Original title: Fantasia’s first color life in the property may end sadly when self-rescue is in progress
A month ago, at the performance conference of Color Life, Pan Jun, Chairman and CEO of Color Life, also made a bold statement to “regenerate the vitality of the first stock of the property.” The “first share of property” is the hero’s loneliness.
On the evening of September 28, Country Garden Services Holdings issued an announcement stating that Country Garden Property Hong Kong Holdings and Color Life Services signed an equity transfer agreement to acquire 100% of the shares of Neighbourhood Holdings Group Co., Ltd. under Color Life at a total consideration of no more than 3.3 billion yuan. After the transaction is completed, Country Garden will hold almost all the core assets of Color Life.
This may be a turning point in the development of Color Life.
Color Life was listed on the Hong Kong Stock Exchange in 2014. Its parent company is Fantasia, which was founded by Zeng Baobao. When Color Life was listed, its tailor-made story for the capital market once made its market value soar and became the darling of the capital market. However, in the past 7 years of listing, Color Life has experienced a sharp decline in its reputation after many poorly integrated mergers and acquisitions. After many strategic adjustments, it is still difficult to break through the bottleneck, and its performance growth has stalled.
At this delicate point in time, Fantasia, the parent company of Color Life, is also experiencing turmoil. Its assets are still worthy of attention, but it has to embark on the road of “selling the savior.”
Sell oneself
Color Life’s transfer of its core assets to Country Garden Services is a fair price transaction in the industry.
According to the Country Garden Service Announcement, as of June 30, 2021, the unaudited comprehensive net asset value of Neighbourhood is approximately 1.374 billion yuan. As of the end of 2020, Neighbourhood Music recorded a pre-tax profit of approximately 412 million yuan and an after-tax profit of approximately 309 million yuan. Based on this calculation, the valuation of Country Garden Services’ acquisition of Neighbourhood is no more than 11 times PE.
At present, the total market value of Color Life is only about 3.7 billion Hong Kong dollars, and its price-earnings ratio is about 6.14 times PE. Compared with other leading property companies, this valuation is at a low level. IPG China Chief Economist Bai Wenxi told the 21st Century Business Herald that this price is relatively fair, “because Color Life was originally a listed property management company, and its transaction valuation was conducted with reference to market transaction prices.”
Country Garden Services has set up an installment payment method for this transaction. The announcement stated that Country Garden Property Hong Kong will use its own funds, equity financing, loans and other methods to make three phases of payment, and each phase will have corresponding payment terms and conditions.
A person close to Color Life told the 21st Century Business Herald that this transaction was actually discussed for several months. Country Garden Services bought the most valuable commercial assets of Color Life, such as Vientiane Property and Kaiyuan International.
A person familiar with Country Garden’s services also analyzed that “(Country Garden Services) bought this part of commercial services. According to Country Garden’s service style, it would not buy other assets.”
In recent years, Color Life seems to have been criticized the most for its lack of post-investment management after mergers and acquisitions. This has also affected the performance of Color Life in the capital market to a certain extent.
Since 2019, Color Life has carried out many management changes and company strategic adjustments. At the 2020 performance meeting, Pan Jun reported that the overall work has been basically completed through one and a half years of adjustments, including streamlining the management structure, adjusting the business development strategy, and optimizing salary and incentive mechanisms.
At the performance meeting in the middle of this year, Pan Jun once again reiterated that Color Life is the company with the most acquisitions in the property industry. Up to now, more than 200 property companies have acquired and merged. After a year and a half of integration, the company can enter some corresponding third-party business expansion in the future and return to the growth track. “In the future, Color Life will moderately focus on mergers and acquisitions, and the company’s scale will also be moderately expanded.” However, Color Life has not ushered in rapid development under drastic adjustments. Color Life’s 2021 interim results announcement shows that during the period, the company achieved revenue of approximately 1.792 billion yuan, an increase of approximately 0.75% year-on-year, which was lower than the industry’s average revenue growth rate; gross profit was 534 million yuan, an increase of 0.43% year-on-year. Although revenue turned from decline to increase, the increase was still small and the growth was weak. During the period, the area under management was 553.1 million square meters, and the area under management increased by 0.26% year-on-year, which was much slower than other leading property companies.
Savior
The background of Color Life’s transfer of core assets is that the situation of its parent company Fantasia is not optimistic.
In an interview with a reporter from 21st Century Business Herald, Bo Wenxi said, “The main reason for the sale of core assets by Color Life is that the parent company Fantasia is facing greater liquidity pressure, and its assets that can be quickly realized and have relatively strong liquidity capabilities are The color life property sector is now.”
Fantasia is currently experiencing declining performance and topping debt. Bai Wenxi said, “Fantasia’s industry status and scale are not too dominant, and the financial situation is not too optimistic, so the future development pressure of Fantasia is still quite large.”
According to the 2021 mid-year report of Fantasia, many performance data of Fantasia declined and the development was weak. In the first half of this year, in terms of sales, Fantasia’s accumulated sales amounted to 28.12 billion yuan, which was less than half of the 2021 sales target of 60 billion yuan. In terms of revenue, Fantasia’s gross profit was 2.277 billion yuan, down 26.75% from the same period last year; gross profit margin was about 20.8%, down 38% year-on-year; net profit margin was 2.77%, down 7.58% year-on-year.
While revenue is declining, Fantasia’s debt situation is not optimistic. According to statistics from the Shell Research Institute, Fantasia’s asset-liability ratio after excluding advance receipts is 72.7%, the net debt ratio is 74.8%, and the cash short-term debt ratio is 1.59. At the same time, Fantasia currently has loans of approximately 16.85 billion yuan, senior notes and bonds approximately 34.37 billion yuan, and asset-backed securities approximately 268 million yuan. Total borrowings are 51.5 billion yuan, an increase of approximately 10% compared to 2020.
Against this background, Fantasia has been downgraded by international rating agencies such as Standard & Poor’s, Fitch and Moody’s.
According to S&P statistics, about 762 million U.S. dollars in senior unsecured bonds in Fantasia will mature in the rest of 2021, 1.15 billion U.S. dollars in bonds will mature in 2022, and about 1.7 billion in domestic bonds will expire in November and December. It may be sold back when it matures in the month, and the trust loan of about 3.5 billion yuan will mature within one year. Bai Wenxi analyzed that “the negative ratings of the three international institutions mean that the liquidity of the company has deteriorated and the solvency of debt has fallen, and it also means that it has increased the risk and difficulty of financing in the open market.”
Fantasia management is not without predicting such a situation. Previously, Pan Jun, Chairman of the Board of Directors and CEO of Fantasia, publicly stated that if the policy environment does not improve in June next year, sales will continue to decline, and 60% of private enterprise developers may face bankruptcy.
At the mid-year performance conference, Fantasia’s management also stated that Fantasia is dealing with heavy assets, including long-term investment projects. “The last time I met with investors, I also specifically talked about these actions, such as the disposal of some shopping malls and hotels. These will only reduce debt and increase cash flow for the company’s future operations. At present, several commercial projects are proceeding smoothly.”
Judging from the sale of core assets by Color Life, Fantasia’s self-help is relatively positive. It’s just that the real estate industry is undergoing frequent cyclical changes, and the fate of many real estate companies that are not accurate enough to predict the situation will eventually have to be changed.
Reporting by reporter Wu Shuying and intern Yang Jingyi from Shenzhen
(Editor in charge: Jiang Ninglu)