That night, Henglong Group released the 2017 annual report and the first quarter financial report of 2018 through the exchange website.
The two announcements were posted at the same time, quickly triggering extensive discussions in the financial circle and investment community.
The cover of the annual report is a simple blue line chart--
There are three curves of total assets, net assets, and debt ratio. From 2016 to 2017, the net assets line goes all the way up, and the debt ratio line goes all the way down. The intersection is clearly marked with 49%.
But for investors who really pay attention to Henglong, the story behind the numbers is more worthy of consideration than the curve itself.
2017 is the first full fiscal year after Zhao Chen took over Henglong.
In terms of asset and liability structure, as of December 31, 2017, Henglong Group had consolidated total assets of 22.85 billion yuan, consolidated total liabilities of 11.2 billion yuan, and Off-Balance Sheet Liabilities was zero.
Net assets reached 11.65 billion yuan, an increase of nearly three times from about 3 billion yuan at the end of 2016 (assets after deducting Off-Balance Sheet Liabilities).
The asset-liability ratio dropped to 49% from approximately 80% in 2016 (including Off-Balance Sheet Liabilities).
In terms of operating performance, the main real estate business revenue for the year was 8.5 billion yuan, and the net profit was 550 million yuan.
Affected by Strategic Contraction, fewer sales in the second half of the year, and National Day discount promotions, non-net profit decreased compared with 2016.
However, the company obtained non-recurring gains through the sale of assets such as Henglong Property.
In terms of asset disposal and acquisition, Henglong Property completed the sale at a transaction price of 2.6 billion yuan;
Haoyu Construction completed the acquisition, with total assets increased by 5.5 billion yuan, liabilities increased by 4.5 billion yuan, and net assets increased by 1 billion yuan.
The liquidation of Off-Balance Sheet Liabilities was completed throughout the year, and an impairment loss of 100 million yuan was incurred during the liquidation process.
In the annual report, Zhao Chen wrote a paragraph in the "Chairman Report" section:
"2017 is the first year of Henglong Group's transformation.
We cleared out all Off-Balance Sheet Liabilities, optimized our asset structure, shrunk our main real estate business, and freed up funds to invest in new tracks.
The dividend period for real estate is still several years away, but these few years are the window period for our transformation.
What Henglong needs to do is to complete the transformation from a 'real estate company' to an 'investment platform' before the window period closes.
The road is long, but we are already on it."
The announced Financial Report and Henglong Group in the first quarter of 2018 will continue to advance Strategic Contraction.
In terms of operations, the main real estate business revenue was 2.2 billion yuan, a year-on-year decrease of about 15%, and the net profit was 120 million yuan.
Haoyu Construction consolidated revenue of 350 million yuan and net profit of 20 million yuan.
Total revenue at the consolidated level was 2.55 billion yuan, and consolidated net profit was 140 million yuan.
The asset-liability ratio further dropped to approximately 48%, and cash and cash equivalents were approximately 2.5 billion yuan.
During the reporting period, the company took the initiative to slow down the pace of market launches and no longer added new land reserves.
At the same time, Henglong Capital has completed its industrial and commercial registration with a registered capital of 500 million yuan and will serve as a specialized platform for Henglong Group's foreign investment.
In terms of external investment, Hang Lung Group has completed three important strategic investments:
Invested 390 million yuan in Yunnan Agriculture Group, holding 20% of the shares, and gave up all Voting Rights;
Acquired a total of 26.3% of the shares of Bubble Mary for 360 million yuan, and gave up all shares to Voting Rights;
Purchased 4.99% shares of Shunxin Agriculture for 518 million yuan.
The total amount of the three investments is approximately 1.268 billion yuan, covering three tracks: Live Pigs breeding, Designer Toys consumption and low-end Baijiu.
As soon as the two announcements came out, major Financial Medias quickly followed up.
On Snowball, the discussion popularity of Henglong Group reached the top three in the section within an hour.
User "Veteran Industry Researcher" posted a long post and was pushed to the front.
"After reading the annual report of Henglong, I was quite shocked by several figures.
In 2016, Henglong's net assets were about just over 3 billion, and Off-Balance Sheet Liabilities's was 3 billion. The real asset-liability ratio was close to 80%.
One year later, the net assets were 11.65 billion, nearly four times, Off-Balance Sheet Liabilities was cleared, and the asset-liability ratio dropped to 49%.
This is not 'performance growth' in the conventional sense, this is a reconstruction of the asset structure.
After Zhao Chen took over Henglong, Strategic Contraction, Rights Issue, sold the property, collected Haoyu, and cleared the balance sheet--
Every step is to use capital market means to solve balance sheet problems.
This is not an operation by a real estate developer, this is an operation by an investor."
There were hundreds of comments below the post.
Someone asked:
"The non-profit deduction has dropped, what do you think?"
The owner replied:
"Henglong's current logic is not profit growth, but asset quality improvement.
Profits can wait, but liabilities cannot.
In an industry downturn, whoever has more cash and less debt will survive to the end.
Henglong took the initiative to shrink last year, with fewer sales and lower profits, but its balance sheet was clean.
This exchange is worth it."
The author of another highly liked post is "Real Estate Analyst Old Zhou".
"The market's focus on Henglong's first quarter report may be biased.
Many people saw that the revenue dropped by 15% and felt that Henglong was not going to work. But Henglong's current strategy is to actively shrink, not to passively decline.
Zhao Chen made it clear in the annual report - there are still a few years left for the window period for real estate, but these few years are the window period for transformation.
So what he's doing is:
In terms of real estate, we do not seek expansion, but only stability;
Invest the freed up money in the new track. Shunxin Agriculture 500 million position, Bubble Mary 360 million investment, Yunnan Agriculture 390 million equity investment--
These are the future of Henglong. Real estate stabilizes the basic market and investment contribution increases.
I understand this logic."
The discussion in the comment area is getting more and more heated.
User "Value Discoverer" wrote:
"When Zhao Chen took over Henglong, the company was in a mess.
One year later, Off-Balance Sheet Liabilities was cleared, its debt ratio dropped to 49%, it held more than 2 billion in cash, and invested in several very imaginative projects.
This twenty-two-year-old young man is more stable in his work than many old people."
User "Shan City Veteran Shareholder" replied:
"Last year, when Zhao Chen said that it would reduce the debt ratio to less than 50%, I thought it was a joke.
Now the cake is really ripe. On the day of the annual meeting, he said in front of all employees that he would reduce the debt ratio to less than 20% this year.
At that time, the audience shouted 'I have confidence' loudly. I thought he was bragging at the time. Now, I begin to believe him."
User "Quantitative Retail Investor" made an analysis from the perspective of investment portfolio:
"Henglong's current asset structure is very interesting.
The main real estate business provides stable cash flow and net asset support.
Haoyu Construction is reducing debt and contributing to cash flow.
Yunnan Agriculture, Bubble Mary, and Shunxin Agriculture are investments in three completely different tracks - Pig Cycle, Designer Toys, and low-end Baijiu.
The logic of the three tracks is different, but Zhao Chen voted for them all.
This shows that he is not betting on one direction, he is doing asset allocation.
Real estate is the bottom position, and the three investments are the offensive positions. This combination is rare in A-share Listed Company."
Some users have also made estimates from the perspective of investment income of Henglong.
"Shunxin Agriculture 5% position, cost 18.17 yuan, current stock price is around 18.5, small profit.
If Baijiu's business growth rate is realized in the first quarter report and the stock price reaches 25 yuan, Henglong will earn close to 200 million yuan.
This income is higher than the profit of the main real estate business in half a year. Zhao Chen turned Henglong from a real estate company into an investment platform, which is not just talk."
Financial Media also quickly followed up.
First Finance's evening comment wrote:
"Henglong Group The biggest highlight of the 2017 annual report is not revenue or profit, but the balance sheet.
A net worth of 11.65 billion, a debt-to-asset ratio of 49%, and zero Off-Balance Sheet Liabilities - these three figures can be considered the best among real estate Real Estate Sector in the country.
Just a year ago, this company was still carrying 3 billion Off-Balance Sheet Liabilities, and its real asset-liability ratio was close to 80%.
Zhao Chen took one year to turn a 'problem company' into a 'healthy company'. This speed deserves attention."
The title of 21st Century Business Herald is:
"Henglong Group Transformation Sample: From Real Estate Developer to Investment Platform".
The article reads, "Henglong Group's first quarter report for 2018 shows that the company took the initiative to shrink its main real estate business, slowed down the pace of launches, and saw revenue decline year-on-year.
At the same time, Henglong Capital completed its registration, and its registered capital of 500 million yuan will be used for external investment.
Zhao Chen The 'transformation window period' mentioned in the annual report has begun to materialize.
Whether Henglong can complete its transformation from a real estate company to an investment platform will be the biggest highlight in the next few years."