Although The Scale Is Good, The "Red Line" Is Difficult To Surmount

The 18-year-old rongchuang has not yet experienced the "twilight of gods", but Sun Hongbin, the helmsman of rongchuang, has struggled in the "barrage of bullets".

The "adult gift" that Laosun gave to rongchuang this year is a Book of proverbs, which says "live, live healthily".

We have said many times and broken many times the "lowering leverage and taking care of land". This time, the rate is probably true.

Rongchuang, which rose to the fourth place in the industry in 2017 and began to shout "sales ranking is meaningless" in 2019, has never decreased its pursuit of scale in the past years.

But since the middle of this year, with the goal of reducing financing costs, sun Hongbin's caliber has even changed to "we must reduce the scale of debt, the scale of land acquisition, and even the overall scale", hoping to make the company's rating to investment grade in about three years.

"Reducing financing costs" and "safety" were repeatedly answered by sun Hongbin at rongchuang's mid-2021 investor meeting, emphasizing over and over. He said that the "three red lines" have not been reached, and no one thinks that the company is safe. Only by meeting these indicators, improving the rating and reducing the financing cost can others think that the company is safe.

After all, 8% of the financing cost is relatively stable, and the real estate enterprises are still at a high level. After all, rongchuang, which has stepped on three red lines in the first half of 2020, turned two lines into green in only half a year, and the third line still fails to meet the standard in the medium-term performance of this year.

To borrow sun Hongbin's words, rongchuang's "debt reduction" in the previous years is to reduce the debt ratio by increasing its own funds without reducing the debt scale. This can also be confirmed from the scale of interest bearing liabilities and retained earnings of rongchuang.

The last line that rongchuang faces, excluding the asset liability ratio of advance collection, has the lowest compliance rate among real estate enterprises, and it is also difficult to achieve through short-term financial operation. If rongchuang wants to realize the green transition of the third line, it is particularly difficult to reduce the overall speed and debt scale.

"The company has been controlling the debt ratio in recent years. It has not said that it will control the debt scale, nor has it reduced the land acquisition scale to such a low level. The reason is that the company's judgment on the market: the goal of stabilizing house prices and prices and stabilizing expectations requires the company to really reduce the debt ratio and continuously improve it." Sun Hongbin said that no matter who it is, we are more concerned about liquidity and who can live.

Capital and land are the two lifeblood of real estate enterprises. The three red lines have bound up rongchuang's previous high turnover. The future profit growth point needs to come from reducing the expenditure, and doing high rating and then reducing the financing cost is a feasible way to optimize the financial structure.

In the aspect of "taking land with caution", rongchuang, after its Carnival in the centralized land supply market in the first half of the year, can also be expected to slow down at the land end in the second half of the year.

Sun Hongbin set a target of 20% of land sales in the second half of the year, while the regulatory level set a requirement of 40%.

Further discussion on deceleration

Based on the annual sales target of 640 billion yuan, rongchuang has indeed delivered a good report card in the first half of the year.

In the first half of the year, the contract sales volume of rongchuang reached 320.8 billion yuan, with a growth rate of 64%, ranking the top four in the industry; The operating revenue was 95.82 billion yuan, up 23.9% year on year; The net profit attributable to the parent company was 11.99 billion yuan, up 9.4% year on year.

In terms of gross profit rate, rongchuang's gross profit rate in the first half of 2021 was 20.8%, which was 2.2 percentage points lower than that of 23% in the same period of last year. However, it would not constitute a factor of "dissuasion".

The increased sales also played a role in balancing the proportion of land sales of rongchuang equity.

In the first half of this year, rongchuang's equity land sales ratio was 37.9%, close to the 40% pass line required by the central bank. In the second half of the year, sun Hongbin hopes to appropriately control the scale of land acquisition and reduce the proportion of land acquisition sales to 20%. He said that in the second half of the year, the whole financing market, credit market and sales market are under great pressure. If rongchuang still has the same amount of money and land as in the past, it is impossible to reduce the debt ratio, reduce the financing cost and improve the rating.

Sun Hongbin once said that we should "handle the land carefully" and "stop taking the land".

Looking back, at the mid-2019 annual performance meeting, there is also a saying that "there is no land index in the second half of the year". At that time, rongchuang's land reserve had reached 213 million square meters. In the first half of that year, rongchuang purchased two land parcels in Beijing and Shanghai in Pan Hai with 12.553 billion yuan, and more than 20 land in Zhongbao of Xinhu with 6.7 billion yuan. In the second half of the year, rongchuang took over the Dalian project of Changshi group with 4 billion yuan, and purchased the global asset package of Yunnan city pitcher with a large sum of 15.269 billion yuan

In recent years, the only year to realize the saying of "take land with caution" is 2020.

In the whole year of 2020, according to the statistics of China Index Research Institute, the land acquisition amount of rongchuang is about 69.5 billion yuan, which is significantly reduced by 30.5% compared with that of the previous year, and the value of new goods decreased by nearly half compared with that of the previous year.

In March 2021, the management of rongchuang said at the performance meeting that "it will strictly control land acquisition with high standards". As soon as the voice dropped, it started the purchase mode.

In mid April, rongchuang acquired 80% of the equity of zhangtai, a local real estate enterprise in Guangxi, with 9.9 billion yuan. The asset package includes 57 projects developed in Nanning, Guilin and other cities.

In the recognized more difficult centralized land supply market, rongchuang chose to "play music then dance".

As of the end of June, according to the statistics of the China Index Research Institute, rongchuang has taken 83 cases of land.

Even according to the equity land reserve area announced in the financial report of rongchuang, the land acquisition situation in the first half of this year is much more fierce than that of last year. According to the financial report, in the first half of this year, rongchuang's equity land reserve was about 17.08 million square meters. In the first half of 2020, only 17.3 million square meters of new land reserve was announced. However, according to its average value in 2018 and 2020, the equity land reserve was only 55% of the new land reserve, that is to say, it is estimated that the land reserve area of rongchuang in the first half of 2020 will be about 9.51 million square meters, Only 55.7% of this year.

Of course, it does not rule out that rongchuang's attention on land acquisition this year has been somewhat exaggerated, because in previous years, a large part of rongchuang's land reserves came from the acquisition and merger market, and land acquisition in the open market was not so frequent.

In recent two years, it has been rare to use the term "knight in white" for sun Hongbin, but we still remember that rongchuang once swept through the acquisition market.

In 2017, rongchuang became famous in the first World War of "century transaction" with Wanda, and acquired 91% equity of 13 cultural and tourism projects of Wanda with RMB 43.844 billion. In the active year of 2019, rongchuang's land reserve acquired by acquisition accounted for 50% of the total new land reserve in the whole year.

In the environment of stricter supervision and tight capital, sun Hongbin's views on acquisition and merger had already changed as early as March 2020. At that time, he stated that "2020 is the year of real estate reshuffle, and M & A opportunities will increase, but there won't be too many good targets. Therefore, the company will be cautious in taking land and will not do anything that does not make money."

By the end of August 2021, this argument has become "there is no M & a market at present".

Sun Hongbin said that under the background of the industry's overall control of financing and debt reduction, each enterprise has a limit on the total amount of debt. Every company that has problems has a large amount of stock debt. After the merger and acquisition of stock debt, the enterprise's debt scale will exceed“ In the current market, no matter what the price is, no matter what the price is, and if you buy 50 billion debts, you can't digest them. Because every enterprise has a debt ceiling, so there is no market for M & A at present. " He said.

In the field of real estate acquisition and merger, no one has a higher voice than sun Hongbin. But rongchuang has become very cautious.

After the liquidity crisis of Blu ray development in 2021, people familiar with the situation told the 21st century economic report that rongchuang had also contacted Blu ray, but it did not choose to take action in the end.

Difficulty upgrade

The rain is coming, and the wind is all over the building. The ultimate goal of rongchuang is to reduce liabilities, reduce financing costs, and improve the rating after the land side has declared that it will slow down its speed.

This is a systematic project, including improvement of rating indicators, improvement of overall asset structure, overall investment and adjustment of land acquisition rhythm.

In terms of the "three red lines", rongchuang's net debt ratio in the first half of the year was 86.6%, the cash short debt ratio was 1.11, and the asset liability ratio after excluding advance receipts was 76%. The last one was not up to standard and was in the "yellow file".

Sun Hongbin said that the strategy after rongchuang is safer, more leisurely, longer-term and more valuable. It is not easy to reduce the financing cost from the current 8% to 5%.

It is not the first time that rongchuang has proposed "reducing leverage".

After the failure of attempts to acquire Yurun, Greentown and jiazhaoye in 2015, rongchuang directly raised the net debt ratio from 76% to 208% in 2016, and the LDC increased by 168%. It successively invested in the acquisition of all equity of six projects of Lemont international, the acquisition of Lenovo's real estate business and the acquisition of the times city project.

In the fourth quarter of 2016, rongchuang announced the suspension of land acquisition in the open market. However, due to Wanda asset sales in 2017, merger and acquisition of Xingyao Wuzhou project and Huacheng Fuli 60% equity, rongchuang's net debt ratio reached an unprecedented 394%.

From 2019, rongchuang has started to put "reducing leverage" on the agenda. But the "deleveraging" at that time did not really reduce the debt scale, but reduced the debt ratio by increasing own funds.

According to the wind data, it can be found that the scale of interest bearing liabilities of rongchuang has increased sharply in 2017 and 2019, from 112.8 billion yuan in the previous year to 219.3 billion yuan, and from 229.4 billion yuan to 322.2 billion yuan, respectively.

Since 2020, under the slogan of "reducing leverage", rongchuang's overall interest bearing liabilities have not increased, but they have not been effectively reduced. This figure is 303.4 billion yuan at the end of 2020 and 303.6 billion yuan in the middle of 2021.

According to sun Hongbin's statement of "increasing own funds to reduce the debt ratio", we can find that in recent years, the net debt ratio of rongchuang has been greatly reduced, which is also due to the substantial increase of its net profit, while the annual dividend ratio has not been increased accordingly. Therefore, the retained earnings of the company have been increasing, which has thickened the shareholders' equity.

In recent years, the net profit of rongchuang has risen sharply. For example, the net profit in 2017 surged from 2.771 billion yuan in 2016 to 13.164 billion yuan, and increased to 42.35 billion yuan in 2020.

However, according to the dividend data of rongchuang in recent years, from 2016 to 2020, the annual dividend ratio of rongchuang was 20.47%, 21.95%, 20.53% and 22.02%, respectively.

Under the addition and subtraction method, it has contributed a lot to the capital retention of rongchuang. From 2017 to 2020, the net assets of rongchuang were 43.8 billion yuan, 56.8 billion yuan, 83.1 billion yuan and 125.6 billion yuan respectively, which increased to 128.4 billion yuan in the first half of this year.

As a result, a path of reducing the net debt ratio emerges: in the middle of 2017, the net debt ratio of rongchuang was 259.9%, and it dropped to 202.3% at the end of the year; By the end of 2018, it dropped to 149.4%; The net debt ratio indicators of rongchuang in 2019 and 2020 are 139.3% and 96% respectively; In the first half of 2021, this index continued to drop to 86.6%.

But there is still a long way to go compared with "reducing financing costs" and "upgrading ratings".

Sun Hongbin said that the company's current priority is to reduce financing costs and improve credit rating. These two objectives are all ahead of financing. The debt ratio, debt scale and land acquisition scale must be reduced. If it doesn't go down, financing costs can't be reduced.

Under the "three red lines", Lao sun stated that the current strategy is to make the scale appropriate within the three red lines. "It is normal to reduce the scale a little or not increase, and we should adapt the scale to the whole market."

As the youngest but fastest to top 4 in the industry, will rongchuang really put the scale in the secondary position this time? However, it is also uncertain how far the road of "reducing financing costs and improving rating" needs to go.

Old sun hoped that the time would be about three years, or a little more.