Elevator Pitch
Hong Kong-listed Mainland China property conglomerate Agile Group Holdings Limited (OTCPK:AGPYF) (OTCPK:AGPYY) [3383:HK] trades at 4.0 times consensus forward FY2019 P/E representing a discount to the stock's historical five-year average forward P/E of approximately 5 times. It also offers a trailing 11.5% dividend yield.
I am neutral on Agile Group's aggressive diversification plans with a target for non-property development businesses half of the company's revenue in five years' time from 9% in 1H2019. While diversification will help to reduce the volatility and cyclicality associated the company's core property development business, it also turns Agile Group into a conglomerate with multiple businesses which do not necessarily have synergies with its core business.
On one hand, Agile Group should deserve a higher valuation for increasing the proportion of stable recurring income generated from its non-property development businesses such as property management services and environmental protection projects. On the other hand, the stock could deserves a conglomerate discount for its diversification into unrelated businesses such as environmental protection, considering that non-property development businesses will account for half of the company's revenue in five years' time.
Although Agile Group's low P/E valuation and high dividend yield are attractive, I think this is justified because the market is assigning a conglomerate discount to the company for its aggressive business diversification plans.
Company Description
Started in 1992, Agile Group is a property conglomerate with diverse business interests in property development, property investment, property management services, hotel operations, construction services, financial services, education and environmental protection.
Agile Group's five key business segments are property development, property management, hotel operations, property investment and environmental protection.
Agile Group's Revenue And Operating Profit Contribution By Business Segment for 1H2019
| Business Segments | Segment's Revenue Contribution As a Percentage Of Total Revenue For 1H2019 | Segment's Operating Profit Contribution As a |
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