Perspectives | Yu Liang: The fate of Vanke's management team is tied to the company (record)

As the first fiscal year without dividends and transfers since its listing in 1991, 2023 has a different meaning for every shareholder of Vanke.

On April 30, Vanke's 2023 Annual General Meeting of Shareholders was held at its headquarters in Dameisha, Shenzhen, with an increase in the number of on-site attendees compared with the previous two years.

The topic of stock price and dividends is unavoidable. As Yu Liang, chairman of the board of directors, said at the meeting: "We can hear everyone's voices and feel everyone's emotions from the investor hotline, the interactive platform of the stock exchange and various forums for some of the dissatisfaction and disappointment of the stock price decline. ”

On the same day, there were participating investors in Xueqiu who released photos of the scene, and there was a message in the comment area: "Help me remind the management of Vanke that you can't be too indifferent to the stock price, and the injured shareholders are very reluctant to buy Vanke Residence after selling the stock." ”

Yu Liang said frankly that the fate of the management team and the fate of the company are tied together. Since becoming a director of Vanke in 1994, he has only bought and never sold in the past 30 years, and is currently formulating a plan to increase his holdings in the management team. At the same time, the key to boosting the stock price is to do a good job of the company, reduce risks, improve fundamentals, and seek long-term healthy development.

Professional reputation

In the Q&A session, one investor's question was quite specific, pointing to Liao Zibin, an independent director of Vanke who took office last year.

According to the data, Liao Zibin is currently an honorary advisor of the Hong Kong Business Accountants Association of China, and an independent director of Shenzhen Qianhai WeBank, Ping An Life and Vanke. He was previously the Head of Audit of KPMG Huazhen China, the Head of Audit of KPMG Asia Pacific, the Chairman of KPMG China, and the Senior Advisor of KPMG Hong Kong.

On March 29 this year, Vanke announced that the board of directors agreed to re-appoint KPMG Huazhen Certified Public Accountants (Special General Partnership) and KPMG Certified Public Accountants as the company's auditors for 2024.

The investor mentioned that on April 19, the Hong Kong Finance and Finance Bureau launched an investigation into an allegation against PricewaterhouseCoopers involving Evergrande's financial fraud of 564 billion yuan. He asked, how can Vanke's INEDs and third-party auditors maintain their neutrality?

Zhu Xu, secretary of the board of directors of Vanke, responded to this: According to the regulations, the personnel of intermediaries who have served the company in the past 12 months, including auditors, legal and other professionals, cannot be independent directors of the company in China, while Hong Kong requires 24 months. Mr Liu has been retired for many years and is in compliance, and with KPMG changing its audit team every five years, the composition of the team is very different from what it used to be (when Liew was in charge).

"If there is a question of independence, the regulator will not allow it. ”

The investor also said that as a local resident of Shanghai, he saw that many of Vanke's projects in Shanghai were in the suburbs, and the sales of real estate outside Shanghai Central were poor.

In this regard, Zhang Hai, co-president and chief partner of the development and operation department, and the former first in Shanghai, said that Shanghai Vanke first acquired land in the suburbs, and its layout in Shanghai has been relatively complete in the past 10 years. Although there is less land acquisition in the absolute core area, the projects are decided according to the population, industrial structure, etc., "We also have projects in Huangpu District, which are expected to be launched to the market by the end of this year. In addition, the ideal place project in Jiading will also achieve sales of 12 billion yuan in 2023. ”

It is worth mentioning that just the day before, on April 29, the third phase of Langshihuayu waterfront pure small high-rise located in the Meilong plate of Minhang opened and launched 208 sets, and 149 sets were removed on the same day, with a removal rate of 72% and a sales amount of 1.06 billion yuan. The project is the first integration of Shanghai Vanke's "Picking System" and China Railway Construction's mid-to-high-end improvement "Flower Language Department".

Also on the evening of April 29, Vanke released the first quarter report of 2024, achieving operating income of 61.594 billion yuan, a year-on-year decrease of 10.05%; The net profit attributable to the parent company was -360 million yuan, a year-on-year decrease of 125.04%. Affected by the decrease in sales collection, the net operating cash flow in the quarter was -9.42 billion yuan, a year-on-year decrease of 234.7%.

In the first quarter, Vanke's development business revenue was 46.67 billion yuan, down 13.8% year-on-year, gross profit margin was 10.5%, down 6.7 percentage points year-on-year, and the cumulative sales area and value were 3.911 million square meters and 57.98 billion yuan, down 37.5% and 42.8% year-on-year respectively.

Kaiyuan Securities released a research report the next day, saying that the company's performance will continue to be under pressure in the short term, but the sales scale is still in the forefront, the land reserve is still relatively abundant, and at the same time, the coordinated development of diversified businesses, and the performance is expected to gradually improve when the industry recovers, maintaining a "buy" rating.

In the face of the ups and downs of the year and the current cold spring, Yu Liang also expressed his full confidence in the future of Vanke at the meeting.

He said that the current pressure is phased, and the next two years will achieve initial results, and the company can only achieve sustainable development by coordinating debt reduction and high-quality development.

"Vanke's management team has never changed its cherishing and valuing professional reputation, and will continue to introspect and redouble its efforts. ”

Firm weight loss

In addition to the attitude of continuous self-examination, Yu Liang said that at the specific implementation level, Vanke has formulated a package to achieve three goals.

The first is to "reduce debt", reduce interest-paying debt by more than 100 billion yuan in the next two years, and reduce the total scale of interest-paying debt by more than half in the next five years.

Second, we will complete the "transformation of the financing model" and gradually shift from a model based on unified borrowing and repayment and subject credit to a financing model based on project and asset credit.

Third, we will complete the "focus on the main business", free up limited resources, and do a good job in strengthening the three main businesses of comprehensive residential development, property services, and rental apartments.

The package mainly consists of two stages: the first stage is to firmly slim down, adjust the financing model, and degrade risks. Specifically, in addition to the three main businesses, it will withdraw from other businesses, and clean up and transfer financial investments that are not main businesses. Resolutely and vigorously promote the transaction of bulk assets such as commercial offices, and plan to complete 20 billion yuan per year. In the second stage, Vanke will focus on its main business, refine its business, and become a benchmark for products and services in the industry.

In addition to the commercial assets that were named as examples, retail business, logistics and other businesses were not classified as the main business. According to the data of the first quarterly report, Vanke's block transactions received 4.2 billion yuan during the reporting period, and more than 1 billion yuan of investment income was obtained. It can be seen that Vanke is making trade-offs in operating service business.

In terms of "financing model transformation", Vanke has significantly increased the amount of new guarantee authorization from 35 billion yuan in 2023 to 150 billion yuan, and President Zhu Jiusheng said at the meeting that this is part of the transformation.

"Now in accordance with the policy requirements, we have to turn to a new model, the project system, the implementation of mortgages, and closed supervision. At present, the balance of guarantees is about 30 billion yuan, why are there few guarantees in the past? Because 90% of all the loans in the past were credit loans, and 80% were operated by the headquarters, and the borrower itself was Vanke. For example, at the end of last year, among the nearly 200 billion loans we cooperated with banks, more than 120 billion yuan were directly borrowed by Vanke. Based on a simple estimate of headquarters financing and existing guarantee data, it will cost about 150 billion. ”

Zhu Jiusheng also added that the scale of peer guarantee with roughly the same sales scale is about 200 billion, and Vanke's transformation is gradual.

Since the beginning of this year, Vanke has added 16.8 billion yuan in financing withdrawals, with an average cost of 3.33% of new domestic financing, and the bank's financing channels have remained unimpeded, and the group has applied for 59 projects to be included in the white list.

Regarding the media's previous disclosure of Vanke's plan to add more than 130 billion yuan of collateral, Zhu Jiusheng did not respond clearly, but revealed that there have been many exchanges with banks on resource issues, asset issues, especially collateral issues in the past few months, and the basic conclusion is that collateral, resources, and assets are relatively sufficient.

In addition to slimming down and saving itself, Vanke still has "foreign aid" - Xin Jie, chairman of the major shareholder Shenzhen Metro, and Huang Liping, general manager, attended the shareholders' meeting.

Xin Jie said at the meeting that as a long-term shareholder of Vanke, Shenzhen Railway Group's attitude and position have not changed, and he will continue to support the healthy development of Vanke and will not be shaken by market fluctuations.

At the same time, he said that other cooperation projects with Vanke are being actively planned and promoted in a market-oriented and law-based manner, and will be announced once they are implemented.

The following is an excerpt of the transcript of Vanke's 2023 Annual Meeting of Shareholders:

On-site question: In the past 31 years, the company has always insisted on cash dividends, and this year it has been canceled, and we also understand this choice, but we still hope that the company can have some more practical measures to protect the interests of small and medium-sized investors. Is it possible for the company to resume cash dividends in 2024 and 2025?

Zhu Xu: At present, the industry is in a state of deep adjustment, and the confidence of the market has yet to be restored. Although Vanke's sales performance is slightly stronger than the average of the top 100 real estate companies, it has also fallen by 43%, in this case, the board of directors has carefully resolved to keep more cash within the company by temporarily withdrawing cash dividends this year, so as to better cope with the uncertainty of future operations, maintain the safety of operation in special periods, and provide better security for the company to survive the industry adjustment period.

As for whether it is possible to resume cash dividends in 2024 and 2025, the future dividend plan should also take into account the market environment, the company's own operating conditions and development needs, and combine the opinions of shareholders of all parties to formulate.

On-site question: There is a proposal on the general authorization of H shares, seeing that the price-to-book ratio of H shares is relatively low recently, only 0.2 times, why do you apply for this proposal? Will H shares be issued at a low price this year?

Zhu Xu: It is a routine operation to apply for a general authorization of H shares at the general meeting of shareholders, and we have applied for it every year before, but we do not necessarily do it after applying.

On-site question: I want to ask a question about the financing model, Mr. Zhu mentioned at the performance meeting that the company will shift from the credit model to the project-based financing model in the future, and the new guarantee authorization amount will be increased from 35 billion in 2023 to 150 billion in the proposal to provide external guarantees. Two questions: First, is the large increase in the amount of guarantee authorization related to the change in the financing model? How much will the guarantee amount be added in 2024? Second, the recent report mentioned that the company has plans to package 130 billion assets as collateral and apply for loans from banks, is it true?

Zhu Jiusheng: Since the fourth quarter of last year, we have encountered a change in the financing model due to regulatory conditions or policy changes.

Now, in accordance with the policy requirements, we must turn to a new model, the project system, the implementation of mortgages, and closed supervision. We now have a guarantee balance of about 30 billion.

Why did there be few guarantees in the past? Because of all the loans in the past, 90% were credit loans, and 80% were operated through the headquarters, and the borrower itself was Vanke. For example, at the end of last year, among the nearly 200 billion yuan of loans we cooperated with banks, more than 120 billion yuan were directly borrowed by Vanke Enterprises. Based on a simple estimate of headquarters financing and existing guarantee data, it will cost about 150 billion.

The increase in this guarantee authorization is due to the final say in the financing model, the bankers, and today's vote. The scale of sales is roughly equivalent to that of our peers, and the guarantee scale is about 200 billion. Our transformation is gradual.

You mentioned the issue of the media disclosing Vanke's more than 130 billion yuan in collateral. In the past, 90% of our financing model was credit, and there was little talk about collateral. The work is divided into three phases, combing resources, taking inventory of assets, and preparing collateral for the new financing model.

Bankers will ask three questions when they come to talk about the financing model: first, where does the money I lend you go? Second, where is the thing? Third, is there enough cash flow to pay interest and repay principal? These three tasks also correspond to the three concerns of the bank.

After internal resource sorting and asset inventory, we will discuss collateral with the bank. Vanke did not have much contact with collateral in the past, and its operating assets were recorded at the original cost. In the past few months, we have had a lot of exchanges with the bank on the issue of resources, assets, and collateral, especially the collateral, and our basic conclusion is that our collateral, resources, and assets are relatively sufficient.

On-site question: I just saw that in terms of our audit, the independent directors have KPMG work experience and are former KPMG executives. Can the independence of independent directors be guaranteed? I also see that Vanke's impairment losses are a bit small, for example, many of Vanke's projects in Shanghai are in the suburbs, while Shanghai's sales outside Central are relatively poor.

Zhu Xu: There are clear provisions on the independence of independent directors in domestic and foreign rules. In China, the personnel of intermediaries who have served the company in the past 12 months, including auditors, legal and other professionals, cannot be independent directors of the company, while in Hong Kong, 24 months are required.

Mr Liu has been retired from KPMG for several years to meet the independence requirements of the onshore and offshore listing rules. At the same time, KPMG also strictly enforces the requirement of replacing a group of audit teams every five years to ensure the independence of the audit team.

In addition, domestic and foreign regulators will also conduct strict scrutiny on the independence of independent directors, and will not allow persons who do not meet the requirements to serve as independent directors.

Zhang Hai: Regarding the investment layout in Shanghai, Vanke first entered the real estate market in the suburbs, but in the past 10 years, our layout in Shanghai has been relatively complete.

Although we have taken relatively little land in the absolute core area, the projects are decided according to the population, industrial structure, etc. We also have a project in Huangpu District, which is expected to be launched to the market by the end of this year.

In addition, the ideal land project in Jiading will also achieve sales of 12 billion yuan in 2023, ranking 7th in the country.