China property: Onewo float will need all its defensive properties

China’s crumbling property sector has wreaked havoc on its stocks and bonds alike. Despite the bad press, Chinese property manager Onewo plans to move ahead with its Hong Kong listing, in what could be one of the city’s biggest this year. The longer-term prospects could surprise investors.

At the midpoint of its targeted range of HK$47.10 to HK$52.70, Onewo would raise about $750mn, valuing the company at about $7.5bn. China Vanke, the country’s second-largest developer, owns 62.9 per cent of Onewo.

Big macro factors argue against a successful listing for the company. Hong Kong listing volumes have plunged this year on dwindling investor demand. Funds raised from new initial public offerings in the city fell 91 per cent in the first half. Recent IPOs have brought disappointing returns.

Moreover, the real estate sector has problems. Vanke may be one of the sector’s few healthy companies, but it has not avoided the fallout. Sales at its property development business dropped 39 per cent in the first half.

Onewo does have some defensive qualities, though. It has the advantage of scale as China’s largest property management services provider. Vanke’s domestic market share provides Onewo a constant, stable stream of property management service revenue.

That contribution partly explains why Vanke’s share price has fallen only a tenth in the past year, a feat when local rival Country Garden’s shares have dropped more than 70 per cent during the same period.

Even amid plunging demand and prices for homes, Onewo’s profit rose 11 per cent in the first quarter as turnover grew 44 per cent. Its technology unit, which builds tools to allow remote management of properties, has driven new growth. This division should get a boost from Vanke’s fast-growing logistics and warehousing business.

Finding enough brave investors to take up this IPO will be the next test. But Onewo should, along with Vanke, be among the first of China’s property groups to recover once the crisis is over.