Shulou(Shulou.com)06/01 Report--

Semi-annual report is about to be disclosed, Sichuan housing enterprise Blu-ray Development (SH600466) disclosed the first half of the operating report on July 28, the first six months of 2020, Blu-ray development achieved sales of 38.058 billion yuan, a decrease of 18% compared with the same period last year, of which the consolidated statement equity sales amount was 27.215 billion yuan.

Photo Source: Wande Stock

According to this performance, Blu-ray Development, which has just spent a year in the 100 billion camp, may soon be out.

In 2018, Blu-ray Development achieved a sales area of 8.02 million square meters and a sales amount of 85.5 billion yuan, up 32% and 47% respectively over the same period last year.

By 2019, although the scale of sales increased by only 18.70% compared with the same period last year, it barely achieved 101.537 billion of sales, which is also considered to have entered the camp of 100 billion housing enterprises, with a sales area of 10.953 million square meters for the whole year, an increase of 36.63% over the same period last year.

This year, sales in the first half of the year are less than 35% of those in the whole of last year. Coupled with the fact that the epidemic has affected inventory turnover, the performance of Blu-ray Development this year may not be too good, or return to second-tier housing enterprises.

While the performance is declining, Blu-ray Development has its own lack of cash flow, but it is taking land at a high premium, behind which the debt scale is rising and the operating risk is also increasing.

Great pressure to repay debts

Because the semi-annual report has not yet been disclosed, the debt problem is temporarily described in Blu-ray Development 2019 Annual report.

2019 annual report data show:

Blu-ray's financial liabilities due within one year reached 35.697 billion yuan, an increase of 75.30% over the same period last year.

The total debt increased to 162.77 billion yuan from 123.788 billion yuan in 2018, an increase of 31.49 percent over the same period last year.

Of these more than $30 billion in short-term liabilities:

Including 4.128 billion standardized bond financing

16.474 billion yuan of non-standard financing such as banks and trusts

Interest payable is 737 million yuan

And 14.358 billion yuan is mainly used for the project payment and material payment generated in the production and operation.

However, during the same period, Blu-ray's monetary capital was only 25.953 billion yuan, of which 1.576 billion yuan was restricted and could not cover all debts. As a result, Blu-ray was interviewed by the Shanghai Stock Exchange and could only issue new bonds to offset old debts.

On July 27th, Blu-ray announced that it plans to issue the first phase of short-term financing bonds in 2020, with a scale of 1 billion yuan, and will repay principal and interest one year later. The financing interest rate is between 5.5% and 6.5%, approaching the average financing cost line of 6%.

On July 28th, Blu-ray once again issued an announcement that it intends to issue a second issue of corporate bonds of no more than 1.27 billion yuan with a maturity of three years and a financing interest rate of 5.4% and 7%.

Although the financing cost is not yet specific, with reference to bond issuance in 2019 and before, the average financing cost of Blu-ray is more than 7%, rising to 8.65% in 2019, higher than the industry average.

Photo Source: southern Metropolis Daily

From this point of view, Blu-ray these two rounds of bond financing interest rates, I am afraid, will be close to its acceptable maximum financing cost line.

As early as July 13, Blu-ray has issued a round of 1.065 billion yuan of REITs, that is, real estate trust investment funds, with an average financing cost of about 6.5%, just to repay old debts.

Earlier in late May, Blu-ray also announced two debt financing plans for 2020, with a total financing amount of 1.19 billion yuan, a listing financing interest rate of 10.5%, and an eye-popping high financing cost.

It seems that Blu-ray, which has just entered the 100 billion club, has a smooth performance, but it is actually jingling poor.

However, judging from the financial performance in 2019, the capital market does not seem to approve of Blu-ray development.

The net cash flow from Blu-ray development financing activities in 2019 was about 7 billion yuan, a net decrease of 14.4 billion yuan, or 67%, compared with 21.4 billion yuan in 2018.

In addition to the increase in the scale of debt service, the decrease in the scale of financing is also an important reason for the decrease of financing cash flow.

According to the financial report, Blu-ray received a cumulative loan of 36.5 billion yuan in 2018, falling to 29.9 billion yuan in 2019, a net decrease of 6.6 billion yuan. The amount of debt repaid reached 38.5 billion yuan in 2019 and only 26.1 billion in 2018, an increase of 12.4 billion over the same period last year.

Photo Source: Oriental Wealth

Take the land crazily regardless of the cost

The increase in debt has something to do with Blu-ray's aggressive expansion strategy in 2019.

Data show that in 2019, Blu-ray Development added 11.21 million square meters of construction area through diversified land acquisition models such as mergers and acquisitions, cooperative development, industrial land acquisition and contract construction, accounting for 63% of the total building area to be developed at the end of 2019.

Since the beginning of this year, affected by the epidemic, the speed of land acquisition and removal of real estate enterprises across the country has slowed down, and Blu-ray is no exception.

In the first five months of this year alone, Blu-ray accumulated land of less than 1 million square meters, less than 10% of the whole of last year, and only 13.1 billion yuan.

But Blu-ray's cost of land acquisition is not low.

On July 8, after 465 rounds of bidding, Suzhou Shuntang Business Consulting Co., Ltd., a subsidiary of Blu-ray Development, won a plot in Haimen City, Nantong, Jiangsu Province, at a high price of 919 million yuan, equivalent to a floor price of 13038 yuan per square meter, with a premium rate of 99.59%.

As early as the end of June, Blu-ray Development also bid for a homestead in Fenghua District, Ningbo, Zhejiang Province at a floor price of 12050 yuan per square meter, with a premium rate of 49.7%, and the floor price is already in line with the local new house price.

Behind the high price of land is Blu-ray's concern about the scale of land storage in the future after it has become one of the hundreds of billions of housing enterprises.

Public data show that by the end of last year, Blu-ray's total land storage value is about 270 billion yuan, which can only meet the sales demand in the next two years or so.

However, high premium land acquisition has also resulted in Blu-ray's ROIC (return on capital) of only 4.9 per cent, well below the industry average of 7 per cent, suggesting that Blu-ray's wave of operations has not yielded a corresponding return on investment.

Photo source: Hawkeye warning

Business efficiency continues to decline

Blu-ray's solvency is quite worrying.

And from the overall operating efficiency of Blu-ray, it is also demonstrating that this hundreds of billions of real estate enterprises do not have so much investment value.

For the whole of 2019, Blu-ray accumulated revenue of 39.19 billion yuan, an increase of 27% over the same period last year, and its net profit rose 55% year-on-year to 3.46 billion yuan, far exceeding the industry average of 1.85 billion yuan.

The data is good, but the profit quality is not high.

In 2019, the operating cash flow generated by Blu-ray's main real estate sales is only 3.833 billion yuan, and the net profit in the same year is 4.159 billion, the ratio is only 0.92, less than 1, there is some deviation.

In general, the higher the matching degree between operating cash flow and enterprise net profit, the stronger the profit quality.

If the ratio of the two is equal to 1 as the critical point, less than 1 means that the main business of the company has not completely become the source of profit, and the profit quality is weak.

Photo source: Hawkeye warning

In addition, the liquidity of Blu-ray assets is also much lower than the industry average, operating efficiency is not high.

Blu-ray had only 0.3 inventory turnover in 2019, well below the industry average of 20.8.

The turnover rate of accounts receivable was only 22.3, falling for three consecutive years and well below the industry average of 182.8.

Photo source: Hawkeye warning

Photo source: Hawkeye warning

The low quality of profits and low operating efficiency also lead to the shortage of funds for Blu-ray.

On the one hand, 25.953 billion of paper cash is difficult to cover 35.697 billion of short-term financial liabilities, and the net asset-liability ratio continues to be as high as 80 per cent, well above the industry average of 65 per cent.

On the other hand, in addition to operating cash flow accounting for less than 1% of the profit composition, the cash flow generated from financing activities is also declining.

As mentioned earlier, Blu-ray accumulated 29.9 billion of loans in 2019, but that figure was 36.5 billion in 2018, down 6.6 billion from a year earlier.

This illustrates two points:

First, external financing channels take the initiative to tighten financial support for Blu-ray.

Second, the financing cost is high, Blu-ray has to reduce the scale of external financing, otherwise the return on capital will further decline.

This is the counterattack of highly leveraged management. a large amount of borrowing can expand the size of the company and boost performance in a short period of time, but if there is a lack of debt-paying ability, especially the insufficient contribution of business activities to profits, will fall into the snowball situation of raising debt with debt.

The direct result is the decline in the rate of return on capital and the increasing cost of external financing, but in order to continue to operate, we can only accept the status quo and continue to be in debt.

Taihe Group (SZ000732), which has been in debt operation, is the best example.

Therefore, I hope Blu-ray will not become the next Taihe!

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