Core view
Pattern change is greater than pattern change. As the three core conditions of high-speed decentralization, fancy financing and free use of pre-sale funds are no longer established, the fast turnover mode will withdraw from the historical stage, and the "slow era" is coming, and the importance of mode change is far more than pattern change. In this context, an important question is: how will the roe of real estate enterprises change.
Roe quantitative formula based on five parameters. In order to better reflect the impact of business indicators on roe, a roe decomposition model based on five parameters: collection time, freezing proportion of advance collection, net profit margin, debt cost and interest bearing leverage ratio is established. Based on the benchmark combination of 10% net profit margin, 1.2 years of collection time, no freezing of pre-sale funds, 6% pre tax interest rate and 150% interest bearing leverage ratio, the calculated ROIC is 10% and roe is 18.3%, which is very close to the average value of real estate enterprises in the past five years.
How to keep roe from falling when advance collection is frozen? If the freezing proportion of advance collection is increased from 0% to 30%, the net profit margin can be increased from 10% to 15%, and roe will not decrease. In practice, roe can also be maintained through efforts in multiple directions. Therefore, although the freezing of advance collection has a great impact on roe, it is not impossible to maintain the current roe level. If all factors are properly coordinated, roe can even rise.
Is the importance of financing costs overestimated? Although the difference between debt cost and ROIC determines the direction of the contribution of interest bearing leverage to roe, when the after tax debt cost has been lower than ROIC, the effect of improving roe by reducing debt cost is not obvious. In addition, the adjustable space of debt cost itself is not large. It is a more feasible path for real estate enterprises to improve ROIC through improving operation. Is existing home sales feasible? Under the existing house sales, the ROIC of real estate enterprises will plummet to 4.5% and the roe will plummet to 4.6%. The attraction of the industry to capital will decline significantly, which will lead to the rapid contraction of the industrial scale. It is simply unable to meet the stable demand of about 1.2 billion square meters in the future, which may lead to a series of problems. Therefore, existing house sales are not feasible without supporting measures.
Risk tips: 1. The model is distorted due to simplification; 2. The credit event continues; 3. Sales continued to decline. Investment suggestion: firmly lay out the starting point of the new cycle and look for the "dark horse" of quality. The change of business model in the "slow era" is more important than the change of short-term market share. The new model brings a new cycle. At present, real estate stocks are standing at the starting point of the new cycle and suggest firm layout. In terms of individual stocks, since the debt cost still does not constitute a core advantage, and the interest bearing leverage ratio is more subject to regulatory control, high project profit margin and strong collection control ability are two necessary conditions for the "dark horse" of quality in the new era. Recommended: Poly Developments And Holdings Group Co.Ltd(600048) , Gemdale Corporation(600383) , Longhu group, Xuhui holding group.
