Reported by reporter Ou Jiayan from Guangzhou
Renhe Commercial Holdings Co., Ltd. (01387, HK; hereinafter referred to as Renhe Commercial), which has the aura of "China's largest underground shopping mall operator and developer", is deep in losses.
On August 17, a reporter from "Daily Economic News" learned that Renhe Business recently issued a profit warning announcement, predicting that it would record a loss of 884 million yuan in the first half of the year. This is also a huge loss for the company after last year's operating loss of 1.7 billion yuan.
Huang Lichong, director of Hong Kong Guangdong Securities Investment Bank, told the "Daily Economic News" reporter, "The loss in the assessed value of investment properties is most likely due to the impact of the downturn in the real estate market, and the properties held by the company have been affected by the decline in commercial real estate prices."
At the same time, the actual controller Dai Yongge promoted his 23-year-old son Dai Bin to the position of executive director, but four professional managers left the board of directors, casting a shadow over the company's operations. There are still doubts whether Dai Yongge, who firmly controls the voice of the board of directors, can bring the "air-raid shelter" model back to life.
Revenue continued to suffer losses in the first half of the year
According to the announcement, based on the unaudited financial information currently received by the board of directors, Renhe Business expects to record a loss of approximately RMB 884 million in the first six months of this year, much higher than the loss of RMB 182 million in the same period last year. The main reason for the loss is that the investment properties recorded a net appraisal loss of approximately 914 million yuan in the first half of this year, while the appraisal appreciation amount in the same period last year was 126 million yuan.
Different from traditional commercial real estate developers, Renhe Commercial’s core business model is to build civil air defense projects and use them as underground shopping malls during peacetime, and obtain returns by leasing shops or transferring shop operating rights. Since the use of civil air defense projects to develop underground malls is not classified as real estate development, there is no need to pay land transfer fees and land value-added tax, which can significantly reduce development costs. Renhe Commercial’s “air raid shelter” model was once highly sought after by the market.
However, since the ownership and operation rights of civil air defense projects are separated, Renhe Commercial's underground shops have no property rights, and the company's shopping mall operation capabilities are poor, resulting in a sharp decline in the company's revenue since 2010. According to the annual report of Renhe Business, the main business revenue of Renhe Business in 2009 was 4.163 billion yuan, but it plummeted to 1.142 billion yuan in 2010, and even fell to 547 million yuan in 2013. In order to maintain profit growth, Renhe Business changed the accounting method of investment properties from the cost model to the fair value model.
"Switching to fair value accounting can bring book profits through property appreciation during the rising real estate price cycle," Huang Lichong said. However, this accounting system is also a double-edged sword. Once real estate prices enter a period of decline, the decline in appraisal prices will cause the value-added income of investment properties to turn into negative growth. Since human and commercial properties are mainly concentrated in second- and third-tier cities, these areas are precisely the areas hardest hit by this year's market adjustment. There will still be continued downward pressure in the future. Today's losses are just a correction of the "false prosperity" of past performance.
Huang Wenjie, chairman of Chu Rui Commercial Planning and Operations Agency, told the "Daily Economic News" reporter that due to the poor macro-environment, the attractiveness of underground shops lacking property rights is worse than traditional commercial real estate, and the sales situation is difficult to be optimistic.
Dai Yongge’s 23-year-old son becomes executive director
Deep in the quagmire of losses, Dai Yongge, the company's chairman and CEO, who single-handedly founded Renhe's underground business empire, took a series of actions to further strengthen the Dai family's control over the company's board of directors.
On June 30, after receiving the 48.49% stake in Renhe Commercial held indirectly by his sister Xiuli Haoken, Dai Yongge’s cumulative shareholding reached 49.35% and became the controlling shareholder of Renhe Commercial.
At the same time, Renhe Commercial's board of directors and senior management team underwent a "big shakeup", with four professional managers including Wang Luding, the company's vice president of commercial affairs, resigning as executive directors. Subsequently, Dai Yongge promoted his 23-year-old son Dai Bin to the position of executive director, so that among the four executive directors of Renhe Business, Dai Yongge and his son already occupied half of the seats. .
Information shows that Dai Bin graduated from the University of New South Wales in Australia with a major in finance in 2012 and will receive an annual director's salary and dividends of HK$1.2 million.
In Huang Lichong's view, it is difficult to judge the pros and cons to the company's operations when professional managers leave and strengthen family management. However, appointing a young man who has just graduated as an executive director and enjoying a high salary is enough to show that the purpose of the Dai family is not to reverse the business difficulties, but more to ensure their control on the board of directors so that they can make company decisions according to their own wishes.
Huang Lichong said that since the decision-making power of the company's directors is more concentrated in the Dai Yongge family, the interests of small shareholders may be difficult to be protected by the board of directors.
