Family-owned Runhua Property's IPO in Hong Kong "Technology Property" Became a Gimmick?

Reporter Yan Shilong reported from Beijing

Recently, Runhua Property Technology Development Company Limited (hereinafter referred to as "Runhua Property") submitted a prospectus to the Hong Kong Stock Exchange. It is understood that Runhua Property is mainly deeply rooted in Shandong, individual projects have been settled in Beijing, Shenzhen and other places, it will position itself as a property service provider of hospitals and public sectors, and currently operate 30 hospitals and 95 public property projects.

"China Business News" reporter learned that from 2018 to 2020, the revenue of Runhua Property was about 341 million yuan, 397 million yuan and 486 million yuan, respectively, an increase of 16.50% and 22.48% year-on-year; the net profit after deduction of non-attributable to the mother was 0.13 billion yuan, 0.24 billion yuan and 0.47 billion yuan, and the gross profit margin was 12.4%, 16.8% and 21.2% respectively.

However, the reporter noted that although Runhua Property was named "hospital property" and "technology property" and other gimmicks by itself, from its prospectus, although its hospital business has a high income, its contribution to gross profit is the first in each sector, and the responsibility of science and technology property is only 6 people, of which 4 are bachelor's degrees, and research and development expenditure is negligible. As the Runhua Property controlled by the Luan family, through continuous large loans from banks, "mutual insurance" blood transfusion of the actual controller, the asset-liability ratio has reached more than 200%.

Family businesses and related party transactions

The prospectus discloses that the controlling shareholders of Runhua Property are Luan Tao, Liang Yuefeng and Luan Hangqian, Luan Tao, Luan Hangqian, Liang Yuefeng and Springrain Investment (Luan Tao, Luan Hangqian and Liang Yuefeng hold 59.85%, 37.10% and 3.05% of the equity respectively), Luan Tao and Liang Yuefeng are Luan Hangqian's parents, the three are consistent actors, and the actual controller is Luan Tao. The Luan Tao family holds a total of 75.68% of the equity of Runhua Property. Over the years, Luan Tao and others have been deeply involved in the Shandong automobile distribution industry, and are now non-executive directors of Runhua Property, and the chairman of Runhua Property is Yang Liqun.

It is also because of the characteristics of family businesses that related party transactions have become the norm. Among them, from 2018 to 2020, Runhua Property obtained revenue of 0.49 billion yuan, 0.45 billion yuan and 0.96 billion yuan from related parties, accounting for 14.4%, 11.4% and 19.8% of the revenue of the year, accounting for 14.4%, 19.8% of the revenue of the year, and the proportion was increasing day by day. Mainly, Runhua Property provides property management services to companies controlled by Luan Tao, as well as property engineering services and garden construction services to companies controlled by Luan Hangqian.

The reporter found that in the past three years, Runhua Group (Luan Tao holds 52% of the equity) and Hangqian Group (Luan Hangqian) respectively ranked among the top 5 major customers of Runhua Property, of which the two accounted for 14.3%, 11.3% and 18.4% of the total revenue during the reporting period, that is, from 2018 to 2020.

In addition, mutual "blood transfusions" with related parties have become the norm. In 2019, Runhua Property received a one-year loan of RMB0.65 billion from a related party, while in 2020, Runhua Property provided a one-year loan totaling approximately RMB125 million to a related party, Runhua Group (recovered in March 2021). It is understood that a total of 8 unsecured loans were provided to the related party Runhua Group, with an annual interest rate of between 7% and 9.5%, the main purpose of which is to earn interest rate differentials.

It is worth mentioning that from 2018 to 2020, runhua property bank borrowings were 0.19 billion yuan, 0.50 billion yuan and 209 million yuan respectively. In 2020, of the 121 million yuan of spot bank loans, the guarantees provided by Luan Tao and others were about 800 million yuan, 0.3 billion yuan and 0.11 billion yuan respectively, and the interest rates were 5.4% to 6%, 5.655% and 4.65% respectively. As of December 31, 2020, Runhua Property's non-spot bank borrowings were RMB0.67 billion with an interest rate of 4.65%. The prospectus discloses that as of now, the guarantee provided by Luan Tao and the company he controls has expired or been lifted.

By borrowing money from banks to "transfuse blood" to related parties, the asset-liability ratio of Runhua Property increased from 56.8% in 2018 to 143% in 2019, and reached 218.6% in 2020. In addition, the reporter noted that in the past three years, the current ratios of Runhua Property were 1.3, 0.7 and 1.0, and the quick ratios were 1.2, 0.6 and 1.0, respectively. The net debt-to-equity ratio was net cash, 106.4% and 110%, respectively.

Hospital property gross profit contribution is low

According to the prospectus, the services provided by Runhua Property are divided into four parts according to their nature, namely property management services, property engineering and garden construction services, property leasing services and others. According to reports, according to the expected benefits of each sector in 2020, it ranks second and third in the hospital and non-residential sectors among Shandong property management service providers, with market shares of 5.6% and 1.8% respectively.

In the past three years, its property management services have revenues of about 306 million yuan, 367 million yuan and 402 million yuan, accounting for about 89.8%, 92.4% and 82.7% of the total revenue, showing a fluctuating downward trend, and the gross profit margins of its property management services are 9.8%, 15.8% and 20.4% respectively; while the income of property engineering and garden construction services is about 0.2 billion yuan, 0.17 billion yuan and 0.75 billion yuan, accounting for about 5.8%, 4.2% and 15.5% of the total revenue, respectively. Property leasing services accounted for about 1.5%, 1.6% and 1.7% of total revenue, respectively; other services accounted for about 2.9%, 1.8% and 0.1% of total revenue, respectively.

The reporter noted that the property management services of Runhua Property mainly include hospitals, public properties, commercial and other non-residential properties (office buildings, industrial parks, parking lots) and residential properties. According to the property type, in the past three years, the hospital has managed 31, 31 and 30 projects, with revenues of about 146 million yuan, 144 million yuan and 145 million yuan respectively, accounting for about 47.8%, 39.2% and 36.0% of the total revenue, showing a fluctuating decline, with gross profit margins of 4%, 10.9% and 15.6% respectively.

During the reporting period (2018-2020), there were 68, 75 and 95 public property projects under management, with revenues of approximately RMB99 million, RMB140 million and RMB150 million, accounting for approximately 32.2%, 38.1% and 37.4% of the total revenue, respectively, with gross profit margins of 7.0%, 17.1% and 20.1% respectively; commercial and other non-residential projects under management were 36, 37 and 49, respectively, with revenues of approximately RMB0.44 billion and RMB0.44 billion, respectively. 0.65 billion yuan, accounting for about 14.3%, 11.9% and 16.1% of the total revenue, respectively, the gross profit margin was 24.2%, 23.9% and 32.3%; the residential property projects under management were 20, 20 and 20 respectively, and the revenue was about 0.17 billion yuan, 0.40 billion yuan and 0.42 billion yuan, accounting for about 5.7%, 10.8% and 10.5% of the total revenue, respectively, and the gross profit margin was 38%, 20.1% and 20%, respectively.

It can be seen that although the hospital sector has a higher income, its contribution to gross profit is not outstanding, and even ranks last in various business sectors for many years, but the largest contribution to its gross profit is the commercial and other non-residential property sectors, ranking first. In terms of gross profit contribution, this seems to be a big gap between its positioning as a property service for hospitals as customers.

It is worth mentioning that from 2018 to 2020, the winning rate of Runhua Property in obtaining property management was only 37.3%, 28.4% and 32.5%, respectively, and the renewal rate was 87.1%, 87.4% and 90.6%, respectively. In addition, under the income model of the dry package system, the loss-making projects of Runhua Property reached 35, 20 and 18 respectively.

What is more interesting is that Runhua Property claims that it is committed to the application and development of digital and operational automation systems, and adopts technical solutions to enhance competitiveness, trying to reduce the dependence on labor and reduce costs. To this end, in 2019, the Network Information Technology Operation Center (OSCS Service Center) was launched to strengthen the response to "technology".

It is understood that the service center is a central management platform developed by itself, which can manage, support and optimize the entire operation process of the hospital under its management, and also set up Runzhiyun to serve the service center.

However, the prospectus discloses that the operation department of Runhua Property is responsible for planning R&D activities, etc., while its operating department is composed of only 6 R&D personnel, of which 4 are only bachelor's degrees. From 2018 to 2020, the total R&D expenditure was 2.3 million yuan, 5.4 million yuan and 2 million yuan, and the R&D expenditure accounted for about 0.0067%, 0.014% and 0.0041% of the total revenue, respectively.

(Editor: Wang Jinlong Proofreader: Yan Jingning)