The tragedy of Agile’s diversification: Hotel operating losses exceeded 1.7 billion, and Yali’s net profit growth dropped for five consecutive years

Produced by | Across Lujiazui

Written by | Chuck

Five years ago, as one of the former "Five Tigers of South China", the established Cantonese real estate company Agile ( 3383.HK) After experiencing the pain of "three kills" in valuation, performance and debt caused by the personal risks of Chairman Chen Zhuolin, its strategic direction has been adjusted from "focusing on real estate" to "focusing on real estate with diversified businesses in parallel". The two major businesses of environmental protection and construction have been launched successively as independent segments.

In 2018, with the gradual advancement of Hainan Province’s real estate purchase restriction policy, Agile, which had just recovered its strength, was forced to fall into a period of stagnant performance again. Hainan Qingshuiwan, which the company holds heavily, is a super market with a value of over 100 billion yuan, and its performance contribution ratio has exceeded 20%. It is not only a guarantee of its profitability, but also a "golden egg" in Chen Zhuolin's eyes.

What is quite interesting is that just before the implementation of the new policy, which has been hailed as the "most stringent in history", Morgan Stanley invested 5.3 billion yuan to help Agile win this golden egg in 2007, with a price of 900 million yuan. US dollars (approximately 6 billion yuan) cleared out its 30% stake in the Clearwater Bay project. During the period, the cumulative profit exceeded 20 billion yuan, and the quality of the "golden egg" suddenly dimmed. The repurchase of Fang Yajule will have to face the embarrassment of the project's revenue plummeting to about 10%.

This year, 56-year-old Chen Zhuolin once again accelerated Agile’s diversification strategy. While this veteran Cantonese opera performer who loves Cantonese opera has successfully spun off and listed his property management company Yali Life Services (3319.HK), he has also reorganized its diversified businesses into five major sectors: Yali Life, environmental protection, construction, housing management and commerce.

It is worth noting that the hotel operation business, the second largest main business of Wenju Agile, has been merged into the commercial sector. After the market model of tourism real estate encountered obstacles and became a constraint for development, Agile Real Estate's main business began to transform from "long turnover and high returns" to "high turnover and high leverage", but the net debt ratio has thus climbed all the way to above 130 (considering sustainability debt), and far exceeds the industry average net debt ratio of less than 90.

Misfortunes never come singly. Although Agile’s sales in 2019 exceeded 100 billion yuan for the second consecutive year to 117.97 billion yuan, its revenue fell short of market expectations and slightly increased, falling 13.4 percentage points year-on-year to 30.5%. The gross profit margin continues to put profitability under pressure, Hainan Real Estate dividends continue to fade, and the increase in debt due to business expansion has weakened its credit indicators. In just 20 days after the performance was disclosed, the company was first targeted by Citigroup, Nomura and Goldman Sachs. International investment banks lowered their target prices, and Moody's and Standard & Poor's subsequently adjusted their rating outlooks from stable to negative.

The current wave of "downgrades" that Agile encountered almost caused it to once again fall into the throes of "three kills". Fortunately, the reversal came quickly. Diversified businesses once again played the role of "rescue" and healed the "wounds" after the investment banks were bearish.

Data show that as of June 30, 2020, Agile achieved revenue of 33.527 billion yuan, a year-on-year increase of 23.7%. Among them, the revenue from property sales carried forward accounted for 87.4%. The diversified business benefited from the rapid growth of the elegant living and environmental protection business that achieved a surge in scale through the acquisition of China Minsheng Property Management Co., Ltd., and the revenue contribution share increased by 3.6 percentage points to 12.6%.

Zongheng Lujiazui noticed that on the one hand, the dividends of the property management industry continued to be released, and Yali Life’s performance and valuation achieved a "Davis double click", especially in terms of revenue, net profit growth rate and profitability. According to the data in the first year of listing, its market value exceeds that of its parent company Agile.

In fact, there is no wrongful killing in the capital market. After all, Agile's performance growth rate is far lower than that of its subsidiary Yalilife, and its stock price return to the long-awaited upward track is largely determined by The latter's overall performance;

On the other hand, Chen Zhuolin's diversification strategy continues to upgrade.

Agile's six major business sectors have been changed to property development, elegant life, environmental protection, Yacheng science and technology innovation, housing management and commerce. Among them, Yacheng, which covers green ecological landscape services and smart decoration home services, submitted a prospectus to the Stock Exchange in June this year and is expected to become the third company in the Agile listed company territory.

More importantly, the rebound in sales performance in Hainan territory not only eliminates the biggest concerns of investment banks, but also improves Agile's overall profitability.

However, just like the AB side of a coin, behind Agile’s current glamorous A side, it achieved a net profit attributable to its parent company of 5.127 billion yuan in the first half of this year, a year-on-year increase of only 1.0; excluding non-attributed net profit, the net profit increased The speed index dropped sharply by 9.74 percentage points to 18.06 from the end of the previous year; the net debt ratio dropped to 114.06 (perpetual bonds are taken into account), but it still hit the regulatory red line.

Among them, in the five financial reports since the listing of the diversified core Yalilife, the growth rate of net profit attributable to the parent has dropped for five consecutive years, from 196.29 in the first half of 2018 to 40.02 in the first half of this year; Contribution to Agile's business The operating profit growth rate of the property development sector, which accounted for more than 90% of the profit, was only 11.47%; the operating profit contribution of the property investment and environmental protection sectors fell slightly.

Although the operating loss of hotel operations in the first half of this year narrowed slightly to 69 million yuan from 71 million yuan in the same period last year, this is already the highest loss since the birth of the former "second boss" 13 years ago. It was the 12th loss, and its current revenue dropped sharply by 5.66 to 153 million yuan, ranking third in Agile's diversified business revenue contribution.

According to public information, the Agile Hotel operation segment began in 2007. With its first hotel, Guangzhou Agile Hotel, opening in October, the segment achieved revenue of 2.176 million yuan and an operating loss of 6.338 million yuan that year.

As of the first half of 2020, Agile Hotel's operating income mainly came from flagship projects such as Shanghai Agile Marriott Hotel, Hainan Agile Raffles Hotel, Huizhou Bailu Lake Agile Sheraton Resort and Chengdu Agile Howard Johnson Hotel. It is worth noting that Hainan Clearwater Bay Holiday Inn Resort, one of the core sources of hotel operating income in 2019, is not among them.

In the past 13 years, Agile Hotel’s operating losses have accumulated to more than 1.7 billion yuan. Among them, the two years with the largest losses were 2016 and 2019, with losses of 435 million yuan and 351 million yuan respectively. Continuous losses not only put this sector in a "marginalized" state, but are also the biggest loss point in Agile's diversified business.

Going back to 2017, which is the 25th anniversary of the establishment of Agile and two years after the launch of the diversification strategy, Chen Zhuolin said that "in the next three to five years, new industries will account for the group's total profits." 50. "How can Chen Zhuolin use the magic stone of finance and technology to achieve diversification when the net profit growth rate of Ya Life, the core profit center of the diversified territory, has dropped for five consecutive years, hotel operations continue to suffer losses, and the profit contribution from property investment and environmental protection has declined. The surge in business profitability deserves continued attention.

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