To build the security of the financial market, Longfor Group is tenacious and forward

作者 | 朱虚侯 来源 | 一号企业家（ID：EIH1st）

No. 1 said: The wind knows the strength of the grass, and the evergreen depends on toughness

Take multiple measures to stabilize the real estate market, and there will always be someone who wants to take the lead.

On March 22, Longfor Group (0960. HK) released its 2023 results, which attracted market attention. At the results meeting on the same day, the management of Longfor Group said: "Reducing the scale of debt in an orderly manner and driving development with positive cash flow are the ideas of Longfor's transformation and development in the future. This move was called a "new development model" by the media.

In 2023, Longfor Group achieved operating income of RMB180.74 billion, profit attributable to shareholders of RMB12.85 billion, core profit attributable to shareholders of RMB11.35 billion, gross profit of RMB30.58 billion, gross profit margin of 16.9%, core profit after tax margin of 8.7%, and core profit margin after equity of 6.3%.

For Longfor, there are three key elements in order to pass through the industry cycle in the future: first, to maintain positive operating cash flow and rely on the main business to maintain self-"hematopoietic" ability; second, the scale of interest-bearing liabilities has steadily declined, and it is actively relying on positive operating cash flow to reduce debt, rather than passively selling assets or passively reducing cash in hand to reduce debt; third, the steady growth of operating income and profits.

Positive cash flow, "hematopoietic" ability rebound

"Everything is pre-planned, and if you don't prepare, you will be wasted", headwind cycle, cash is the blood of the enterprise, penetrating the whole body of the enterprise, a good enterprise, must have a good cash flow as a guarantee.

It can be said that in the current real estate companies, those who hold cash can be safe.

According to the financial report, in 2023, Longfor Group will achieve positive operating cash flow, with a total net inflow of 3.5 billion yuan.

Longfor explained that on the one hand, the company emphasizes quality collection, capital concentration and overall management, and on the other hand, the company flexibly adjusts investment and start-up, while improving efficiency and reducing fees, and dynamically matching income and expenditure to ensure that various businesses continue to enhance hematopoietic capacity.

Dismantling its performance data can find that there are three important elements behind the positive cash flow:

First, keep fundamentals solid at all times. Last year, Longfor Group achieved contracted sales of 173.49 billion yuan in real estate development, with a sales collection rate of over 100%, stabilizing the basic market and achieving high-quality collection.

Secondly, the operation and service business showed surging vitality and continuously optimized the profit structure. In 2023, Longfor Group's operating and service businesses will achieve a total operating income of RMB24.88 billion, a year-on-year increase of 5.7%, and the multiple of dividends and interest covered will increase to 1.55 times.

Third, we will continue to improve our debt structure and build a solid financial foundation. As of the end of the reporting period, Longfor Group's interest-bearing liabilities amounted to 192.65 billion yuan, a year-on-year decrease of 15.4 billion yuan or 7.4%. Cash on hand remained high at 60.42 billion yuan.

Orderly reduction of liabilities and thickening of the financial safety cushion

The longer the debt problem is delayed, the more the cost will increase exponentially. Therefore, there is only one solution:

Early treatment, early healing

At a time when the relationship between real estate supply and demand has undergone major changes and financing policies have been adjusted in a timely manner, it is hoped to promote the healthy development of the real estate market by guiding real estate companies to explore new development models.

During the painful period of adjustment, the liquidity pressure of real estate companies has increased, and some well-known real estate companies have defaulted on their debts or sought extensions.

According to CRIC statistics, the total maturity scale of real estate enterprise bonds in 2023 will be 696.8 billion yuan, which is the peak period for debt repayment of real estate enterprises. The first and second quarters of 2024 are still the peak of the maturity of real estate enterprise bonds, with a maturity scale of more than 150 billion.

The situation is not optimistic, and only resilience can withstand the impact.

In 2023, as the industry liquidation intensifies, Longfor will always maintain restraint and self-discipline in financial discipline, and continue to optimize the debt structure, create a healthier capital chain, and thicken the "safety cushion" of the enterprise while reducing the scale of debt.

As of the end of the reporting period, Longfor Group's interest-bearing liabilities amounted to 192.65 billion yuan, a decrease of 15.4 billion yuan from last year. At the same time, its cash on hand was 60.42 billion yuan, which remained high.

There is surplus food in the hand, and there is no panic in the heart.

Earlier on March 20, the results of the 2024 comprehensive strength evaluation of real estate development enterprises of the China Housing Association were released, and the report showed that the debt pressure of most real estate companies is still not to be underestimated.

From the perspective of long-term solvency, the average asset-liability ratio of the TOP500 real estate enterprises in 2023 will be 63.84%, and the average net debt ratio will be 96.92%.

According to the financial report, in 2023, Longfor Group's "three red lines" indicators will continue to rank in the green file, with a net debt ratio of 55.9% and an asset-liability ratio of 60.4% after excluding advance receipts, a year-on-year decrease of about 5 percentage points.

In terms of short-term solvency, the average current ratio of the TOP500 real estate companies in 2023 is 1.74, and the average quick ratio is 0.76.

According to Futu Securities, Longfor Group's latest financial results have a current ratio of 1.66 and a quick ratio of 0.70, both of which are better than average.

The financial report also shows that Longfor Group's cash short-term debt ratio is 2.25, and the average contract loan term has been extended from 6.67 years to 7.85 years.

As of March 22, the proportion of short-term debt due in 2024 has been reduced to 8%, the loan tenure has continued to be extended, the ratio of long-term and short-term debt has become more reasonable, the pace of debt maturity is scientific and controllable, and there is no pressure to repay debts in the short term.

In addition, Longfor has always responded to market fluctuations with a safe debt structure and reasonably allocated the proportion of domestic and foreign debt. As of the end of 2023, the proportion of Longfor Group's foreign currency debt has further decreased to 17.7%, of which 100% of the foreign debt has been hedged by swaps, effectively avoiding exchange losses caused by exchange rate fluctuations and further improving and protecting the safety of the company's business market.

For a long time, Longfor Group has followed the iron financial law of repayment on time, non-extension and non-overdue, so it has won the trust and support of its partners. Perhaps, this is the strong confidence of Longfor Group through the cycle.

Taking advantage of the east wind to welcome the spring breeze, the financing channels are smooth and diversified

The more difficult times are, the more credit value is revealed.

In the period of severe financing environment, Longfor Group's financing channels have always remained smooth and diversified.

This point may be found from the statement of the management of Longfor Group at the results conference:

The company always puts debt safety first, all debts are paid safely, and debt repayment is prioritized over the development of new projects.

DBS said in the research report that Longfor Group has good financial management discipline and a resilient balance sheet, which has enabled its refinancing to go smoothly.

On January 24, 2024, the People's Bank of China (PBOC) issued the Notice on the Management of Operating Property Loans: "By the end of 2024, national commercial banks may issue operating property loans to housing development enterprises with standardized operations and good development prospects to repay the relevant loans and open market bonds in the real estate sector of the enterprise and its group holding companies (including consolidated subsidiaries)." ”

In other words, in the past, operating property loans could only be used for the project, but the new policy has opened up the pattern, and after taking the money, it can basically be used to repay all kinds of stock loans at will, as long as it is used within the same group (not the same project company) to which it belongs.

For real estate companies such as Longfor Group, which hold a large number of high-quality commercial assets, this move will help replenish their liquidity and ease debt pressure. In 2023, Longfor Group will have a net increase of 17.4 billion yuan in operating property loans, with an average financing cost as low as 3.65%.

With the iron financial law of repaying loans on time, not extending and not overdue, Longfor Group has won the trust of regulators, as well as banks, brokers, rating agencies and other financial institutions.

In July 2023, Longfor received a five-year syndicated loan of HK$3.1 billion. In August and December 2023, Longfor issued two tranches of China Bond Enhanced Guaranteed Bonds, with a scale of 1.1 billion yuan and 1.2 billion yuan respectively, with interest rates of 3.50% and 3.66% respectively, and a maturity of 3 years. Bank financing accounts for 77% of interest-bearing liabilities, indicating that Longfor's safety is well recognized by banks.

In addition, the remaining credit line of Longfor Bank exceeded 200 billion yuan, the remaining amount of corporate bonds, special bonds for housing leasing and medium-term notes reached 40.7 billion yuan, and the remaining amount of overseas loans and US dollar bonds reached 1.28 billion US dollars. During the period of deep adjustment of the industry, Longfor Group still maintained the initiative of financing rights and left room for financing.

Longfor adheres to low-cost financing channels, and the overall borrowing cost remains low at 4.24%, the average account period is further extended to 7.85 years, and a series of financial indicators are maintained at the best level in the industry.

At the same time, Longfor Group continues to obtain high credit ratings from the capital market, among which Fitch, Moody's and Standard & Poor's are rated BBB-, Ba1 and BBB- respectively, and China Chengxin and New Century are all AAA.

Behind the smooth financing channels is the credit of active payment.

In 2023, Longfor Group actively repaid its debts due through orderly arrangements, repaid the syndicated loan of HK$15.7 billion in advance, continued to optimize the debt structure, improve financial security, and maintain the credibility of Chinese real estate enterprises in the domestic and foreign capital markets.

On March 8 this year, Longfor Group completed the redemption of CMBS bonds (asset-backed special plan) with a total scale of 4.61 billion yuan ahead of schedule, and so far, Longfor Group has redeemed or paid 10.31 billion yuan of domestic bonds in advance in 2024.

So far, there will be no public bonds maturing abroad by the end of 2026. In addition, the supply chain ABS, commercial bills, etc., Longfor has been cleared.