The Zhitong Finance App learned that Dongwu Securities released a research report saying that as the industry begins to return to a normal pace of development, the property business model should match a higher dividend rate, and increasing and maintaining a higher dividend rate should be a normal decision for property companies to adapt to the new stage of industry and company development. Looking at the current situation, considering the relationships with real estate related parties, the comprehensive strength of third parties to expand, and the ability and willingness to continue to pay high dividends, central and state-owned real estate enterprises have relatively higher investment value, but the investment value of individual outstanding private property enterprises should not be ignored. Based on analytical logic, recommendations: Poly Property (06049), China Resources Vientiane Life (01209), Greentown Services (02869), Yuexiu Service (06626), and C&D Property (02156). It is recommended to focus on: Binjiang Service (03316).
The main views of Dongwu Securities are as follows:
Can property companies completely cut ties with real estate related parties?
The impact of real estate-related parties on property companies is: 1) the decline in sales of real estate-related parties, leading to a decline in the delivery volume of residential projects; 2) value-added services for the owners of related transactions; and 3) related party receivables caused by related businesses. However, at present, it is difficult for property companies to achieve complete cuts with real estate-related parties, and there is no need to cut. If real estate related parties can support each other with property companies to maintain stable project delivery and payment of payables, while property companies actively reduce the volume of their related businesses, non-landlords account for 10-20% of value-added business profits and gross margin of about 20%. If they can maintain this state of affairs, they should not give related businesses too much discount.
Are third-party outreach projects actually honey or arsenic?
In the past few years, management area has been the most important indicator for measuring the strength of property companies. Many companies are disconnected from “investment” and “management,” and the investment department has developed projects with poor quality. After entering the market, the operating department discovered that actual profits were very different from previous estimates, which ultimately dragged down the gross margin of the property service business. How to balance quality and scale to achieve high-quality third-party outreach is currently the biggest challenge facing all property companies.
Dongwu Securities believes that companies with high-quality outreach capabilities should have the following characteristics: 1) a complete external development assessment mechanism and stable growth in contract amounts for outbound projects; 2) stable management of outbound projects, with no significant number of outbound projects leaving or loss projects affecting the profit margin of the property service business; 3) Outreach project repayments are normal, and the number of third-party project receivables turnover days is within a reasonable range; 4) can balance short-term and long-term strategic goals, and has 1-2 types of characteristic advantages.
Can a property company become a long-term high-dividend label?
According to Dongwu Securities, most property companies have increased their dividend rate in 2023. Companies with dividend rates of more than 40% include Poly Property (40%), China Resources Vientiane Life (55%), Yuexiu Service (50%), C&D Property (71%), Greentown Services (73%), Xincheng Yue Service (40%), and Binjiang Services (70%). Many companies have dividend ratios above 6%. The internal reason why property companies are willing to increase their dividend rates, in addition to generally improving cash flow and cash in hand, is also to prove that their cash is not being used.
Dongwu Securities believes that as the industry begins to return to a normal pace of development, the property business model should match a higher dividend rate. Raising and maintaining a high dividend rate should be a normal decision for property companies to adapt to the new stage of industry and company development. Property companies that can maintain a high dividend rate over a long period of time should have the following three conditions: 1) they can continuously generate stable cash flow; 2) they have independent decision-making power over the use of cash; 3) The company and management are also aware that high dividend is a strategy that should be adopted now. In terms of quantitative indicators, it can be judged by the net cash ratio, the number of days of receivables turnover (especially in the case of accounts receivable over a year), and a comparison between the growth rate of accounts receivable and the growth rate of revenue. When one or more of these indicators deteriorate, a high dividend rate will be unsustainable.
Risk warning: Major shareholders/related parties delivered projects less than expected; recovery in real estate sales fell short of expectations; total social demand recovered slowly; scale of expansion fell short of expectations; risk of capital occupation by major shareholders of related parties.