Wanda Gross Profit Margin Is Expected To Bottom Up O2O Become The Key To Enhance Valuation

The financing scale of Wanda Commercial real estate is about 5 billion to 6 billion US dollars.

It is widely expected that the giant company with a total assets of 500 billion yuan (RMB) will become the largest Real Estate Company ever listed in Hong Kong, and its market value will reach 30 billion ~600 billion dollars (equivalent to about 184 billion 100 million ~3682 billion yuan).

If we only observe from the earnings report, Wanda Commercial real estate is still unable to get rid of the predicament faced by the real estate enterprises. This includes gross profit margin falling and debt rate rising, and the rental income is not high in the overall income.

But reporters found that Wanda Commercial Real Estate in the past three years, land costs continued to decline, as the company successfully listed and opened up low-cost overseas financing channels, both for its gross profit margin to pick up and optimize the debt structure to play a positive role.

A more positive factor is Wanda O2O mode, which is not only the key to raising the rental income of Wanda Plaza, but also expects to get a higher valuation.

Gross profit margin is expected to bottom up

The prospectus shows that the main business of Wanda Commercial real estate is "development and sale of residential, office and retail property", "development, leasing and management of investment in commercial property" and "development and operation of hotels".

From the perspective of income structure, property sales revenue is the main source of company income.

In 2011~2013, the company's property sales accounted for 89.6%, 85.6% and 86.4% respectively.

However, like most residential developers, Wanda Commercial real estate sales business can not escape the dilemma of declining profits.

In 2012, 2013 and the first half of 2014, the gross profit margin of the company's property sales was 50.6%, 40.9% and 39.1% respectively, showing a gradual downward trend.

Moreover, after deducting the fair value increment of the investment property, the profitability of the company declines significantly.

The Kerr study found that from 2011 to the first half of 2014, the value added of Wanda Commercial real estate accounted for the proportion of pre tax profit from 45.37% to 62.33%.

In the first half of this year, Wanda's commercial real estate profits before tax amounted to 4 billion 917 million yuan, but the fair value of investment property increased by 5 billion 227 million yuan. After deducting the value added, the company's core net profit was only 1 billion yuan, a sharp decrease of 77% compared with the same period last year, and its core net interest rate was only 4.2%, lower than that of its leading housing company.

"The fair value increment of investment property is the book profit brought by the book appreciation of the property, but this part of the profits can not bring any increase in the actual cash flow. The core net interest rate can reflect the profitability of the enterprise more accurately. Wanda Commercial real estate has a slight decline in the core net profit in the first half of this year."

Huang Lichong, President of Sheng Fu capital, said that the company's net profit in the prospectus is expected to be no less than 19 billion 933 million yuan this year, and its core net profit is not less than 13 billion 235 million yuan. Therefore, whether the net profit plunge in the first half is only a short-term phenomenon remains to be seen.

In fact, the first half of this year is likely to be the low profit margin of the company.

Prospectus shows that in 2011~2013, the average land cost of Wanda Commercial real estate was about 1821 yuan / square meter, 1171 yuan / square meter and 1096 yuan / square meter respectively.

"Last year, the land cost of Wanda only accounted for 9.18% of the average selling price, far lower than the mainstream housing companies such as Vanke and Longhu. The land cost statistics of the listed housing enterprises also showed that the land price less than 10% accounted for only 6.4% of the total listed housing enterprises, which benefited from Wanda's business model catering to the development needs of the local government.

Rand consulting President Song Yanqing believes that land cost is one of the highest cost items in real estate development. With the completion of sales and entry period in recent three years, the decline in land prices is expected to bring strong support for the recovery of gross profit margin.

In addition, Wanda Commercial real estate interest expenditure in 2013 amounted to 9 billion 798 million yuan, close to the core net profit of about 10 billion yuan that year, and the high cost of financing was due to the growing dependence of Wanda on trust financing.

In the first half of 2011, the amount of trust financing increased from 11 billion 400 million yuan to 43 billion 300 million yuan in the first half of ~2014, and the proportion of total borrowings rose from 16.4% to 25.2%, resulting in the total cost of financing reaching 8.8%.

And when Wanda Commercial real estate was launched, it opened up overseas financing market, and the overall financing cost of the company dropped sharply.

Wanda as the leading commercial real estate in China, the financing cost of overseas issuance is expected to be lower than the bond interest rates of private housing stocks such as Longhu real estate and Biguiyuan. It is expected that after the listing, the company will issue new bonds to replace the high interest trust loans in the early stage, and the cost of financing will bring more powerful protection to the company's gross profit margin.

Song Yanqing said.

Rent will go up cycle.

Prospectus shows that in 2011~2013, Wanda Commercial real estate leasing and management revenue were 3 billion 769 million yuan, 5 billion 843 million yuan and 8 billion 483 million yuan.

In the first half of this year, the revenue rose to 5 billion 177 million yuan, an increase of 35.5% over the same period last year.

The proportion of the total income in revenue increased from 7.4% in 2011 to 22.3% in the first half of 2014, showing a steady increase.

In addition, the gross profit margin of the revenue has remained above 62% since 2011, and has risen to 68.9% in the first half of 2014. It has become the most profitable business in the three major business segments of Wanda Commercial real estate.

At the same time, the average monthly rental income of Wanda Commercial Real Estate increased from 57 yuan per square meter in 2011 to 75 yuan per square meter in the first half of this year.

However, Zhu Yiming, an analyst at the Kerr Research Center, told the daily economic news that Wanda's shopping center is mainly located in the 234 line cities, and the suburbs are also the main cities.

Under the impact of the electricity supplier, the operation of the entity business is becoming more and more difficult. This is also the biggest obstacle to the company's future rental income growth.

In order to reduce the impact of the electricity supplier, Wanda Plaza has increased the proportion of experiential business since last year, and plans to achieve 60% in 3 years.

However, the affordability of experiencing rent is relatively weak, so some analysts are not optimistic about the room for rent growth.

Zhu Yiming pointed out that the total investment property of Wanda Commercial real estate owned and managed in China was 14 million 700 thousand square meters, but its flat efficiency in the first half of 2014 (that is, the amount of output per flat area can be generated, and the 1 Ping is about 3.3 square meters) is only 1.96 yuan / (square meter), which is at a low level in other typical domestic holding enterprises.

However, Wanda's active O2O business will introduce a large number of people's traffic to Wanda Plaza and play a role in boosting rent.

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Electricity

Unlike Taobao, it is a O2O e-commerce mode integrating online and offline.

Although Wanda electricity supplier has not been included in the asset portfolio, its synergy with offline commerce is quite obvious.

Song Yanqing believes that with Wanda's electricity suppliers joining hands with Tencent and Baidu, the huge user volume of the two Internet giants will bring huge flow support to them, thus leading to higher user flow and improving user stickiness for offline shopping malls.

At the same time, if Wanda actively develops supply chain finance in the future, it will also give the company a favorable position in rent negotiations.

In particular, part of the property of Wanda is in the three or four line city. Its impact on the electricity supplier is not serious, and has continued to rise. It is expected to contribute more rental income to Wanda.

Although Wanda has not yet listed the timing and scale of the listing, it is widely expected that it will become the largest IPO in Hong Kong stock market this year.

Huang Lichong said that the valuation system currently prevailing in housing stocks is the NAV valuation method (net asset value method).

"Under the NAV valuation system, for Real Estate Company, the higher the proportion of rental income is, the higher the valuation will be."

Huang Lichong believes that because property sales are only one-time income, and the future business risk is greater, so the cash flow discount rate is higher, resulting in the current sales of listed housing enterprises dynamic price earnings ratio is about 3~8 times.

Because of the sustainability of the rental income, the ability to resist the business cycle is stronger than that of the property sales. Therefore, the discount rate of cash flow demanded by investors is relatively low. This is also an important reason for the 14 times earnings ratio of Hang Lung estate, which accounts for 70% of the rental income.

According to the operation in the first half of this year, the rental income and operating income of Wanda Commercial real estate account for 30%, which is at the highest level in the mainland listed housing enterprises.

If compared with the Hong Kong property developers, the operating income structure is similar to Sun Hung Kai real estate, and its rental income and hotel operating income account for 38%.

As of October 4th, the closing price of Sun Hung Kai properties was HK $108.7, a discount of 25% over net assets of HK $144.48 per share.

Huang Lichong believes that Wanda will be able to get a slight premium from Sun Hung Kai estate, considering that it is the leader of domestic commercial real estate.

By the first half of this year, according to the net asset value of Wanda Commercial real estate of 112 billion 600 million yuan, if the net assets 8~8.5 is folded, the market value will be around 90 billion ~957 billion yuan.

"According to the PE (price to earnings ratio) pricing, from the current valuation of the housing stock, the Vanke enterprises (02202, HK) in the leading line and China's overseas development (00688, HK) have a dynamic P / E ratio of about 7~8 times, and the dynamic price earnings ratio of the Biguiyuan (02007, HK) and Hengda Real Estate (03333, HK) is about 3~6 times.

Zhu Yiming believes that Wanda's business model has its scarcity, and the company's rental income is close to tens of billions of dollars. This business corresponds to a higher valuation. It is estimated that Wanda Commercial Real Estate's overall valuation is no less than that of Vanke and China's overseas development. If the net profit of the company's 24 billion 882 million yuan and 8 times price earnings ratio were priced last year, the market value of Wanda Commercial real estate is expected to be close to 200 billion yuan.

Obviously, if the traditional commercial real estate companies are listed in the form of commercial real estate companies, Wanda's IPO pricing is difficult to break away from the undervalued predicament of the current housing stock, so Wanda e-commerce is an important factor.

Huang Wenjie, chairman of Chu Rui commercial planning and operation company, said that although Wanda's electricity supplier was not included in the listed asset portfolio, its O2O mode could bring huge traffic to the offline shopping malls.

Just as the O2O concept of color living community allows its stock price to support 95 times the high price earnings ratio, if Wanda can convince investors, its electricity suppliers and offline shopping malls can create new business models, and it is possible to get a high valuation over traditional property stocks.