software usage fees for online promotion.

Over the past few years, the Company has demonstrated a solid track record in its

value-added services segment, and we believe this will continue to act as a growth

driver for Colour Life, as the contracted GFA under management continues to grow.

According to Company's filing and our estimate, Colour Life's platform usage fee had a

CAGR of 90.45% from FY2013 to FY2016, reaching RMB74m by the end of FY2016.

We estimate that it will start contributing more than 50% of value-added services

revenue in FY2017, reaching RMB112m, implying 52% YoY growth.

This could be achieved using the minority equity investment model. By investing a

small stake in property management companies, Colour Life could export its Caizhiyun

platform to third parties, and split the usage fee with its associates.

Software/platform usage fee will be

an important revenue driver

Figure 3: Breakdown of Community Leasing, Sales and Other Services Segments

Source: Company, CGIS Research estimates

...by means of minority equity

investment

45 80 190 275

377 527

681 817

922

19 20 55

76 64

67

74

81

89

30 44 65

104

144

209

263

317

366

-

200

400

600

800

1,000

1,200

1,400

1,600

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E

Property management services Engineering services Community leasing, sales and other service

6

The acquisition of Shanghai Yinwan’s 6% stake in November 2016 is an illustration of

this business model. Shanghai Yinwan is a relatively large property management

company in China, managing 750 projects itself, with GFA under management of 110m

sq.m. Yinwan also set up a technology platform, iKey, which attracted 20 property

management companies as members, managing another 2,200 projects with GFA

under management of 250m sq.m. After the acquisition, Yinwan and its iKey alliance

will adopt Caizhiyun as the backbone of their management services; this could help

them reduce costs related to platform maintenance and R&D.


Figure 4: Breakdown of Revenue from Community Living Services (Unit: RMB m)

Shanghai Yinwan is an example of

this business model

FY2015 FY2016 YoY

RMB'000 RMB'000 Change

Total of community leasing, sales and other

services fees105,887 155,856 47.2%

Common area rental assistance 30,397 37,082 22.0%

Usage fees from online promotion services and

leasing information system software49,140 74,015 50.6%

Residential and retail units rental and sales

assistance17,821 19,696 10.5%

Other services* 8,529 25,063 193.9%

*mainly consist of (i) purchase assistance; (ii) energy management services; (iii) parking

management services; and (iv) other services

**The Company has reinstated its classification in 2016

7

(3) Potential Injection of Wanda Property Management's

Assets

The parent of Colour Life, Fantasia [1777.HK], has been aggressively building a real

estate conglomerate, which will support Colour Life's expansion in various ways. One

of the most important measures was the acquisition of Wanda Property Management

from Dalian Wanda Commercial Properties in Aug 2016. Fantasia won the bid over

other leading property management companies, like Greentown Service and Vanke

Service, not because of price, but because Dalian Wanda appreciated the service

quality of Fantasia and Colour Life.

Currently, Shenzhen Kaiyuan International, a subsidiary of Colour Life, is providing

property management consultancy services to the residential portion of Wanda

Property Management. Fantasia management mentioned that it would wait until the

acquired projects were sufficiently profitable before injecting them into Colour Life,

which may take two years. We estimate the earnings-accretive asset injection for

Colour Life could be in 2018 at the earliest if the plan is on track.

Based on the latest filing of Dalian Wanda Commercial Properties , sales of residential

properties remained strong in the first three quarters in 2016, which

supports our investment thesis.

The parent company is likely to

inject Wanda Property Management

into Colour Life

...this is likely to happen in 2018

Figure 5: Revenue of Dalian Wanda Commercial Properties

RMB million FY2013 FY2014 FY2015FY2016

Q1-Q3

Sales of Properties 79,701 97,301 108,844 46,185

- Commerical 44,462 68,807 49,131 20,665

- Residential 32,375 25,074 56,829 23,996

- Others 2,865 3,420 2,884 1,524

Investment Property Leasing

and Property Management8,192 11,080 14,435 14,018

Hotel Operations 3,418 4,273 5,256 4,397

Others 924 1,843 3,229 1,909

Total 92,235 114,497 131,764 66,509

Source: Filings from Dalian Wanda, Wind Info, CGIS Research

8

The potential asset injection is likely to support the overall business both quantitatively

and qualitatively. Total revenue-bearing GFA (completed and delivered by Wanda) to

be injected is around 10.83m sq.m., or ~2.78% of the existing GFA under management

by Colour Life. That said, the projects developed by Wanda are generally more upscale

and have higher management fees. For average Wanda projects, the monthly

management fee is RMB2/sq.m., while high-end projects can be RMB3.5-4/sq.m. We

estimate that this is substantially higher than the Company's current average level.

All the projects developed by Wanda use a lump-sum basis for revenue recognition. If

we conservatively assume the average property management fee charged by Wanda

is RMB2.5/sq.m., and a 20% GPM, the current total revenue-bearing GFA from all

potential assets from Wanda of 10.83m sq.m. will generate a gross profit of RMB65m,

or 11% of 2016 gross profit. There will be further upside from value-added services, but

this proves that the assets from Wanda can make up a substantial part of Colour Life's

future earnings.

Other than the existing projects previously managed by Wanda Property Management,

Colour Life is likely to receive preferential treatment when bidding on Dalian Wanda's

new development properties.

Figure 8: Revenue by Region

Source: CGIS Research estimates

The GFA from Wanda Property Mgt

is only 2.78% of CL’s

585,789

377,028

65,000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Gross Profit in 2016 - Overall Gross Profit in 2016 - from PropertyManagement

Our Estimate of Gross ProfitContribution from Wanda Property

Management

Figure 6: Gross Profit of Colour Life in 2016 and Our Preliminary Estimated Contribution

from Wanda Property Management

...but the gross profit contribution

could be up to 11%

9

Solid Business with Strong Gross Profit Growth

As Colour Life’s target is to have 500m sq.m. of contracted GFA under management,

we expect its overall revenue to continue to grow robustly. However, part of the main

revenue driver will be the higher portion of revenue booked on a lump-sum basis. We

expect the portion of revenue booked on a lump-sum basis to go up from 71.6% in

2016 to 81.6% in 2017E, as more revenue will be derived from Shenzhen Kaiyuan

International.

Meanwhile, we expect revenue from value-added services to continue to deliver high

growth (37.7% YoY in 2017E and 26.3% YoY in 2018E), as the export of the Caizhuyun

platform will continue to drive more business from both residents and business

partners.

Gross profit, a more reliable indicator, is also growing at a solid rate. We expect gross

profit to reach RMB800m in 2017E and RMB1,018m in 2018E, implying 37.1% and

26.7% YoY growth, respectively.

Financials

More revenue contribution from SZ

Kaiyuan Intl

18,339 32,337 63,285 137,164

303,473 357,521

456,301

713 1,691 28,248

68,086

18,651

37,599

37,599

-

100,000

200,000

300,000

400,000

500,000

600,000

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

GFA Managed GFA Providing Consultancy Services

Figure 7: Contracted GFA: Growing at a CAGR of 72% from 2011 to 2017E


10

Margins Distorted Due to Accounting Reasons

We note that some investors, during the preliminary stage of research, may have concerns about Colour Life's fundamentals, as its GPM and NPM have consistently declined since its IPO in June 2015. We tend to differ, as the change in profit margin was due mainly to different accounting treatment: i.e., a higher contribution from revenue booked on a lump-sum basis.

For this reason, we expect the overall GPM of Colour Life to continue to

decline, reaching 39.6% and 37.1% in 2017E and 2018E, respectively, and NPM to

reach 13.0% in both years. Still, we continue to expect one of the key profit drivers to

remain the "Community leasing, sales and other services" segment, as the gross profit

margin should remain at more than 90% even though innovative businesses (such as

energy management) are introduced occasionally.

EPS Expected to Grow >30% p.a. in 2017E and 2018E

After relatively stale earnings growth in 2016, we expect Colour Life to resume its high

growth in 2017E and 2018E, achieving 32.6% and 36.3% EPS YoY growth,

respectively. This could be achieved through (1) normal growth of its core property

management business, and (2) continued high growth of its value-added services.

We expect SG&A to grow at a slower pace and its ratio to revenue to drop from 23% in

2016 to 18% in 2017E. One of the major reasons for this is the slower growth of

option expenses. Staff costs in 2016 were RMB184m, up 39.1% YoY, and we expect

them to go up only a moderate 10.3% YoY to RMB203m in 2017E.

GPM will decline due to more

booking on a lump-sum basis

SG&A is expected to be lower

29.4%

48.2%

96.5%

37.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E

Property management services Engineering services

Community leasing, sales and other service Overall

Figure 8: Gross Profit Margin and Our Forecast


11

Operating Cash Flow Expected to Remain Solid

We expect Colour Life’s operating cash flow to remain strong, as the Company has

been generating stable cash flow from its core property management business. For

2017E and 2018E, we expect the cash flow from operating activities to be RMB390m

and RMB735m, respectively. The relatively large discrepancy between net profit and

operating cash flow, particularly for FY2018E, can be explained by the large chunk of

share-based option expenses and non-cash expenses (such as provisions for doubtful

accounts).

Balance Sheet Remains Healthy despite a Slight

Deterioration

We note that the gearing ratio of Colour Life has been rising, especially in 2016. As at

the end of 2016, the net debt to equity ratio jumped to 34.3%, as the Company raised

RMB700m in 2016 by issuing two corporate bonds and ABS in mainland China.

These three issues were somewhat surprising to investors in our view, as finance costs

increased significantly in 2016. However, their coupon rate is not that high (around 7%

on average), and the current interest coverage is strong (EBITDA interest coverage is

6x in 2017E). We still believe the financial position of Colour Life is healthy, given its

strong cash flow.

Meanwhile, the absolute amount of the provision of doubtful accounts has been rising,

but we don't see it reaching an alarming level in the near term.

58 45 57

239

322 353

(2) (7) (11) (28) (29)(64)

(0) (0)(30)

(88) (79)(50)

(150)

(100)

(50)

-

50

100

150

200

250

300

350

400

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E

CFFO Allowance for Doubtful Debts, net Share-based Payment Expense

Figure 9: Cash Flow From Operations, Share-based Option Expenses and Allowance for

Doubtful Debts (Unit: RMB million)


12

Based on our 2017 EPS forecast of RMB0.25, Colour Life is currently trading at 16.05x

2017 PER. Given that Colour Life is likely to restore its growth momentum in 2017E

and 2018E with more than 30% EPS growth, we believe a 20x 2017E multiple target is

justified, as Colour Life traded at a much higher multiple in the past, but was recently

de-rated. Our corresponding target price is HK$5.50.

Moreover, the dividend payout of Colour Life is generous (47.7% in 2016), and we be-

lieve this will support the share price performance in the long term. Coupled with the

HK$50m share buyback program announced in April 2017, we believe the downside

risk for the share price is limited. We initiate coverage with a BUY rating.

Valuation

Source: Bloomberg, CGIS Research

0

2

4

6

8

10

12

14

16

18

20

27

/6/2

01

4

4/1

0/2

01

4

11

/1/2

01

5

20

/4/2

01

5

28

/7/2

01

5

4/1

1/2

01

5

11

/2/2

01

6

20

/5/2

01

6

27

/8/2

01

6

4/1

2/2

01

6

13

/3/2

01

7

HKD

60x

49x

38x

27x

16x

Figure 10: PER Band

13

Failure of the Effective Monetization of the O2O Platform

While the Cazihiyun platform has been generating fast-growing revenue for the Com-

pany, there is uncertainty about whether exporting Caizhiyun will be effective and se-

cure a significant number of external parties to adopt the platform. In addition, the busi-

ness models of many services offered on Caizhiyun are in the preliminary stage and

may not generate sufficient profit.

Delay of Wanda Property Management's Asset Injection

Although Fantasia management mentioned it would take 1-2 years for the Wanda

Property Management assets acquired to be mature enough to inject into Colour Life,

the plan could be delayed. Also, there is a risk that the profitability of the communi-

ties managed by Wanda Property Management is lower than Colour Life’s existing

projects and drags down the overall performance of the Company.

Lower Revenue Growth from New Markets

Colour Life has been actively seeking market expansion in Tier 3-4 cities. Management

fees in those cities are generally lower than those in Tier 1-2 cities, and this may drag

down the average management fees earned by the Company.

Keen Competition in the Market

Although Colour Life has been a leader in exporting its online platform and value-

added services, other leading property management companies, like Vanke, are also

experimenting with this kind of business model. This may put pressure on Colour Life

in securing partners.

Investment Risk

14

Company Background

Colour Life was listed on 30 June 2014 as a spin-off of Fantasia [1777.HK]. Before the

incorporation of Colour Life, its operating subsidiaries were an integral part of Fantasia.

The history of Colour Life's main business segment, property

management, can be traced back to the business commencement of

Shenzhen Colour Life Property Management on May 10, 2002, which was established

by, among others, Shenzhen Fantasia

Investment Development Co., Ltd., a subsidiary of Fantasia, and Mr. Pan Jun, a Non-

Executive Director, with a view to creating a complementary business segment to

Fantasia’s core business in property development. In the same year, Mr. Tang Xuebin,

Executive Director and Chief Executive Officer, joined Colour Life as a member of the

senior management team.

In 2002, to complement its property management services, Colour Life began to pro-

vide community leasing, sales and other services to the residents and property owners

of the residential communities managed by the Company. In 2004, it began to expand

its business to other cities in the PRC outside Shenzhen after having established all

three business segments in Shenzhen.

In December 2006, Colour Life commenced its engineering services business through

the acquisition of Shenzhen Kaiyuan Tongji, a company which is engaged primarily in

the provision of engineering services to property developers and the residential

communities that Colour Life manages in Shenzhen. In June 2007, the Company

started to centralize the provision of community leasing, sales and other services

through Shenzhen Colour Life Network Service, which included primarily the provision

of common area rental assistance and purchase assistance services.

Appendix

Fantasia [1777.HK]72.09%

Other Investors and Public Investors27.91%


Figure 11: Shareholding Structure as of 31 December 2016

15

Selected Executives and Senior Management

Mr. PAN Jun (潘軍). Mr. Pan is a Non-Executive Director and Chairman of the Board

of Colour Life He joined the Fantasia Group in 1999 and is also an Executive Director, and Chairman and CEO of Fantasia Holdings. From March 1994 to September 1999, he was a project manager, manager of the marketing department, manager of the valuation department, and assistant to the general manager of World Union Real Estate Consultancy (Shenzhen) Ltd., primarily responsible for marketing and valuation matters.

Mr. TANG Xuebin (唐學斌). Mr. Tang, aged 48, is an Executive Director and CEO of

Colour Life. He joined the Company in 2002 and is responsible for the operation and management of Colour Life. He also serves as general manager of a number of subsidiaries of the Company. From 1997 to 2001, he worked at China Overseas Property Management Co., Ltd., where his last position was deputy general manager, responsible primarily for the management of the engineering department.

Mr. DONG Dong (董東). Mr. Dong is an Executive Director and Dean of the

Company’s Research Institute. He joined Colour Life in 2004 and is responsible for the operation and management of the firm’s information technology. From 2004 to 2005, he was general manager of Shenzhen Kaiyuan Tongji. In 2013, he became Vice President of the Company. From September 1998 to January 2002, he was a manager, deputy manager and assistant manager of the engineering department of China Overseas Property Management Co., Ltd., responsible primarily for the management and operation of property development projects.

Mr. LIU Chang (劉暢). Mr. Liu is the CFO of Colour Life. He joined the Company in

June 2016 and is responsible for the financial management of the Company. Mr. Liu has more than 15 years’ experience in financial management. From April 2015 to May 2016, he was the financial director of Shenzhen Noposion Agrochemicals Co. Ltd., responsible primarily for corporate financial management.

Appendix

Non-Executive Director & Chairman

Executive Director & CEO

Executive Director & COO

CFO

6

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