Policies continue to be favorable, yet stock prices continue to reach new lows. This is the current situation of Ming Yuanyun (00909). It is difficult for the real estate industry chain to save itself in the dark winter.
The Zhitong Finance App learned that Mingyuanyun provides enterprise-level ERP solutions and SaaS products for the real estate industry. Affected by industry demand, the initial performance declined in the second half of 2022, and has never been profitable. It has been losing more than 1.1 billion yuan in 2022, and the loss rate is as high as 63.5%. However, the company went public in 2020, and its starting market value began to shrink in 2021, shrinking by more than 95% in four years.
However, management has always been optimistic about the company's development, showing confidence in the market through repurchases and holdings growth. According to Oriental Choice data, as of February 7, a total of 6.371 million shares had been repurchased, with a repurchase amount of HK$13.135 million. Meanwhile, Gao Yu and Jiang Haiyang increased their holdings of the company several times. Among them, Gao Yu, as the controlling shareholder, increased their holdings on January 5, 8, and 16, respectively. Currently, their holdings are 20.56%.
If the market doesn't buy it, where should Mingyuan Cloud go?
The digital enabler of real estate has nearly 4 billion yuan on its account
Mingyuan Cloud provides digital services to empower the real estate industry. Over the years, it has been committed to the transformation of cloud services. Empowering products have moved from ERP solutions to SaaS products. In the first half of 2023, its cloud service business revenue was 635 million yuan, contributing 83.3% of revenue. The company's cloud service business created a SaaS+PaaS+IaaS product matrix, with customer relationship management as the core enabling scenario, accounting for more than 60% of revenue.
The company's cloud service gross profit is very high. Since the growth rate of this business is much higher than the ERP business, and the cloud service business is relatively resilient in 2023, revenue only declined in units, while ERP experienced a medium to high double digit decline, and changes in the revenue structure led to an upward trend in gross margin. In 2023, its gross margin is expected to be around 80% (79.9% in the first half of the year), which is stable, which is higher than the 60-70% level of cloud service peers.
However, Mingyuanyun's customers are mostly real estate companies. Due to the low boom in the industry, sales expenses have always been high. The sales expense ratio was as high as 59.32% in the first half of 2023. Furthermore, administrative and R&D expenses were not low, reaching 34.65% and 42.9% respectively. Against the backdrop of declining revenue scale, it is very difficult to make a profit in the short to medium term. However, in the long run, there is plenty of room for cost optimization as the scale increases.
The company actively optimizes product layout and reshapes growth engines. It is expected that the ERP business will gradually be divested and focus on SaaS+PaaS+IaaS products. However, it is limited by the real estate industry, and short-term demand is not very optimistic. The company uses generative AI technology to achieve integration with marketing customer acquisition, sales conversion, and content production. On the one hand, it promotes the increase in customer unit prices for the cloud customer project, and on the other hand, reduces customer acquisition costs. When scale is blocked, cost reduction and efficiency are king.
It is worth mentioning that Mingyuan Cloud's most favorable condition is that the finances are very healthy, which gives room for imagination for business transformation and subsequent capital actions, including acquisitions and buybacks. According to the disclosure in the first half of 2023, the company's debt ratio is only 15%, and there are no interest-bearing bonds. The fixed deposit for more than 3 months reached 3,077 billion yuan, and the cash on the account reached 915 million yuan, totaling nearly 4 billion yuan, accounting for more than 67% of total assets.
The road to circuit transformation is long, and the “Iron Rooster” has a valuation trap
The real estate circuit is rising and falling. Under the thunderstorm of many leading housing enterprises, the market no longer has expectations. According to data from the National Bureau of Statistics, both sales area and sales showed a downward trend. In 2023, the sales area of commercial housing was 1,117 million square meters, a new low since 2012, with sales of 11.66 trillion yuan, a new low since 2016. In addition, investment in real estate development also fell 9.6%, continuing to reach new lows.
As a vertical track provider for real estate cloud services, the demand-side industry is declining, which means that demand is falling, and housing enterprises have experienced frequent thunderstorms, and accounts receivable from the industry for services may become bad debts. There are two types of accounts receivable from Mingyuanyun. One is for sale to terminal real estate companies, and the other is for dealers. Overall, there were 156 million yuan in the first half of 2023, accounting for 20.47% of revenue. However, the impairment provision was very high, accounting for 44.7% of accounts receivable.
Mingyuanyun is trying to open up a new track and gradually transition from the real estate circuit to the industrial/infrastructure market. The company's real estate circuit is mainly in the residential business, and since 2023, it has accelerated its penetration into the industrial/infrastructure digital market.
The company focuses on state-owned enterprise developers to help them build autonomous and controlled digital capabilities and expand local urban investment companies. Under weak consumption, infrastructure investment is an effective means to drive GDP. In 2023, the national infrastructure investment growth rate will exceed 10%, and new infrastructure (data centers, smart transportation, etc.) will grow faster. Under the guidance of digital China, the demand for digitization of infrastructure is huge, which may be the core reason why the company entered this circuit.
Mingyuanyun's future growth expectations are low, and the real estate industry is still its main source of customers. Although recent real estate financing policies are favorable, stabilizing the development of housing enterprises, and various regions have introduced policies to lift purchase restrictions one after another, limited stimulus, weak macroeconomic conditions, declining labor market, and declining marriage rates affect rigid and flexible housing demand. It takes time for the company to transform infrastructure clients and accumulate, and it is still unable to escape the impact of the real estate industry in the short to medium term.
There is indeed money in Mingyuan Cloud's account, but it is lying down with huge “inaction”: first, it has not paid dividends for two years, and it is fully capable of paying special dividends to boost shareholding confidence; second, the transformation of the circuit is slow. Currently, the real estate industry is still the main target, and the capital has chosen to buy bank financial management; third, although there have been repurchases, the repurchase efforts have clearly been insufficient in the past two years. The full year of 2023 and 2024 (so far) were HK$4.01 million and HK$13.5 million respectively. Compared to its nearly $40 billion cash is simply nine bullish One hair.
Currently, the company's valuation level is 0.77 times the net market ratio (PB), and the current market ratio is close to 1 times. However, in the case of no dividends, the current market ratio is not attractive, and the company loses money all year round, and expectations for downward growth on the racetrack are insufficient, making the profit shortfall difficult to eliminate. The company's cloud service has become a leader in the real estate industry, but rising valuations require a racetrack transformation, and the future is uncertain.
Overall, it is difficult for Ming Yuanyun to help himself. The core reason is that it is deeply affected by the double impact of the real estate industry's performance and valuation. Future performance expectations are not optimistic, losses are far from being reversed, and the industry chain is not paying attention to market capital. Furthermore, the company's repurchase efforts are insufficient, huge sums of money are lying on its accounts, and the “iron rooster” is causing the market to lack confidence. The company is undervalued, but it's not a good target, so beware of undervaluation traps.