Sunac China Holdings’ (01918.HK) founder Sun Hongbing is one property tycoon who has timed the market almost perfectly over the past few years.
During the market downturn in 2015 and 2016, Sun aggressively snapped up land in first- and second-tier cities, even at the expense of a healthy leverage ratio. Sunac’s debt level rose to a worrying level at one point.
When the property market turned around in the second half of 2016, Sunac was able to ratchet up its sales. From a second-tier player, the company soon became the fourth-largest developer in the mainland.
Sun, however, started to trim down land purchases last year after housing prices skyrocketed. The company has shifted its focus to cutting its debt ratio to prepare itself for the next opportunity to buy land on the dip.
Last year, Sunac’s sales revenue jumped 140 percent to 362 billion yuan (US$57.6 billion). Net profit also soared 3.4 times to 11 billion yuan. The share price has spiked nearly four times to close at HK$30.3 per share last week from HK$6.5 in early 2017.
Apart from correctly reading the property market, Sunac’s remarkable growth is also partly due to its aggressiveness in acquisition deals.
In one of its biggest moves, Sunac splurged 43.8 billion yuan to acquire tourism assets from Dalian Wanda. It has also acquired lots of smaller peers and projects.
It is estimated that up to two-thirds of Sunac’s new additions to its land reserve last year came from acquisitions, which typically cost less than buying from auctions.
Despite the perfect record in its core business, Sunac stumbled badly on one deal – the acquisition of a stake in Leshi.
Sunac had invested 16.5 billion yuan in Leshi-related businesses. Later, Sunac itself admitted that the Leshi investment was a failure and it had written off all the losses last year.
At a press conference last week, Sun obviously did not want to go into details and joked that he would be happy to sell Leshi shares at a 10 percent discount.
A women reporter continued to ask him whether he had any further communication with Leshi boss Jia Yueting.
Suddenly, a number of mainland investors sitting in the front row started to yell at the reporter and insulted her with dirty words.
I’ve joined a WeChat group of Sunac shareholders since 2016. I’ve learned that a large number of mainland retail investors have betted all their savings in Sunac shares, with some even borrowing money from relatives or using high-leverage instruments such as warrants and margin financing.
It is therefore understandable that some of them are sensitive to negative news such as Sunac’s investment in Leshi.
Nevertheless, reporters have the right to ask for more details in order to protect public investors.
I have so much respect for some Sunac investors for their vision and insightful analysis, but the behavior of those investors who resorted to verbal abuse in the press conference is totally unacceptable.
This article appeared in the Hong Kong Economic Journal on April 3
Translation by Julie Zhu
[Chinese version 中文版]
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