$LONGFOR GROUP (00960.HK)$ As far as housing enterprises are...

$LONGFOR GROUP (00960.HK)$ As far as housing enterprises are concerned, “if you have food in your hands, you can not panic.” “Food” refers to both capital and land. In terms of land reserves, in the first half of this year, Longhu Group won 20 high-quality plots in first-tier and second-tier cities such as Shenzhen, Shanghai, Guangzhou, Chengdu, Hangzhou, and Suzhou, with a total construction area of 2.57 million square meters and an equity construction area of 1.84 million square meters. By the end of June 2023, Longhu Group's total land reserves reached 54.89 million square meters, with an equity area of 38.16 million square meters. 87% of the value of goods was concentrated in high-energy cities and value regions, which also provided sufficient preparations for future development.

As can be seen, in the first half of 2023, on the premise of maintaining the steady development of the main real estate development business, Longhu's operation and service businesses also fully blossomed. The three major businesses developed collaboratively, not only contributing to stable revenue and profit for the Longhu Group, but also achieving a high-quality development model with low leverage, low cost, strong operation, and positive cash flow to ensure the steady operation of the enterprise.

Continued optimization of the debt structure

Most housing enterprises exploded. The first thing that occurred was a breakdown in the capital chain and default on debt. However, the financial situation of the Longhu Group has remained stable.

According to statistics from the China Index Research Institute, in the third quarter of 2023, the maturing scale of credit bonds of housing enterprises was about 176.8 billion yuan, and the maturing scale of overseas bonds was about 78 billion yuan, for a total of 254.8 billion yuan; in the fourth quarter, the maturing scale of credit bonds of housing enterprises was 112.2 billion yuan, and the maturing scale of overseas bonds was 69 billion yuan, totaling 181.2 billion yuan. In the second half of 2023, housing enterprises will experience a clear peak in debt repayment.

As of the end of June 2023, Longhu Group's balance ratio (excluding advance payments) was 61.9%, down 6 percentage points from the previous year, the lowest in the past five years. The net debt ratio was 57.2%, maintaining the industry's superior level. Moreover, Longhu is also one of the few housing enterprises that have maintained the “Three Red Lines” green level for 7 consecutive years.

As of the end of the reporting period, Longhu Group's comprehensive loan scale was 207.09 billion yuan. Among comprehensive loans, short-term debt maturing within 1 year accounts for 18% (short-term debt maturing within 1 year after paying 5 corporate bonds as scheduled in July-August); the average loan period increased from 6.28 to 7.19, and the loan period continued to extend, and the ratio between long and short debt was more reasonable.

In addition to adjusting the long-term and short-term debt structure, the Longhu Group also rationally allocates the share of domestic and foreign debt. By the end of June 2023, the share of Longhu Group's foreign currency debt had declined further to 21.6%. Of these, 97% of foreign debt had been swapped and hedged, effectively avoiding exchange losses caused by exchange rate fluctuations and further improving and protecting the safety of the company's business market.

Furthermore, Longhu Group's cash on hand is 72.43 billion yuan, which continues to be high. In terms of financing, the company adheres to low-cost financing channels, and the overall borrowing cost is 4.26% per annum. From reducing interest-bearing debt, optimizing the debt structure, to maintaining stable and low-cost financing, Longhu Group maintains stable and sufficient capital for future business development in many ways.

It is worth noting that in July-August of this year, Longhu has repaid a total of 8.37 billion yuan of corporate bonds. At this point, domestic corporate bonds maturing within 2023 have basically been paid off, leaving only 119 million yuan due in November. In addition, of the HK$15.3 billion syndicated loan due in January 2024, Longhu has already repaid HK$7.2 billion ahead of schedule, and plans to repay the remaining portion in advance during the year. Meanwhile, Longhu Group announced early debt repayment, which not only reflected the company's steady finances, but also brought confidence to the industry.

Yan Yuejin, research director of Yiju Research Institute, said, “Early debt repayment by Longhu can have three positive effects, namely proving that the company's capital and cash position are good, while reducing the size of existing debt, and also creating better conditions for subsequent operations and other financing work.”

An important factor in Longhu Group's ability to maintain the continuous optimization of its debt structure stems from its strict compliance with financial management discipline, resolutely controlling the size of debt and external debt exposure, and resolutely maintaining low-cost and standard financing channels. Three years ago, Longhu proposed a management strategy to reduce debt and continue to reduce the size of interest-bearing debt. Currently, the overall debt size of the Longhu Group is steadily declining, and the structure continues to be optimized.

Under steady performance growth and a continuously optimized debt structure, Longhu Group continues to receive stable ratings in the capital market. Among them, Fitch, Moody's, and S&P maintained full investment grade ratings of BBB stability, Baa2 stability, and BBB-stability, respectively, and the outlook for China Integrity (AAA) and New Century (AAA) were stable.

According to an analysis by Morgan Stanley in its latest research report, Longhu achieved monthly sales of 12 billion yuan in the second half of the year (24% lower than the January-July average), which can fully cover operating cash flow. Considering the company's limited corporate bonds and ability to obtain new operating loans, we believe Longhu is fully prepared to survive the current downturn cycle with balanced operations.

In round after round of regulation, the logic of real estate industry development is changing. Today, the development model with high leverage and high turnover is a thing of the past. As the industry returns to rationality, housing enterprises should actively explore new development models. As a housing enterprise that can maintain stable performance in the wave of regulation, the underlying factors of Longhu Group are inseparable from its diversified business development model and regulation of the debt structure, such as reducing interest-bearing liabilities, maintaining financial soundness, and making development healthier, so that the company can go further.