Good News on Listing | Frost & Sullivan Assists RunHua Life Service Group Holdings Limited to Successfully List on the Hong Kong Stock Exchange (2455.HK)

Runway Services Holdings Limited (hereinafter referred to as 'Runway Services') successfully listed on January 17, 2023. The company plans to issue 7,500 million H shares, of which 90% will be international offerings, 10% public offerings, and an additional 15% will be underwritten options. The issue price per share is HK$1.70.

During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the issuer complete communication with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

Broadly speaking, property management refers to the operation, control, and supervision of real estate. Management involves the need for maintenance, monitoring, and responsibility for the lifespan and condition of properties. Most property management service providers in China offer services to different types of properties, including residential and non-residential properties (including office buildings, shopping malls, and public, industrial, and other properties such as hospitals and schools).

Property management service providers generally offer the following services: (i) Traditional property management services; and (ii) Other services (including value-added services provided to property developers and community services). The value-added services provided to property developers mainly include pre-delivery services and consulting services.

The total managed building area refers to the total construction area of independent units privately owned by property owners or occupied by residents, as well as the total construction area of public areas. The total managed building area in China's property management service market increased from 30.9 billion square meters in 2016 to 37.2 billion square meters in 2021, with a compound annual growth rate of 3.8%. In 2021, the total managed building area of residential properties reached 31.9 billion square meters, with a compound annual growth rate of 3.4% from 2016 to 2021. In 2021, the total managed building area of non-residential properties reached 5.3 billion square meters, with a compound annual growth rate of 6.3% from 2016 to 2021.

In the future, the growth in the total managed construction area of property management service providers in China will mainly be influenced by the development of the real estate industry in China. By 2026, it is expected that the total managed construction area of the property management service market in China will reach 44.7 billion square meters, with a compound annual growth rate from 2021 to 2026 of 3.7%.

From 2016 to 2021, the total revenue of property management service providers increased from RMB 241.4 billion to RMB 434 billion, with a compound annual growth rate of 12.4%. In 2026, it is expected that the total revenue of the property management service market will reach RMB 838.2 billion, with a compound annual growth rate of 14.1% from 2021 to 2026. From 2016 to 2021, the total revenue generated by non-residential properties increased from RMB 84.8 billion to RMB 161.2 billion, with a compound annual growth rate of 13.7%. In 2026, it is expected that the total revenue generated by non-residential properties will reach RMB 323.5 billion, with a compound annual growth rate of 14.9% from 2021 to 2026.

• Industry concentration accelerates

In recent years, the property management service market has become increasingly concentrated due to policy environment, market competition, and information technology. In particular, a few leading property management service providers have begun to enhance their management standards and core competitiveness through mergers and acquisitions. Moreover, property management service providers are committed to developing alliances and integrating to achieve economies of scale, which also makes the Chinese property management service market more concentrated in its future development.

• Constantly improving service quality awareness

Currently, property owners are paying more and more attention to service quality when choosing property management service providers. With the continuous growth of per capita disposable income, property owners are pursuing better living conditions and are willing to pay for high-quality property management services. In addition, high-quality property management services can achieve the preservation and appreciation of property value. In the future, more and more property management service providers are expected to optimize their traditional property management services and apply information technology to improve their service quality.

• Expanded service scope to non-residential properties

Due to rising labor and operating costs, the market competition for residential property management services is becoming increasingly fierce. Property management service providers have more room to negotiate property management fees with non-residential property owners in the non-residential property segment, which may also lead to an increase in their profitability. Therefore, property management service providers are committed to expanding diversified types of property services, such as public properties, commercial properties, and industrial properties.

• The demand for hospital property management services has increased

From 2016 to 2021, domestic healthcare industry expenditures increased from RMB 1.3 trillion to RMB 1.9 trillion. The total number of hospitals in China also showed a stable growth trend, which will stimulate the development of the hospital property management service market and thus provide business growth opportunities for property management service providers that own hospital logistics services.

Shandong Province is located in East China and is a coastal province of China. The province is situated on the eastern edge of the North China Plain, downstream of the Yellow River. The northern part of Shandong Province borders the Bohai Sea and plays an important role in the Bohai Rim Economic Zone.

In 2021, Shandong Province's nominal GDP accounted for about 7.3% of China's nominal GDP, ranking third among all provinces in China. In addition, Shandong Province is one of the most populous provinces in China. In recent years, Shandong Province has actively sought to upgrade its traditional economic structure and participate in international cooperation, especially with Japan and South Korea, leveraging its geographical advantages. The Chinese government has made integrating all cities in the Bohai Rim region and promoting economic development its top priority, including building advanced communication networks, improving highways, increasing educational and scientific resources, and developing natural resources in the Bohai Rim region. In 2016, the Chinese government approved a plan costing $36 billion to connect and integrate cities in the Bohai Rim by constructing nine railways, each 1,100 kilometers long.

From 2016 to 2021, the total revenue of property management service providers in Shandong Province increased from RMB 278 billion to RMB 491 billion, with a compound annual growth rate of 12.0%. It is expected that by 2026, the total revenue of property management services in Shandong Province will reach RMB 784 billion, with a compound annual growth rate from 2021 to 2026 of 9.8%. From 2016 to 2021, the total revenue generated from non-residential properties in Shandong Province increased from RMB 119 billion to RMB 232 billion, with a compound annual growth rate of 14.3%. It is expected that by 2026, the total revenue generated from non-residential properties will reach RMB 388 billion, with a compound annual growth rate from 2021 to 2026 of 10.8%.

• Improvement of the professional level in the property management service market

Property management service providers in Shandong Province are continuously expanding their service scope to more diverse property types, especially non-residential properties such as office buildings, hospitals, and schools. On the other hand, an increasing number of non-residential property owners tend to entrust property management to professional service companies because these properties require strong management capabilities. For example, hospitals need strong control and resource integration capabilities due to their high requirements for environmental management, safety management, and facility management. In the future, participants in the non-residential property management market in Shandong Province will enhance their competitive edge by improving the level of professional property management services.

• Integration of the Internet and property management services

In recent years, with the continuous increase in disposable income in Shandong Province, the requirements of property owners and users for property management services have also risen. Therefore, as competition becomes increasingly fierce and market models become more perfect, leading property management service providers are more proactive in seizing the development trends of the property management service market. At the same time, with the rapid development of the internet, more and more property management service providers in the market are gradually integrating the internet with property management services, such as establishing community O2O platforms and intelligent hospital logistics management systems. In the future, more and more property management service providers in Shandong Province will focus on integrating the internet with property management services to enhance their core competitive advantage.

According to a Frost & Sullivan report, in 2021, the top five local property management service providers in Shandong Province accounted for about 6.1% of the total revenue generated from property management services. Among them, Runhua Life Service's market share was about 1.0%.

According to a Frost & Sullivan report, in 2021, the top five property management service providers in Shandong Province accounted for about 13.5% of the total revenue generated from non-residential property management services. Among them, Runhualife Services had a market share of about 2.1%.

Hospital logistics services are an important foundation for supporting and ensuring the normal operation of hospitals, including medical care, research, disease prevention, health care, etc. Hospital logistics service providers can offer comprehensive services regarding the operation and management of hospital assets and facilities, as well as provide patients with basic necessities such as food, clothing, shelter, and transportation. They can also provide material supply and equipment support. To offer high-quality and comprehensive hospital logistics services, hospital logistics service providers must possess professional knowledge and strong management and operational capabilities.

Hospital logistics services mainly include traditional property management services and value-added services. Traditional property management services primarily involve security services, cleaning services, landscaping and horticultural maintenance, upkeep and other services. Value-added services mainly include: (i) Asset and facility management, such as facility procurement management, equipment acceptance and filing, special equipment maintenance, asset inspection and management, etc., (ii) Safety management, such as fire management, hazardous chemicals management, emergency event management, etc., (iii) Patient services, such as material distribution, bedding and laundry washing, nursing services, housekeeping services, catering services, etc., and (iv) Cleaning the surfaces of used medical devices, equipment, and consumables and delivering them to the central disinfection service department.

With the increasing number of hospitals, the total revenue of the hospital logistics service market has been continuously growing in recent years. From 2016 to 2021, the total revenue of the hospital logistics service market in China increased from RMB 16.4 billion to RMB 34.2 billion, with a compound annual growth rate of 15.8%. In the future, as Chinese hospitals expand their managed construction area, the compound annual growth rate from 2021 to 2026 is expected to be about 6.0%, further expanding the scope of services to include diversified value-added services. It is estimated that by 2026, the total revenue of hospital logistics services in China will reach RMB 672 billion, with a compound annual growth rate from 2021 to 2026 of 14.5%.

From 2016 to 2021, the total revenue of the hospital logistics service market in Shandong Province increased from RMB 1.38 billion to RMB 3.02 billion, with a compound annual growth rate of 17.0%. In the future, with the increase in the managed construction area of hospitals in Shandong Province, the total revenue of the hospital logistics service market is expected to continue growing. By 2026, the total revenue of hospital logistics services in Shandong Province is expected to reach RMB 62.6 billion, with a compound annual growth rate of 15.7% from 2021 to 2026.

• The demand for outsourced hospital logistics services is increasing day by day

With the continuous increase in labor costs, most hospitals in China will outsource their non-core businesses (such as hospital logistics services) to reduce costs. In the future, with the increasing demand for hospital logistics service outsourcing, hospital logistics service providers will establish broader and deeper cooperative relationships with hospitals. With the growing demand for hospital logistics services and the increasing diversity of service scopes offered by providers, it is expected that the total revenue of China's hospital logistics service market from 2021 to 2026 will grow at a compound annual growth rate of 14.5%.

• Application of new technologies

With the development of China's hospital logistics service market, hospital logistics service providers are applying a series of new technologies such as Internet technology, Internet of Things, big data, and cloud computing in various application scenarios (including cleaning services, medical support transportation, and inspection services) to reduce costs, improve management efficiency, and promote transportation. This is also aimed at transforming and upgrading traditional hospital logistics services that rely heavily on labor. In addition, with the widespread application of new technologies in providing hospital logistics services, hospital logistics service providers can assist hospitals in enhancing their operational capabilities and comprehensive advantages.

According to a Frost & Sullivan report, in 2021, the top five hospital logistics service providers in Shandong Province accounted for approximately 26.0% of the total revenue generated by hospital back-office services. Among them, Runhuali Life Service had a market share of about 7.2%.

Frost & Sullivan has rich research experience in the property and real estate industry, assisting well-known enterprises to successfully enter the capital market. Successful listing cases include: All Things Cloud (2602.HK), Suxin Good Life (2152.HK), Desheng Property Investment (2270.HK), China Resources Vanguard (1209.HK), Excellence Business Enterprise (6989.HK), Mingyuan Cloud (0909.HK), Baolong Commercial (9909.HK), China Tianbao (1427.HK), Yincheng Life Services (1922.HK), Fangduo (NASDAQ:DUO), Xinyuan Technology Services (1895.HK), CIFI Holdings (NASDAQ:CIH), Lejias Holdings (1867.HK), Aoyuan Health (3662.HK), Chuangyi Holdings (3992.HK), Joyou Property (2168.HK), Baoyan Holdings (8601.HK), Hengyu Group (2448.HK), Yajiu Investment Holdings (8426.HK), Red Star Macalline (1528.HK), and others.