Explanations

Why should we pay attention to A-share listed real estate enterprises? Because we think:

(1) A-share listed real estate enterprises cover large and small, as well as private and state-owned, distributed across all of major first-tier, second-tier and third-tier cities nationwide, the operating condition of which is very likely to be an epitome of the whole real estate industry.

(2) The operating data of listed real estate enterprises are more authentic, and can better reflect the status quo of the industry.

What kind of operating date of an enterprise should we pay focused attention to?

(1) Liability status.

(2) Short-term debt paying ability.

(3) Inventory status.

Why should we pay focused attention to these data?

Because:

(1) The overall liability situation would affect the enterprise’s ling-term re-investment ability and re-financing arrangements (e.g. inclined to debt financing or equity financing).

(2) The debt paying ability and the inventory status would affect the enterprise’s short-term land acquisition and new start practices, and meanwhile, would affect the enterprise’s short-term sales strategy, e.g. whether inclined to price reduction, more emphasis on cash withdrawal or project profit, etc. Therefore, attention to the operating situation of A-share listed real estate enterprises will be conducive to our better judgment of industry investment and price trend.

(Note: Samples of this research include 108 A-share development-class listed real estate enterprises, park-class real estate enterprises excluded)

Core conclusions (data as of 2014 Q3 Report)

The overall liability remained high, debt payment ability was poor, and de-stocking pressure remained heavy. In terms of liability, the asset-liability ratio of 108 development-class real estate enterprises reached a new high of 75.9%, the asset-liability ratio after deduction of advances received was 52.1%, and net liability ratio remained high at 93%. In terms of debt paying ability: the cash and interest-bearing ratio of 108 development-class listed real estate enterprises fell to a new low of 31.7%; the cash coverage and short-term interest-bearing debt ratio was 0.92, also at a historic low; in terms of de-stocking pressure, the de-stocking cycle of 108 development-class listed real estate enterprises was 12.8 quarters, rising to a historic new high during the same period.

Company differentiation became more apparent, and non-leading real estate enterprises faced greater financial difficulty. In terms of liability, the asset-liability ratio after deduction of advances received of “Zhao Bao Wan Jin” was 42.9%, while “non-Zhao Bao Wan Jin” real estate enterprises reached a new high of 58.2%. the net liability ratio of “Zhao Bao Wan Jin” was maintained relatively stable at 62.3%, while “non-Zhao Bao Wan Jin” real estate enterprises reached a new high of 113.9%. In terms of debt paying liability, the cash and interest-bearing debt ratio of “Zhao Bao Wan Jin” was 43.5%, while the cash and interest-bearing debt ratio of “non-Zhao Bao Wan Jin” real estate enterprises fell to a new low at 26.9%; the cash coverage and short-term interest-bearing debt ratio of “Zhao Bao Wan Jin” rose back to a relative high at 1.75, while that of “non-Zhao Bao Wan Jin” real estate enterprises fell to a new low at 0.7. In terms of de-stocking pressure, the de-stocking cycle of “Zhao Bao Wan Jin” was 9 quarters, while that of “non-Zhao Bao Wan Jin” real estate enterprises was 16 quarters.

The poor capital status and the high stocking of real estate enterprises as a whole might cause real estate enterprises to still focus on the strategy of increasing sales volume at the current stage; in the meantime, their land investment ability remained weak. Looked from the de-stocking cycle, non-leading real estate enterprises had more land reserves. Looked from the gross profit rate being higher at the current time point, the high-quality land acquisition ability of non-leading real estate enterprises indeed might be stronger. However, looked from the lower net interest rate, the trading ability of non-leading real estate enterprises was poorer. Given the current worse financial condition of most non-leading enterprises, plus market weakness, it’s predicted that in the future, M&As of enterprises or projects will further increase greatly.