Inherit the Fujian business gene of “adventure and struggle”, and expand with high leverage from deep cultivation in Fujian to the whole country. Fujian real estate enterprises refer to real estate developers established in Fujian in the early stage and whose business scope has expanded to the whole country. Fujian real estate enterprises are mainly private, and their founders mostly enter the real estate industry after completing the original accumulation in other industries. With the reform of housing system and the development of real estate industry, Fujian real estate enterprises have experienced germination, deep cultivation, development, expansion and stall. At present, the majority of Fujian real estate enterprises have a scale of more than 100 billion, focus on real estate development and sales business, focus on housing, have differences in business formats, move from Fujian to the whole country, and take the Yangtze River Delta as the core of strategic layout. Fujian real estate enterprises have inherited the Fujian business gene of “dare to work hard” and formed three characteristics different from other regional real estate enterprises: 1) the business model of “strong expansion, high leverage and fast turnover”; 2) Make good use of the financing characteristics of capital; 3) “Family” strong management system.
External factors such as policy tightening and market weakness accelerated the outbreak of the crisis of Fujian real estate enterprises, while internal factors such as radical expansion and diversified financing were the root causes of the crisis. In the second half of the year, after the first thunderstorm at constant rate, there was a liquidity crisis in a large area of real estate enterprises. Fujian real estate enterprises became the hardest hit area in this round of thunderstorm events. Fujian real estate enterprises with serious thunderstorm events include Shimao Group, Yuzhou group, Tahoe Group Co.Ltd(000732) , Yango Group Co.Ltd(000671) , Zhengrong real estate. From the perspective of internal causes, 1) blindly promote the national expansion: most Fujian real estate enterprises have formed the national strategy, and there was a period of radical expansion for 3-5 years. 2) High premium and high cost land acquisition: the excessive cost squeezes the profit space of the project, causing the loss, revenue and profit of the project to decline. 3) The strong multi-channel financing ability has become a double-edged sword: sufficient private capital and overseas return capital provide Fujian real estate enterprises with sufficient funds and a good financing environment, so that they have multi-channel financing ability and support the nationalization strategy, but also create the characteristics of “high leverage”. 4) More persistent on holding property: holding property has large demand for funds, long occupation time and long recovery cycle. It is easier to face cash flow problems when the policy is tightened and the market is cold. 5) The positioning of residential business is biased towards the middle and high end: under the regulation of the price limit policy, the opening of high-priced projects is delayed, the project de commercialization cycle is further prolonged, and the turnover speed is reduced, which makes it difficult to operate the funds required under the “high leverage” mode. 6) M & A with large amount of revenue: it not only takes up a lot of funds, but also may cause the digestion speed of goods value to be far lower than expected due to improper adjustment, lack of team talents, valuation deviation and other reasons, which will drag down the company’s cash flow. 7) Diversified business layout: it requires a lot of capital precipitation, long return cycle, small contribution to cash flow in the early stage, increasing the burden of cash flow, and blindly following the trend in the layout of non real estate fields, which will lead to the dispersion of the company’s energy, eventually lead to disorderly expansion and further deterioration of the financial situation. From the perspective of external factors, 1) on the demand side, the “five limits” regulation policy has been tightened, the real estate demand has been restrained, the sales of real estate enterprises have declined, the collection ability has been weakened, and the turnover speed has been slowed down, resulting in a sharp decline in profits and a sustained net outflow of operating cash flow. 2) On the capital side: pre-sale capital supervision, three red lines and other policies are overweight. The financing activities of real estate enterprises adhering to “high leverage” such as Fujian Department are strictly supervised, making it more difficult to finance. Finally, the cash flow is broken due to the failure of capital turnover, resulting in a thunderstorm.
According to the analysis of financial indicators, we find that the five Fujian real estate enterprises have common characteristics in five aspects: the decline of turnover speed, the sharp weakening of profitability, the deterioration of cash flow, high leverage and weak debt ability. We believe that: 1) the asset turnover rate decreased significantly and 0.16. 2) Inventory turnover rate decreased significantly and 0.15. 3) The turnover rate of pre-sale accounts decreased significantly and was 0.5. 4) The net profit attributable to the parent decreased significantly and the decrease was more than 50%. 5) Net outflow of operating cash flow for more than 3 years. 6) The level of financial leverage exceeds 85%. 7) Operating leverage level exceeds 50%. 8) The proportion of off balance sheet liabilities in comprehensive liabilities continued to increase and was higher than 20%. 9) The net profit to interest coverage ratio decreased significantly and 0.3 can be used as a signal of thunderstorm.
If we take the commonness of operation and finance as the storm signal, we can see that Rongxin and Sansheng are not only similar to the underlying logic of Fujian storm in terms of internal causes, but also have aggressively expanded across the country and acquired land in the way of high premium and high cost, resulting in a “high leverage” situation. In addition, at the financial level, there have been a significant slowdown in asset turnover, a significant decline in profits, and a continuous net outflow of operating cash flow Weak solvency and other characteristics, and many indicators are consistent with the thunderstorm signal, so we need to pay attention to risks in the future.
Investment advice
At present, the capital chain of real estate enterprises is still under great pressure. Superimposed on the centralized maturity of debts, there may still be credit risk events in real estate enterprises in the next few months. At the same time, taking into account the need to strictly prevent industrial risks from spilling over to the bottom line of the financial system and upstream and downstream industrial chains, we believe that we will provide clear support for the establishment of relevant risk resolution schemes and some high-risk enterprises. Although the development speed of private real estate enterprises is limited in the short term and their credit is damaged, the long-term industry will accelerate the liquidation, and real estate enterprises with healthy cash flow and high financial quality will benefit; If the industry liquidity is repaired, we believe that some real estate enterprises killed by mistake in the early stage are more flexible. Based on this, we suggest to pay attention to the following among Fujian Real Estate Enterprises: 1) CCDI international, a regional state-owned enterprise in Fujian Province, has smooth financing channels, stable cash flow and high quality of sales and land storage. In the future, it will also benefit more from the deregulation of policies and the recovery of the real estate market, so as to maintain a good development trend. 2) Xuhui holding group, the company’s early nationalization rhythm is reasonable, the land acquisition strategy is stable, the financial situation is still good, and it is an elastic target that can be paid attention to after the policy is clearer and the industry liquidity is repaired.
Risk tips:
Under the repeated epidemic situation, the sales and construction progress of real estate enterprises are blocked; The marginal relaxation effect of pre-sale fund supervision policy is less than expected; Business risks caused by disorderly expansion or blind diversified business layout of real estate enterprises; The debts of Fujian real estate enterprises are due centrally.
