HONG KONG, Nov. 9, 2021 /PRNewswire/ -- Infini Capital, a SFC Type 9 licensed Fund Management Company, today issued a letter to the members of the board of directors and fellow shareholders of Aoyuan Healthy Life Group Company Limited.
Dear Members of the Board of Directors and Fellow Shareholders,
Introduction
We, Infini Capital, currently holds over 6% of the ordinary issued share capital of Aoyuan Healthy Life Group Company Limited ("Aoyuan Healthy" or "the Company"). Following extensive diligence and analysis of Aoyuan Healthy, we made the investment with strong conviction that there is substantial value embedded in Aoyuan Healthy's business, whose current market capitalization represents a significant undervaluation of the underlying business.
The purpose of today's letter is to share our thoughts on the underperformance and undervaluation of Aoyuan Healthy's business, and our proposal to unlock its true value for its shareholders. We are aware of Company's announcement dated November 4, 2021 regarding its holding of preliminary discussions with several independent third parties for a possible disposal of interests in certain subsidiaries that provide property management and other related services. We are supportive of the Board of Directors' actions in recovering the true value of the business, and we believe the best way forward for the Company would be to run a transparent and competitive auction process so as to fully realize the embedded value of the business.
Given the importance of this matter and our intention in unlocking Aoyuan Healthy's tremendous value with all of its shareholders, we are sharing this letter publicly so that our fellow shareholders and all parties with an interest or potential interest in Aoyuan Healthy's future can participate in the dialogue in order to fully realize its value potential.
Share Price Underperformance and Undervaluation of Aoyuan Healthy
In the past 12 months, Aoyuan Healthy has seen its share price decreased by 42.3%, which grossly underperformed the average positive return of 3.9% achieved by its peers in the property management sector(1).
On the comparable trading multiples basis, an enormous gap between Aoyuan Healthy and its peers is identified. For example, as of November 5, 2021, Aoyuan Healthy is trading at 5.2x FY21E Price-to-Earnings ratio, while its peers trade at average of 27.3x FY21E Price-to-Earnings ratio(1).
In our view, Aoyuan Healthy's chronic underperformance and undervaluation are attributable to the lack of scale, breadth and depth of the business compared to its peers. Given the difference in scale of parent company's business, Aoyuan Healthy has substantially lower Gross Floor Area ("GFA") under management and potential GFA additions from parent company's newly built properties compared to its peers. Also, given the liquidity conditions and regulatory landscape in the China property sector, there have been a lot of scrutiny and concerns over their sponsor developers' financial strength and growth prospect when investors evaluate the business fundamentals of property management companies. These concerns over liquidity and business continuity at the China Aoyuan Group's level, we believe, put considerable pressure on Aoyuan Healthy's share price and growth prospect, as any slowdown in China Aoyuan Group's business would directly translate into slower growth prospects or even reduction in revenue for Aoyuan Healthy, as well as overshadow the Company's inorganic growth prospect as M&A targets would take into account the sponsor developer strength when they evaluate potential suitors.
Besides, at Aoyuan Healthy's level, there is also a smaller suite of Value Added Services ("VAS") offerings compared to its peers, which results in less cross-selling and up-selling opportunities with current tenants. As its peers continue to expand both the scale and breadth of VAS offerings, it would only get harder for Aoyuan Healthy to outperform its peers and win third-party GFA with the current business profile.
Proposal to Unlock Aoyuan Healthy's True Value: Conduct a Transparent and Competitive Auction Process
In order to truly realize the value of Aoyuan Healthy's GFA and tenant base, we recommend the Board of Directors to conduct a transparent and competitive auction for the Company, as an attempt to sell the Company to potential suitors who are willing to pay an appropriate premium to the Company's current share price that appropriately reflects the true value of the business.
For reference, based on public news and broker research reports, recent M&As in the property management sector are valuing targets at more than 10x Price-to-Earnings ratio, which is a significant premium to Aoyuan Healthy's current trading multiple(2).
Conclusion
We urge the Board of Directors and fellow shareholders to review our proposal. We hope and believe our proposal would generate the proper value for Aoyuan Healthy's business and thus allow all shareholders with an opportunity to earn their deserved return on their investment in Aoyuan Healthy. We appreciate our Board of Directors' open approach to our dialogue and look forward to working together to unlock Aoyuan Healthy's true value for the Company's stakeholders.
Best Regards,
Infini Capital
About Infini Capital
Infini Capital is a fund management company. As a global investment house, we aim to generate consistent by capitalizing on the considerable opportunities in global markets, by combining the region's best investment talent with strict risk management tailored for the Asian investment environment's unique characteristics.
Our investment team deploys a multi-strategy investment approach across global markets in a variety of asset classes to seek risk adjusted returns for our investors. We believe the aggregate of the carefully chosen independent strategy enables us to generate high quality, consistent returns in any market condition.
The firm has a global footprint, with a strong presence in the United States and offices in Hong Kong, New York, Japan, London and Taipei.
Infini Capital is currently licensed with Securities Futures and Commission (Type 9 – Asset Management), Japan Financial Services Agency (High Speed Trading License), Securities Exchange Commission, (Professional Institutional Investor), FINRA (Exempted Reporting Adviser) and NFA (Commodity Trading Advisor and Commodity Pooled Fund).
(1) Source: Bloomberg as of November 5, 2021. Peers include Country Garden Services Holdings Company Limited, China Resources Mixc Lifestyle Services Limited, Sunac Services Holdings Limited, Shimao Services Holdings Limited, Greentown Service Group Co. Ltd., CIFI Ever Sunshine Services Group Limited, Poly Property Services Co., Ltd., China Overseas Property Holdings Limited |
(2) Source: Wall Street broker research reports. Based on recent Wall Street broker research reports, in the past 3 months, there were a number of M&A transactions in the property management sector, including: (1) CG Services acquiring 100% of R&F Service (Wealth BestGlobal) at 14.0x P/E, (2) CG Services acquiring 100% of Link Joy (Colour Life) at 10.7x P/E, (3) Ever Sunshine acquiring 80% of Shanghai Macalline PM at 13.4x , (4) Sunac Services acquiring 32.2% of First Service (Modern Land) at 14.1x P/E |
