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万科有了更多同路人

Vanke has more fellow travelers now.

wallstreetcn ·  Aug 30 21:09

Preserve financial security.

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

Despite the previous performance forecast, when Vanke's mid-year report loss is truly presented, it still makes the industry and outsiders feel countless emotions.

The depth and duration of the cyclical adjustment in the real estate industry are obviously beyond imagination. Faced with an unprecedented major change, no one can stay out of it.

However, in Vanke's financial report, new opportunities are also brewing. The operating cash flow turns positive in the second quarter, the competitiveness of the three main businesses steadily improves, and the breakthrough of multiple REITs tracks all indicate that Vanke has withstood the phase pressure. While coping with short-term difficulties, it is also accumulating strength for long-term development in the future.

At the earnings conference on August 30, Vanke's board chairman, Yu Liang, still showed confidence in the industry. He admitted that after three years of adjustment, the cost-effectiveness of new houses has increased and the support for diversified housing demand in policies has continued to increase. These are all accumulating energy for the recovery of market demand and providing soil for the arrival of a new development stage.

The market is also looking forward to further policy warming. On August 30, a rumor about the adjustment of loan interest rates for existing loans triggered investors' emotions, and the real estate sector soared, with Vanke A's stock price hitting the daily limit at one point.

Of course, the current difficulties in solving and improving the ability to move towards the "new" still require patience and time. Patience now is confidence in the future. In this process, Vanke has gained more companions, which will be the source of Vanke's confidence to navigate this round of cycles.

Repair

For the first time in the interim report, net profit attributable to the parent company is negative, but net cash flow from operating activities has turned positive on a month-on-month basis. From the interim report, it can be seen that Vanke is indeed facing a difficult task, but not an impossible one.

Facing temporary operating difficulties and short-term liquidity pressure, Vanke has carefully analyzed the situation and provided its own solutions.

The loss in profitability reflects the impact of the real estate cycle. Before 2022, the industry focused on scale, with high-cost land frequently emerging. As these plots enter the settlement period in the past two years, it has put significant pressure on current profits of real estate companies including Vanke.

In addition to the slimming down in the first half of the year, Vanke has incurred losses from bulk and equity transactions, as well as losses and impairment provisions from some non-main business financial investments, which have put short-term pressure on Vanke's performance.

However, Han Huihua, Vanke's financial director, mentioned during the earnings conference that the profit situation of Vanke's new projects after 2022 is good, with an average gross profit margin of about 18% in sales. By the end of this year, there will be approximately CNY 227 billion of inventory, and it is expected that about 80% will be sold. As these projects enter the settlement period, they will help drive Vanke's performance improvement.

In addition, Vanke is also enhancing operational efficiency to maximize the value of its existing resources.

Vanke has made significant improvements in cash flow, which is crucial for the debt-paying ability of real estate developers. In this regard, Vanke has already passed the most difficult period.

According to the interim report, Vanke's net operating cash flow in the second quarter improved significantly to a positive cash flow of 4.2 billion yuan, compared to a negative cash flow of 9.421 billion yuan in the first quarter.

Han Huihua explained that this is mainly due to the positive progress Vanke has made in streamlining and strengthening its business in the first half of the year.

By improving sales, promoting bulk asset transactions such as commercial real estate, and exiting other non-core financial investments, Vanke has successfully collected over 137 billion yuan in the first half of the year.

At the same time, with the peak delivery period over, Vanke's payment pressure has significantly decreased. Data shows that in the first half of this year, Vanke's total deliveries decreased by over 30% YoY, and construction payments also correspondingly decreased. In addition, other expenses of Vanke have also reduced in proportion to the scale reduction.

On the operational level, with the support of banks and other financial institutions, Vanke's financing channels remain unblocked.

It can be seen that Vanke's new financing and refinancing have accelerated significantly in the second quarter. In the first half of the year, Vanke achieved a total of 61.2 billion yuan in new financing and refinancing, with an average financing cost of 3.66%, and the speed of financing model transformation has increased.

Especially in May, Vanke obtained a syndicated loan of 20 billion yuan led by CM Bank, and then received multiple loans from Bank of Communications, Bank of China, and other institutions in July. As of the end of July, Vanke's total new financing and refinancing exceeded 67 billion yuan.

After continuously degrading the stock debt recently, China Vanke has no overseas public debt this year, and there is only 1 domestic public debt remaining, which is a 2 billion yuan medium-term note.

In addition, China Vanke has nearly 0.1 million units of contracted housing to be delivered in the second half of the year, a 40% year-on-year decrease in delivery volume. This significantly alleviates the operating expenditure pressure on China Vanke. By fully completing the task of delivering houses in the second half of the year, maintaining stable sales and collection, and further promoting bulk trades and equity disposals, China Vanke can create more available cash flow.

While switching financing models, China Vanke is also seeking opportunities for consortium loans and operational property loans, aiming to increase liquidity on the financing side. The further improvement of cash flow supports China Vanke in overcoming short-term difficulties.

Newborn

Undoubtedly, the real estate industry is still in the process of transitioning between old and new driving forces, and the pain of real estate companies will continue for a while. However, as long as they pass this stage, they will also undergo transformation and rebirth.

China Vanke is prepared for this. While adjusting its financing model and degrading risks, China Vanke is also further focusing its capabilities on the development of integrated residential areas, property services, and rental apartments, hoping to enhance its business, investments, and capabilities through refinement. It is also able to turn challenges into opportunities.

Currently, for real estate companies, development business is still the main source of income, but the market supply-demand relationship has undergone significant changes. Buyers are more segmented and rational, and good products still have a market.

Zhang Hai, Co-President and Chief Partner of China Vanke Development and Operation Department, stated that the scale of the new housing market has shrunk, and at the same time, the difficulty of project operation has increased, requiring a significant improvement in operation skills. China Vanke focuses on building good houses and achieving high-quality development.

This means that when investing in land, it is necessary to further concentrate on sectors and areas in the city that have real demand for improvement. In addition, it is to create community living scenes, make structural adjustments to the investment of costs and expenses based on the new changes in customer needs, and improve the quality-price ratio and performance-price ratio of the products.

At the same time, in the case of a significant reduction in the number of new projects, seeking opportunities from the stock market is also a problem-solving approach for China Vanke.

In the first half of the year, the key focus of IoT Cloud was the transformation of old residential communities. By conducting business with a high cost-performance ratio that is 30% lower than the market price, systematic improvements are made to the public areas of the projects, thereby gaining the initiative in market competition.

Through tapping into market opportunities, IoT Cloud has achieved revenue growth in the face of challenges in industry growth, achieving revenue of 17.63 billion yuan in the first half of the year, a year-on-year increase of 9.5%.

Zhu Jiusheng, President and Chief Partner of China Vanke's Long-term Rentals division, revealed that BoYu, in the first half of the year, reached strategic cooperation intentions with state-owned enterprises in multiple cities, with a total future cooperation housing inventory exceeding 0.02 million units.

This is a reflection of the continuous maturity of China Vanke's long-term rentals asset activation model. Taking the Shenzhen Songxuan project as an example, 1,088 apartments were sold and converted to rentals, achieving full occupancy upon opening. In total, 6 similar models were completed this year, activating over 6,000 housing units.

In the first half of the year, China Vanke's leasing residential business achieved operating revenue of 1.73 billion yuan, a year-on-year increase of 5.3%. Both the Net Operating Income (NOI) and net income from equity have achieved double-digit growth.

While the operating service business maintains a good development momentum, China Vanke's multi-track REITs (Real Estate Investment Trusts) continue to break through. In March, logistics REITs received approval from the National Development and Reform Commission and acceptance by the China Securities Regulatory Commission. In April, Jinli REITs was listed on the Shenzhen Stock Exchange. The apartment REITs are also in the application stage and have received relevant guidance and feedback.

In addition, Vanke has also noticed the emergence of private equity REITs in the industry. Vanke's Wuhan project of Wanji Fund has joined the "Jianxin Housing Rental Fund Hold-Type Real Estate Asset Support Special Plan" and was listed on the Shanghai Stock Exchange on July 30.

With the continuous breakthrough on REITs, Vanke is able to create more high-quality assets and accelerate its transformation into a real estate operator. This is also linked to more investment institutions including China Life, CICC, and CITIC. These institutions are not only investors in REITs, but also partners supporting Vanke's growth during the cycle transition.

Recently, Vanke also announced that a total of 1,862 key management personnel have self-raised funds of RMB 0.201 billion to increase their holdings of the company's A shares. With the unity of internal key personnel and the support of external institutions, Vanke is able to face the changing cycles with more confidence.

Perhaps the road ahead is still full of challenges, but only by fearlessly forging ahead can we find a way out from the twists and turns. Vanke will continue to strive and make progress with the support of its partners, finding a way of living for itself and the industry in the second half.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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