Manke "Watari"

Reporter Chen Ting and Zhao Yi report from Shenzhen

There is one less A-share real estate company with a market value of 100 billion yuan.

In the past few days, Vanke (000002. SZ) shares continued to fall, during which they continued to break through all-time lows. On April 18, Vanke fell to 6.87 yuan per share intraday, hitting a new low in nearly nine years, and as of the close of the day, Vanke's total market value was less than 85 billion yuan.

On the news side, Vanke's management pointed out at an investor exchange meeting a few days ago that Vanke is currently experiencing phased and operational difficulties, and its liquidity is under pressure in the short term. "We believe that although there are reasons for changes in the external market, it is more that the company itself still maintains the inertia of expansion and fails to adjust in time when the macro situation and industry conditions have undergone major changes. Vanke's management reflected. According to the annual report, Vanke's revenue in 2023 will decrease by 7.56% year-on-year, and net profit will decrease by 46.39% year-on-year.

In addition to the challenges to its operations, Vanke has been plagued by public opinion reports by real-name reports from its partners since the beginning of this year, which involved legal disputes. However, the reporter of "China Business Daily" noticed that just after Vanke's management gave an explanation on the relevant situation, on April 15, the whistleblower responded publicly again. What exactly is the truth? It remains to be further investigated and announced by the relevant departments.

At the same time, the news that the general manager of the regional company was taken away for investigation once again plunged Vanke into the vortex of negative public opinion. At this point, Vanke, who was once a "top student" in real estate, will perform what kind of script will he perform after opening a "confession game"?

Management reflection

Vanke, which proposed to "survive" as early as 2018, was praised by the outside world for its "sense of crisis" at the time. In the past few years, when the real estate situation is not optimistic, Vanke has always conveyed a certain confidence to the outside world.

Looking back now, Vanke's judgment on the industry has been repeatedly verified by the market, but it has never thought that it has failed to achieve the "unity of knowledge and action".

"Although the company realized early in the industry that the rapid growth will eventually end, our behavior has not been able to resolutely get rid of the inertia of the industry, and in many cities, including some key cities and first-tier cities, there have been investment ventures and mistakes. After the central government clearly put forward the high-quality development goals and requirements of the industry, it failed to make a more thorough adjustment to the 'three highs' model (high leverage, high debt, and high turnover) that prevailed in the industry, resulting in a passive situation today. On April 14, Vanke held an investor exchange meeting, which was attended by Yu Liang, chairman of the board of directors, Zhu Jiusheng, president, and Zhu Xu, secretary of the board of directors, and made the above statements.

In fact, Yu Liang pointed out as early as two years ago at the "review" at the performance meeting that Vanke failed to resolutely get rid of the inertia of high growth, and there was investment in some cities, resulting in a decline in the company's gross profit margin in 2021.

Earlier, Vanke's management had revealed at the 2020 semi-annual report that the company's resources at that time could ensure its development in the next two to three years. As of June 30, 2020, the total GFA of Vanke's projects under construction was approximately 110 million square meters.

But the reality is that Vanke continued to expand in the following years. According to the annual report, Vanke acquired 148 new projects in 2021, with a total equity land price of about 140.15 billion yuan, and the average land price of new projects was 6,942 yuan per square meter. In 2022, Vanke acquired a total of 36 new projects, with a total equity land price of about RMB49.64 billion, and an average land price of RMB12,297 per square meter. In 2023, Vanke will acquire a total of 43 new projects, with a total equity land price of about 46.32 billion yuan, and the average land price of new projects will be 13,899 yuan per square meter.

The mistake of the investment strategy has intensified Vanke's resistance to the pressure of the industry's downward cycle. From 2021 to 2023, Vanke's sales will be 627.78 billion yuan, 416.97 billion yuan, and 376.12 billion yuan respectively. In 2023, the settlement revenue of Vanke's real estate development business decreased by 9.6%, and the settlement gross profit margin decreased by approximately 4.7 percentage points year-on-year (operating profit margin after deducting taxes and surcharges decreased by 3.8 percentage points year-on-year).

Affected by the development business, Vanke's overall gross profit margin continued to decline in 2022, decreasing by 2.27 percentage points year-on-year to 19.55% in 2022, and further decreased to 15.23% in 2023 (16.3% after compensation of depreciation and amortization).

According to the announcement, from January to March 2024, Vanke achieved a total contracted sales area of 3.911 million square meters and a contracted sales amount of 57.98 billion yuan, a year-on-year decrease of 37.5% and 42.8% respectively.

Transformation goals have not been met

In fact, Vanke is not completely unprepared for the decline in sales scale, and has even done "precaution".

In 2014, the 30th anniversary of the company's establishment, Vanke extended its positioning from a "three-good residential supplier" to an "urban supporting service provider", hoping to explore and lay the foundation for future development in about ten years. At that time, Vanke believed that the operation of service business would provide more support for the company's future value growth, including property services, logistics and warehousing, commercial operations, long-term rental apartments, etc.

"The right direction, early start, and complete layout" is Yu Liang's summary of Vanke's business service business advantages. Now, it seems that some of the advantages are now hindering the company's development.

Vanke's management recently said at an investor conference that the company's business service business has the problem of too big steps and too haste in the actual operation process. "The transformation business exceeded our ability to match resources, took up too much funds for the development business, and the scale was too large, which also led to the inability of management to keep up, and the business objectives were not achieved as planned. ”

In terms of phases, it has taken Vanke eight years to complete the business logic verification and replicability verification of the service business. Vanke's original judgment was also a proverb: "If we only look at operating income and profits, these businesses cannot be compared with real estate development now and in the future." In the initial stage, their investments can be a significant burden on short-term performance improvements. In particular, the company uses the cost method to depreciate and amortize these asset-heavy businesses, which increases the impact on the reported profit. ”

Yu Liang said in March last year that the tuition fees for operating a service business were basically paid. However, with the ten-year deadline just around the corner, the level of contribution of the operating services business to Vanke's total revenue is still limited.

According to the 2023 annual report, Vanke's main business during the reporting period included real estate development and related asset management, as well as property services. Among them, the revenue of real estate development and related asset management business accounted for 92.3%, and the revenue of property services accounted for 6.3%.

In its 2021 annual report, Vanke has this vision for the operating service business: "With the decline in the return requirements and risk appetite of the whole society, the advantages of the operating service business in generating stable cash flow have begun to appear, and various types of long-term equity investments targeting it have begun to increase", "The company's investment income will be reflected in various ways, forming support for performance to a certain extent." In the future, the financial value of the operating service business based on cash flow and the growth value based on resilience and market segment expansion will be an important source of long-term value growth for Vanke. However, time remains to be given when this expectation will be realized.

Liquidity is under pressure in the short term

In the face of declining sales and sluggish transformation, Vanke's management pointed out: "At present, Vanke has indeed encountered phased and operational difficulties, and its liquidity is under pressure in the short term. "It is worth noting that Vanke still has debts due to be repaid this year.

At present, whether Vanke is able to repay its debts has become the main concern of the outside world.

According to the annual report, as of the end of 2023, Vanke's total liabilities were about 1.1 trillion yuan, with total interest-bearing liabilities of 320.05 billion yuan, accounting for 21.3% of total assets, of which 19.5% were interest-bearing liabilities due within one year and 80.5% were interest-bearing liabilities for more than one year. Among the interest-bearing liabilities, domestic liabilities accounted for 80.3% and overseas liabilities accounted for 19.7%.

Zhu Jiusheng said that this year's overseas part of the repayment has been arranged, and there are still bonds due overseas only in the second quarter, with a maturity amount equivalent to about 5.6 billion yuan, and the company has started the relevant replacement and repayment preparations in advance.

In addition, Vanke's management has repeatedly stated that it will "resolutely not lie flat", and even promised to reduce debt by 100 billion yuan in the next two years. Just, where does the money come from?

At present, real estate is still in the stage of deep adjustment, and Yu Liang himself also maintains the judgment of "short-term over-fall in the market", and it may be difficult to accelerate "hematopoiesis" from the sales side. In terms of financing, Vanke is also adapting to shift from a "total-to-total" to a project-based financing model, with a net cash outflow of about RMB36.8 billion in 2023, a year-on-year decrease of 1,170.49%.

Vanke began to "survive with a broken arm". On 20 February, Link REIT (0823. HK) announced that it has completed the acquisition of 50% of the equity of Qibao Vanke Plaza in Shanghai, achieving 100% shareholding in the target. It is worth noting that Qibao Vanke Plaza is valued at about 7.06 billion yuan, that is, its 50% equity is valued at about 3.53 billion yuan, while the consideration paid by Link Real Estate Fund this time is only about 2.384 billion yuan, which is equivalent to a discount of nearly 7%. In addition, Qibao Vanke Plaza is also the most profitable commercial project of Vanke in the past three years.

At the same time as disposing of assets, Vanke sought support from major state-owned shareholders. In November last year, Vanke suffered a double kill of stocks and debts, and Shenzhen SASAC and Shenzhen Metro Group Co., Ltd. (Vanke's largest shareholder, hereinafter referred to as "Shenzhen Railway Group") acted as Vanke's platform, and proposed to take measures to support Vanke if necessary.

At the 2023 annual results meeting held at the end of March this year, Zhu Xu said that the major shareholders of state-owned assets have taken four major measures to help and support Vanke in a market-oriented and law-based manner.

Previously, Vanke announced that Shenzhen Railway Group will subscribe to the CICC SCPG Consumer Infrastructure Closed-end Infrastructure Securities Investment Fund through strategic placement, and the number of subscription shares will not exceed 30% of the total shares raised by the fund, and the funds involved are estimated to be about 1 billion yuan.

This year, Vanke broke the 31-year practice and made the decision not to pay dividends. From March 28, 2024, Yu Liang, Zhu Jiusheng, and the chairman of the board of supervisors of Vanke will unfreeze and voluntarily receive a monthly salary of 10,000 yuan before tax. In 2023, Yu Liang's personal pre-tax salary will be 1.27 million yuan, which has exceeded 10 million yuan at the peak of previous years.