After the failure of the Ligao Healthy Life Prospectus, why did the listing of the property enterprise encounter a "low tide"?

After the first submission of the prospectus was invalid, on December 10, Lego Healthy Life immediately submitted the prospectus for the second time on the Hong Kong Stock Exchange. Recently, a number of property companies have submitted the table again after the prospectus expires for 6 months, in addition to Ligao healthy life, there are also Zhongliang Baiyue Zhijia, Mingyu Commercial Service, Zhongnan Service and so on.

This is a phenomenon that did not occur in the past year. This year, there are 20 property companies that have submitted listing applications, but the number of listed property companies is significantly lower than last year.

Property enterprises are generally underdeveloped, mostly rely on affiliated companies for development, and the ability of third parties to expand is not very strong. In the view of industry insiders, this year's real estate industry is facing an unprecedented credit crisis, which has affected the valuation of property companies in the capital market, and even affected their listing rhythm, which is manifested in the stricter listing review of property companies.

Recently, a number of property companies such as Lico Healthy Life submitted prospectuses for the second time. Image credit/IC photo

The second submission of the prospectus, operating cash flow is negative

On December 10, after the first submission of the prospectus failed, Lego Healthy Life soon submitted the prospectus again, which shows its urgency to impact the IPO.

As early as June 9, Lico Group announced that it would spin off its property management company Lico Health Life to be listed on the Hong Kong Stock Exchange and had submitted an application to the Hong Kong Stock Exchange.

According to the prospectus, Lico Healthy Life is an integrated property management service provider in Jiangxi Province, and its service network covers the core areas of strategic significance such as the Yangtze River Delta, the Greater Bay Area, the Bohai Rim region and central China. As of June 30, 2021, Lego HealthCare has a total of 88 projects under management with a total GFA of 13.9 million square meters, and has contracted to manage 127 projects in 25 cities in 11 provinces, municipalities and autonomous regions in China, with a total contracted GFA of 22 million square meters.

According to the prospectus, it is committed to becoming the "double housekeeper" of customers, that is, life housekeeper and health housekeeper.

It is worth noting that at present, for Li Gao's healthy life, "blood transfusion" has become a top priority. According to the prospectus, as of June 30, 2021, the cash flow of Lico Healthy Life's operating activities was -9.4 million yuan. This is due to the increase in GFA under management after the acquisition of Wuhu Forest Property in December 2020, as well as the payment of income tax.

In addition, as of the end of June 2020 and 2021, the collection rate of property fees for Lico Healthy Living is low, only more than 60%, compared with more than 80% in the previous two years. In the view of Lego Healthy Life, the collection rate of property fees is low, mainly due to seasonal fluctuations, and some customers tend to pay the outstanding property management fees at the end of the year out of payment preference and convenience.

In terms of profit, although Ligao Healthy Life has previously had a compound annual growth rate of 99.1%. However, profit in the first half of 2021 decreased by 25.1% from the first half of 2020 to 17.3 million yuan.

Over-reliance on the parent company, there is uncertainty about future growth

Like many property management companies currently preparing to go public, the revenue of Lico Healthy Life mainly depends on the parent company, Lico Group. Therefore, its third-party expansion capabilities have been questioned by the market.

From the past three years, more than 90% of Lico's healthy living income comes from the parent company. According to the prospectus, from 2018 to 2020, 96.2%, 91.3% and 95.5% of the total income of Lego Healthy Life came from properties developed by Lego Group and its joint ventures and associated companies respectively. In the first half of this year, this proportion fell to 80.1%.

In terms of revenue, Lico Healthy Life increased from about 124 million yuan in 2018 to about 222 million yuan in 2020, with a compound annual growth rate of 33.5%.

In the past, the increase in Lego's healthy living income was also mainly attributed to the increase in GFA under management of properties developed by the parent company. Once the Support of the Lego Group is lost, it may not be possible to sustain the historical growth rate.

According to public information, Lico Group started in the building decoration industry and was established in 1992. In 1995, Lego Group shifted its focus to real estate development and was listed on the Main Board of the Hong Kong Stock Exchange in 2014. In 2020, the contracted sales of Lico Group were 40.975 billion yuan, an increase of 49.5% year-on-year; in the first 11 months of 2021, the contract sales of Lico Group were 40.561 billion yuan, and the high growth was difficult to sustain.

As of September 30, 2021, The Debt to Assets Ratio of Lico Group was 76.9%, the net gearing ratio was 52.1%, and the cash-to-short-term borrowing ratio was 1.23, and one of the "red lines" was classified as yellow. In the face of the current financing environment, the expansion of The Scale of Lico Group is bound to be affected.

In the prospectus, Lico Healthy Life also mentioned that if Lico Group is prohibited from increasing the total size of interest-bearing liabilities, it may not be able to use credit financing before repaying its existing debts, and may slow down its land acquisition activities; and this move by the parent company may affect the income of the property company.

Why do property company prospectuses frequently lapse?

Like Lico Healthy Life, a number of property companies have recently submitted prospectuses again after the prospectus expires for 6 months. This is a phenomenon that did not occur last year.

For example, on November 24, Zhongliang Baiyue Zhijia, a subsidiary of Zhongliang Holding Group, submitted a prospectus for the second time, and its first prospectus was submitted on April 29 and expired on October 29; on November 4, Mingyu Commercial Services again submitted a listing application to the main board of the Hong Kong Stock Exchange, which had previously submitted a prospectus to the Hong Kong Stock Exchange for the first time on April 28; on September 30, Zhongnan Service, a property company under Zhongnan Construction, submitted a prospectus to the Hong Kong Stock Exchange for the second time and passed the hearing on November 12. It first filed a prospectus on March 29 this year.

In addition, Haiyue Life and R&F Property Services did not have the action of submitting the table twice after the expiration of the prospectus. Among them, R&F Property abandoned the listing and sold its own equity, transfusing R&F Real Estate.

For the listing of property companies this year, Niu Xiaojuan, executive deputy general manager of the property business department of Middle Finger Holdings, said that there were 12 companies listed this year, compared with 18 last year, compared with this year. However, there are not many companies that have submitted their forms this year, and there are 20 companies that have submitted listing applications.

From the current point of view, the Hong Kong Stock Exchange has become stricter in its review of the enterprises that submit the table, and the content and frequency of inquiries are increasing. "Compared with last year, the Hong Kong Stock Exchange and the SFC have been more detailed on the issues, paying special attention to the impact of the real estate industry policy on the property industry." Niu Xiaojuan said.

This year, the real estate industry has brought about an unprecedented credit crisis due to tight liquidity, which has affected the valuation of property companies in the capital market.

In Niu Xiaojuan's view, affected by the tightening of policies in the upstream real estate industry, the scarcity of property stocks has decreased, and the valuation has been adjusted. At present, the total market value of the 55 listed companies adds up to HK$650 billion, and during the year, the overall market value was as high as one trillion, which is equivalent to a decline of more than 30%. In addition, the change in the price-to-earnings ratio is also more obvious.

It is worth noting that at present, property companies frequently become transaction weights, typical such as color life, Blu-ray Garbo and so on. According to data from the Middle Finger Research Institute, as of the end of November, there were a total of 63 mergers and acquisitions this year, with a transaction amount of 31.5 billion yuan, an increase of 200% over last year, and the most obvious feature is the large number and large amount.

Industry insiders believe that in the future, the transmission effect of the real estate industry will continue to affect the property management industry, the real estate credit crisis will also accelerate the reshuffle of property enterprises, for some "congenital deficiencies", relying on the development of the parent company property enterprises, in order not to be annexed, only their own stronger, its market competition is undoubtedly more intense.

Beijing News reporter Yuan Xiuli

Edited by Juanjuan Yang Proofread by Wu Xingfa