In the past two days, Vanke and Evergrande announced that their sales will both exceed 700 billion yuan in 2020. Although their sales growth rate has retreated to within 10%, this scale is historic, both for them individually and for the real estate industry.
As mentioned before, the real estate industry has lost its imagination in the future, mainly referring to the house building business. But even if it is building houses, there is an exception, and that is the leading company to talk about today.
This exception starts with the “three red lines” and “two caps”. Their definitions have recently been explained on various occasions, without further ado, in short, the supply of financial resources to real estate limits. Because the new mission of finance is to match more technology industries, health industries, advanced manufacturing, etc.
The more the financial resources are supplied, the more it will intensify the characteristics of “the poor love the rich”. As long as your leading real estate company leverage indicators do not exceed, financial institutions and investors will certainly give priority to you money. Because your scale is 5 times or 10 times that of others, the same amount, why not give a lump sum to a large enterprise that has been proven to have the ability to repay it?
Today the top ten companies in real estate, with the exception of a few, are reducing their leverage and financing costs, and even those that have stepped on all three red lines are reducing leverage in a variety of ways, including through equity transfers and project disposals. A few quality companies in the second tier are also highly competitive in the market because of the support of portfolio investors. Typical than Longfor example, the scale has never been in the industry’s top five, but who is in the front line with Longfor short, who is like a big enemy.
Having said that, the conclusion that the leading company is the biggest beneficiary of the future real estate changes should be basically clear. And it can be predicted that in the next 5-10 years, maintaining a compound growth rate of 10%, the scale of the leading companies will be more than two times the current volume.
The ideal is very rich, but the reality is very skeletal. The prospects of these real estate leaders today are not well received in the capital market. Specifically, the performance they create, and the company’s market value seriously mismatched.
Take the newly promoted 700 billion sales club as an example. The market capitalization of three real estate companies, namely, Beyoncé, Vanke and Evergrande, is HK$210 billion, HK$310 billion and HK$190 billion respectively. Among them, Vanke is the only real estate company with a market capitalization of over $300 billion (it has not yet spun off its properties for listing).
And Vanke cited as the object of study of a traditional enterprise – the United States Group, 2019 revenue of 270 billion yuan, net profit of more than 25 billion yuan, the main operating indicators are not as good as Vanke, but the market value reached a huge 720 billion yuan, more than the sum of the top three real estate market value!
In fact, before 2015, the market value of the United States is less than 100 billion, comparable to Vanke, and the operating income is only half of the latter. Fang Hongbo took over the third year, the United States through the crazy shrinkage front, focus on the main business, resolute science and technology to empower and match the partnership mechanism, greatly enhance the operational efficiency, but also harvested the capital market recognition.
You may have to say, although the United States is a traditional home appliance industry, but technology attributes are stronger than real estate companies, indeed, but even for real estate companies, there are companies whose value is very recognized. For example, Shell, which is listed on the US stock market, has a market value of $75 billion, which is basically equivalent to the sum of Vanke + Sunac. Of course, Shell is an internet platform company with a different valuation logic.
Today, breaking the real estate value spell is a common goal for real estate companies with aspirations today. From the perspective of company valuation, the best performer is Longhu. 2020 Longhu sales were 270 billion yuan, not ranking in the top 10, just 1/3 of Wanbei Heng, and the medium-term net profit was less than half of Vanke, but the market value was second only to Vanke among real estate companies, and also once exceeded 300 billion Hong Kong dollars.
Longfor’s relatively high value, in addition to not having done business spin-offs and listings like BIG, Evergrande and other companies, the more critical reason is that Longfor’s business portfolio has the ability to sustain blood generation and comprehensive profitability higher than its peers, and is one of only three investment-grade real estate companies.
Not only commercial real estate, but also property management business and long term rental apartment business of Longhu Group are different from the land-housing model of traditional development business, and are more like modern service industry with the potential of continuous operation and continuous iteration, which has enhanced the interest of capital market to a certain extent. The prerequisite for engaging in this kind of business is that the enterprise’s capital capacity should be strong enough, and the threshold for entering it, in the future, will become higher and higher.
Vanke’s new business has a certain degree of overlap with Longhu, which is also in the lead in terms of operational efficiency, financial data and sustained capacity. But as a long-standing real estate benchmark, Vanke in the Yu Liang era carries great expectations and enormous pressure.
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