The question about the annual performance meeting of “When will Longfor Property spin off and go public” finally has the answer.
Two months after Vanke plans to spin-off its property sector Wanwuyun to go public in Hong Kong, Longfor finally announced that on the evening of January 7, Longfor submitted the prospectus for the property sector on the Hong Kong Stock Exchange under the name Longfor Zhichuang Life. Officially started the road to listing and became the last top ten property company in the industry to spin off and go public.
One year buy buy buy
Property is one of the main channel businesses of Longfor Group.
On many public occasions, the media always ask when Longfor Property will be split and listed, and Chairman Wu Yajun always said: “Longfor has no plan to spin off the listing.”
In fact, starting from 2021, Longfor’s various purchases and purchases in the property sector have already shown signs of listing in the property sector.
In February 2021, Longfor Jiayue Property Service Co., Ltd. (hereinafter referred to as Longfor Jiayue), a wholly-owned subsidiary of Longfor Group, acquired 60% of the equity of Wonderful Fortune. In March 2021, according to Yida China’s announcement on March 4, Longfor Jiayue acquired 100% of Yida Services’ equity in the property sector of Yida China at a consideration of 1.273 billion yuan. In early August 2021, Longfor Jiayue acquired 100% of Kailin Commercial Service. Kailin Commercial Service is headquartered in Zhengzhou City, Henan Province, and is an office-related service provider. In September 2021, Longfor acquired some property management companies in Mainland China under the Wharf Group, involving nearly 9 million square meters of contracted management area.
Now the third-party area under management has accounted for the majority of Longfor Smart Life’s life. According to the prospectus: “We have expanded the projects we manage and the customer base we cover through active outsourcing and mergers and acquisitions. As of September 30, 2021, we The proportion of residential and other non-commercial properties under management from independent third parties increased from 38.2% on December 31, 2019 to 59.8%.”
Niu Xiaojuan, deputy general manager of the property business department of the Zhongzhi Research Institute, told the reporter of “Daily Economic News”: “In 2021, there will be frequent large-scale mergers and acquisitions, and mergers and acquisitions are of far-reaching significance to the development of property companies. First, the expansion of management area can be achieved quickly. M&A is mostly used to achieve their own performance goals. Small and medium-sized enterprises have also seized the opportunities of mergers and acquisitions to grow rapidly and realize overtaking in corners. Second, to achieve rapid supplement of business management formats. Many companies cut into business, school and other subdivisions through mergers and acquisitions. Business format, to fill the gaps or deficiencies of its own business format; third, prepare for the expansion of value-added services through mergers and acquisitions of professional companies; fourth, strengthen regional deep cultivation or market expansion through mergers and acquisitions of some property companies with regional advantages, and optimize the overall market layout.”
Balance of scale and profit
At present, Longfor Smart Life’s business structure mainly includes residential community management and services, commercial property operation and management services, and management of office, industry, public and other facilities. As of the Latest Practicable Date, for the company, Wu Yajun, Cai Xinyi (daughter of Wu Yajun), Silver Sea Assets Limited and Charm Talent International Limited held 42.6% of the issued share capital of Longfor.
According to the prospectus, as of September 30, 2021, the company managed a total of 835 residential communities in 80 cities across China, with a construction area of 170 million square meters under management.
During the reporting period, the company’s revenue increased from RMB 4.37 billion as of December 31, 2019 to RMB 7.77 billion as of September 30, 2021; gross profit increased from RMB 1.28 billion as of December 31, 2019 to RMB 7.77 billion As of September 30, 2021, RMB 2.15 billion; gross profit margins were 29.2%, 25.8%, and 27.6%.
Several details need attention.
According to the prospectus, the return on assets of Longfor Smart Life has been continuously decreasing, from 24.9% as of December 31, 2019 to 14.0% as of December 31, 2020, and further to 11.2 as of September 30, 2021. %, the company explained that “mainly due to the increase in the total value of assets.”
Another detail is that for post-listing financing, Longfor still plans to continue to expand, “in the next two to three years, it will be used to expand residential and other non-commercial property management services, commercial operations, and strategic investment acquisitions in property management businesses.”
The decline in the rate of return may be related to the consumption of funds in the expansion process.
“There is not much downside space for the plate”
At present, Longfor Smart Life’s valuation, proposed financing amount and other information are still “compiled”, but is it still a good time for property companies to go public?
Longfor Smart Life mentioned in the prospectus: “From 2016 to 2020, the total revenue of China’s full-scale property management and commercial operation service market will increase from RMB 343 billion to RMB 528.8 billion, with a compound annual growth rate of 11.4%.”
However, property stocks experienced a tortuous year in 2021. According to the statistics of the Zhongzhi Research Institute, the property industry experienced a roller coaster development in the capital market in 2021, and July was the culmination. From the perspective of the primary market, a total of 12 property companies have successfully landed on the Hong Kong stock market before July 2021, and there were 6 in July alone. The density of listings in a single month has become the highest in history; the secondary market also performed strongly, and the Hong Kong stock property sector The average increase was 22.88%, surpassing the increase of 5.75 times the Hang Seng Index.
However, since then, the Hong Kong stocks property sector has become less popular. From August to December 17, 2021, Hong Kong stocks only added 2 property companies; the trend of the secondary market has also changed. From July 1 to December 10, there were only 6 companies. There was an increase, with an average decline of 22.16% in the sector, which exceeded the overall decline of 16.76% in the Hang Seng Index.
The China Finger Research Institute said that property companies, as the darlings of the capital market in the past two years, have been particularly eye-catching in their capital market performance. As of July 1, 2021, a total of 13 companies have increased by more than 100% from the first day of listing, accounting for nearly 30% of the total listed companies in the industry. Among them, CIFI Yongsheng Services, which has the largest increase, has increased by more than 1,000%, and the industry valuation has reached historical value. Higher levels, while the market tends to be rational at this time, it is often prone to short- and medium-term fluctuations. “
However, Niu Xiaojuan said: “Longfor Smart Life’s choice to go public at this time must have been carefully considered, and it is also the need for the group’s strategic development. At present, the capital market property sector has a significant head effect. Longfor Smart Life has a large scale and outstanding commercial operations. Advantages. At this time, choosing to go public should attract capital attention. In addition, the Hong Kong stock property board has undergone more than five months of adjustment in 2021, and the current valuation has returned to a reasonable level. The sector has little room for downside. The real estate industry policy has also seen marginal improvement. It is expected that it will gradually improve in the future, so the current choice of listing can be said to be a good opportunity.”
A person close to Longfor also told reporters: “Longfor is optimistic about the property market in the long term. Although it is affected by the fluctuations in the capital market in the short term, the performance of leading companies is still relatively strong. At present, with the huge real estate market in China, the potential concentration has increased, The expansion of value-added services and the development of asset-light business management are all advantages for the future development of the capital market.”
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