On October 27, Color Life ( Hong Kong stock 01778), which has suspended trading for one month, finally ushered in resuming trading . Because the core subsidiary Neighbor Le was forced to be transferred by Country Garden Services (Hong Kong stock 06098), its stock price plummeted by "cliff" in a single day. The reason for the forced acquisition of Caisheng was a 700 million yuan loan default, and the US dollar bond explosion of parent company Huayangnian Holdings (Hong Kong stock 01777) triggered a cross-default.
This means that Country Garden serves this "property harvester" successfully won the third merger and acquisition of "big fish eat big fish" this year after Blu-ray Jiabao and R&F Property. This year, it has reached 8 mergers and acquisitions of large and small, costing nearly 20 billion yuan. As of the end of this year's six months, Country Garden Services' contract area under management has exceeded 600 million square meters. After its parent company Country Garden has become the "No. 1 real estate company in the universe", it has become the well-deserved "No. 1 property company in the universe".
Country Garden Services has been able to sweep the leading property companies, and the continuous large-scale financing in the capital market provides ammunition and confidence. The business behind it is not complicated, and it is still the ancient "buy low and sell high": financing with a price-to-earnings ratio of more than 50 times, and acquisition with a price-to-earnings ratio of more than 10 times.
However, similar to the quality problems such as collapse caused by Country Garden's "high turnover", when this "harvester" is running at high speed, hidden worries in service quality, management and other aspects have also begun to emerge. In the past two years, the lawsuits involving Country Garden Service Property Disputes have increased exponentially. In July and August this year, major accidents have occurred in a community in Guangzhou. In addition, the acquisition of low-gross profit margin property companies such as R&F Property will inevitably have an impact on profitability.
Another "naked swimmer"
"Only when the tide fades, can you know who is swimming naked", the stock god Buffett This famous saying about investment is also applicable to corporate operations.
Under a series of policy pressures such as the "three red lines" of financing for real estate companies, purchase and loan restrictions, and "two concentrated" land supply, the list of real estate companies has been increasing since the beginning of this year. China Fortune Land Development , Blue Light Development, Evergrande , Xinli Holdings, Huayangnian, Contemporary Real Estate (Hong Kong Stock 01107)...
When both financing and sales are squeezed at the same time and cash flow is exhausted, selling assets to save themselves is the only choice for these real estate companies. The first thing they are sold is the relatively "easy-to-sell" high-quality assets-property management companies.
At this time, those who hold cash in hand become the biggest winners and can easily pick up the bloody chips that are everywhere.
On October 27, Huayangnian Holdings and its property management company Caisheng jointly announced that because Huayangnian had not repaid the maturing external debts, Caisheng failed to repay the loan of 700 million yuan by October 4, 2021. The lender Country Garden Services subsidiary Country Garden Property Hong Kong enforced its rights under the loan agreement and required Caisheng to unconditionally transfer all the issued share capital of the target company Neighborhood Le to it. As of the date of the announcement, the above shares have been transferred, and the operations and management of Neighborhood Le are also being transferred.
Previous financial reports show that Neighborhood Le is the core asset of Cai Life, the former "first property stock", and it includes Vientiane Property, Changbaishan Tourism and Resort Property, Kaiyuan International, Kaiji Commercial, Vientiane Residence, Huaxu Property and Beijing Vientiane, etc. In 2019 and 2020, Neighborhood Le's net profit after tax was RMB 306 million and RMB 309 million, respectively, while Caisheng's net profit was RMB 536 million and RMB 542 million, respectively, and Neighborhood Le's net profit accounted for 57.09% and 57.01%.
With the release of the above announcement, Caisheng, which has suspended trading from September 29, has also resumed trading simultaneously, but the result has long been doomed. After the opening, Caisheng dived all the way to and , with a drop of 40% in less than 20 minutes. After that, it maintained a low fluctuation throughout the day, and finally closed at 35.57% at HK$1.63, leaving a long huge negative line with a large volume.
Crazy Harvest
Cai Life is one of the largest property management companies in China. According to this year's semi-annual report data, its managed property area reached 360 million square meters, ranking fourth in the country. Eat Neighborhood Le, a core subsidiary of Caisheng, is just the latest achievement of Country Garden's service to this "property enterprise harvester". Since this year, the harvest of this "big fish eats big fish" has been frequently staged.
In February this year, Blue Light Jiabao, a property management company under Blue Light Development , announced that Country Garden Property Hong Kong plans to acquire 116 million shares of Blue Light Jiabao Services (including domestic shares) held by Blue Light Hejun, accounting for 64.62% of Blue Light Jiabao shares. The final share transfer price was determined to be 4.964 billion yuan. As of the end of 2020, before the announcement of the acquisition, the area of the property under management of Blu-ray Jiabao also reached 130 million square meters, ranking outside the tenth. After
won Blu-ray Jiabao, it also means that Country Garden Services has officially been promoted to the "No. 1 Property Enterprise in the Universe". Country Garden Services' 2021 semi-annual report shows that its managed property area reached 644 million square meters, leaving the gap of nearly 200 million square meters in second place Evergrande Property (Hong Kong stock 06666).
But the "No. 1 property enterprise in the universe" did not stop harvesting. On September 20, Country Garden Service announced that Country Garden Property Hong Kong and R&F Property signed an equity transfer agreement to acquire Fuliang Global, wholly-owned by R&F Property, for no more than 10 billion yuan, and thereby acquire 100% of the equity of each target company held by Fuliang Global. The target company mentioned in the announcement is a number of companies owned by Fuliang Global that engage in comprehensive property management services in China, including residential property management and commercial operation services. This acquisition allowed Country Garden Property to acquire 86 million square meters of under-managed area and 127 million square meters of contracted area.
In addition to these big fish, the "property company harvester" will certainly not let the small fish go, including Anhui Chenghe Property, Guizhou Hongtai, Guangzhou Smart City Investment, etc., which were all acquired by them. According to incomplete statistics from Leju Real Estate, as of October 23, 2021, Country Garden Services has reached 8 mergers and acquisitions since this year, with a total amount of RMB 18.962 billion.
In addition, Country Garden Property also invests in several property management companies through equity investment and equity pledge.
Last week, the former richest man Wang Jianlin Wanda Commercial Management Company submitted a listing application in Hong Kong, and the list of strategic investors Country Garden Holdings and Country Garden Services were listed. The two each invested 3.23 billion yuan through their subsidiaries, holding 1.7945% of the shares of Zhuhai Wanda Commercial Management, with a total shareholding ratio of 3.589%. Since the beginning of this year, including Wanda Commercial Management , Country Garden has three strategic investment projects, with a total amount of RMB 7.707 billion.
In addition, in April this year, Jiangsu Galaxy Property, the target company of Suning Real Estate , gave Country Garden services, with the amount of pledged equity of 30.01 million yuan. Jiangsu Galaxy Property was established in 2000 with a registered capital of 30.01 million yuan and is held by Suning Real Estate Group Co., Ltd. 100%.
Ancient business information
When other real estate companies are hungry and have broken their arms to survive, why can Country Garden Services be so "rich" and buy crazy? It’s not that it’s so rich, but it can raise money!
Since its listing in 2018, Country Garden Services has quickly completed four fundraising efforts, and the amount and speed also shocked the entire industry from time to time.
In January 2019, Country Garden Services allocated 169 million shares to raise HK$1.939 billion. On April 27, April 28 and June 1, 2020, Country Garden Service issued convertible bond , with net proceeds of HK$3.838 billion, "planned to be used for future potential acquisitions, strategic investments, working capital and general corporate purposes." In December 2020, Country Garden Services once again allocated shares to raise HK$7.75 billion. In May 2021, while acquiring Blu-ray Jiabao, Country Garden made its third share issuance, and simultaneously issued convertible bond , raising a total of HK$15.526 billion.
has been listed for three years, and Country Garden Services has raised HK$29.09 billion from the capital market.
is raising funds and harvesting wildly. Behind it is an uncomplexing ancient business philosophy: buy low and sell high. Since the listing of
, due to the high market expectations for its growth, Country Garden Services enjoyed a valuation, and the dynamic price-to-earnings ratio was more than 40 times at the lowest stock price, and more than 60 times at the highest. With such valuation allocations and issuance of convertible bonds, a higher financing amount can be obtained using a smaller equity dilution cost.
Take the financing in the latest May as an example. The issue price per share is HK$75.25. Based on the earnings per share at the end of 2020, the issuance price-to-earnings ratio reaches 76 times. Based on the earnings per share in the six-year this year, the issuance price-to-earnings ratio also reaches 54 times.Therefore, Country Garden Services only issued 139 million shares, with a share increase of less than 5%, and received financing of over 10 billion Hong Kong dollars.
On the other hand, whether it is Blu-ray Jiabao, R&F Property or the latest Caisheng, the acquisition price-earnings ratio is only more than ten times. The acquisition of Blu-ray Jiabao by
corresponds to the net profit in 2020 equivalent to 13.5 times the price-to-earnings ratio, and the estimated net profit in 2021 equivalent to 9.5 times the price-to-earnings ratio. The acquisition of R&F Property is based on the performance commitment of Fuliang Global to deduct non-operating profit attributable to shareholders of the parent company shall not be less than RMB 500 million, and the transaction price of the first phase will be 7 billion yuan, corresponding to its 2021 price-to-earnings ratio of 14 times. The net profit of Neighborhood Le in 2020 was 309 million yuan, and the acquisition price of 3.3 billion yuan corresponds to a price-earnings ratio of less than 11 times.
According to statistics from China Fund News reporters, as of October 27, there were 53 property management companies listed in Hong Kong under the third-level industry classification of Hang Seng. Excluding 3 loss-making companies, the average dynamic price-to-earnings ratio was 18.69 times, and the median is also close, at 18.4 times. Obviously, Country Garden Services has found considerable advantages in the acquisition of three property companies.
In the view of a private equity fund manager in Guangzhou who is well versed in market value management, this buying and selling can be regarded as a good business that makes money by making money, but the premise is that "the market must recognize it." "This kind of merger and acquisition-driven gameplay, A-share was very popular from 2013 to 2016. Typical representatives are the acquisitions of Provincial Guang Group and LeTV . has a low price-to-earnings ratio , which has increased the net profit. The capital market has pursued the trend and gave a high price-to-earnings ratio , and the market value suddenly expanded," the fund manager told a reporter from China Fund News.
Two major hidden worries emerged
Country Garden is on the road to becoming the "No. 1 real estate company in the universe", its corporate management and product control capabilities are obviously unable to keep up with the speed of corporate expansion. "High turnover" has led to various quality problems and rights protection storms. In 2018, it was pushed to the forefront of public opinion due to frequent collapses.
Country Garden Services is in the process of rapid expansion and topping the "No. 1 property enterprise in the universe", service quality and management also have hidden dangers, and the uncertainty of profitability is also increasing.
Tianyancha data shows that Country Garden Service currently involves 1,615 lawsuits, most of which are property dispute cases. Either Country Garden Service sued the owners or the owners sued Country Garden Service. There were more than 500 lawsuits in 2020 alone, which is more than the sum of the three years from 2017 to 2019, and there were more than 300 cases in the six months of 2021.
In July and August this year, a series of major accidents occurred in a community in Guangzhou, Country Garden, which aroused widespread public attention.
7-7 Caixin reported that a drowning pool occurred in Country Garden Community, South China, Guangzhou. Within a few hours after the drowning incident, the property owner closed the sluice gate and cleaned the pool, but did not inform the owner of the real reason. Nearly a week later, community residents confirmed the drowning accident from the police, causing residents to panic about the safety of drinking water.
In response to this, the Country Garden Property Service Center of South China released the "Instructions on the 100-meter pool incident in Cuishan Blue Sky on June 28", saying that according to the water quality inspection report issued by the Guangzhou Water Science Institute, all indicators of the water quality of the pool meet the national drinking water sanitation standards. It also stated that if technical conditions allow, direct water supply should be used as much as possible and no longer use the water tank involved.
August 6, the Panyu District Emergency Management Bureau of Guangzhou City released an explanation on its official website called "Emergency Response to Drowning Accidents in Nancun Town" . At around 18:30 on August 2, 2021, a 7-year-old boy in the swimming pool of Country Garden Club in South China accidentally drowned while playing in the shallow water area of the swimming pool (about 30cm depth). He died after being sent to the hospital for rescue after 120. The reason was that he was sucked by the pool drain and could not move. The owner said that such safety accidents in the swimming pool in the community have occurred many times. Just 10 days before the accident, a drowning incident occurred in the same location.
For leading property companies, it is not difficult to expand their scale with capital with their own credit, but expanding the market with brand and service quality is the long-term way. Vanke CEO of Wanwu Cloud, property management company Wanwu Cloud, recently said in an interview with the media, "When you are rushing on the road to scale expansion, becoming bigger does not necessarily bring about brand accumulation, and not talking about brand service industry mergers and acquisitions is a false proposition."
has rapidly expanded its scale, another problem is the decline in profitability. R&F Property, which was acquired by Country Garden Services in September, is relatively low in gross profit margin, with the gross profit margin of basic property management only 14%, and the gross profit margin of commercial property management was 32%, while Country Garden Services' gross profit margin was 33.38% in the first half of 2021. Caisheng's semi-annual report shows that its overall gross profit margin was 32.6%, which is also slightly lower than Country Garden Services. After the merger, these newly acquired subsidiaries will inevitably have an impact on Country Garden Services' gross profit margin.
In fact, in 2020, the gross profit margin of Country Garden Services in the urban service branch decreased by 6.2 percentage points to 32.5% from 38.7% in 2019, because "the gross profit margin of acquiring Manguo and Dongfei's businesses within the year was low. The " Three Supply and One Industry " business has a gross profit margin decreased by 6.4 percentage points to about 7% due to the high cost of investment in facilities maintenance within the year; the gross profit margin of community value-added services decreased slightly."
This article is from China Fund News
