When the inner room plate heats up again, the low-key Dayue City Real Estate (00207) unexpectedly leads the rise.

The first week after the National Day Mid-Autumn Festival holiday, the life of inner housing stocks is not easy, the whole plate is in a pullback, several leading stocks have also fallen, suffered several sharp falls. However, judging from the close on Friday, October 13, nearly half of the inner housing stocks turned red, and China Evergrande Group (03333) closed with a 4.63% increase, which was quite encouraging.

On the same day, Dayue City Real Estate (00207) closed at HK $1.45, up 5.07%, topping the list of gains in inner housing stocks.

Zhitong Financial APP noted that while inner housing stocks soared in the first half of the year, Dayue City Real Estate's performance appeared to be "calm", with a cumulative increase of only about 30 per cent. It was Aug. 22 that pushed the stock to a new high. On the same day, the stock jumped short and opened high in early trading, closing at HK $1.37, up 15.13%, and the turnover also rose to HK $247 million.

Dayue City Real Estate has such an unforgettable day, thanks to the beautiful interim results and the news of Cofco Real Estate. The industry is optimistic that Cofco Real Estate owns Dayue City Real Estate, and the fate of the latter's share price has also changed. Just a few days after the rally, the stock closed up 10.45% again on Sept. 6, and the share price has been pleasantly surprising ever since.

The situation is becoming more and more favourable for Dayue City property, and even UBS issued a report during the National Day holiday that it raised its target price to HK $1.76, with a rating of "buy".

Look at the Dayue City Real Estate in October 13 led the rise, at the news level, it is precisely because Cofco Real Estate issued the latest announcement of the progress of the restructuring of Dayue City Real Estate: it is hiring audit, evaluation and other intermediary agencies.

Every move of the restructuring affects the fluctuation of the share price of Dayuecheng Real Estate.

Stock price trend chart of Dayuecheng Real Estate since 2017 Source: Futu Securities

The ownership of Cofco Real Estate is conducive to the increase of rent in Dayue City.

Dayue City Real Estate and Cofco 000031.SZ are listed platforms for Cofco's real estate business. The former is the only commercial real estate business platform under Cofco Group, with the development, operation and management of Dayue City brand city complex as the main business direction, while the latter takes commercial housing development as the business core.

On the evening of August 21, the two companies jointly announced that Cofco intends to acquire a controlling stake in Dayuecheng Real Estate. After the completion of the restructuring, Cofco will continue to hold a controlling interest in Dayuecheng property indirectly through Cofco, which will become a subsidiary of Cofco and Cofco.

As soon as the news came out, the industry was boiling, which also directly promoted the soaring share price of Dayue City Real Estate. The industry is optimistic about the benefits brought by the reorganization of these two platforms for Dayue City Real Estate.

Dayuecheng Real Estate said that through this transaction, Cofco Real Estate and Dayuecheng Real Estate will form a complementary residential and commercial sector, giving full play to their synergy. The deep integration of the two sides in financing, market, talent, land acquisition and brand is conducive to the improvement of the incentive mechanism and the improvement of operational efficiency. This transaction does not involve major personnel adjustments at the level of the two listed companies.

UBS also pointed out in the aforementioned report that it is believed that Dayue City showed a strong performance in operating retail properties when rental income rose 11% in the first half compared with the same period last year; coupled with the support of parent company Cofco property, it is expected that Dayue City can further expand its portfolio and strive for better rental growth; it is also expected that after the completion of the restructuring plan, the company will introduce employee stock ownership plans in the future to improve the stability of management.

The bank said that given the architecture of Cofco property and becoming the parent company of Dayue City, it is expected that Dayue City will be positioned as a retail rent collection stock in the future, and the synergy effect is expected to be reflected after the development of the joint project between the two companies.

The industry pays close attention to the developments of restructuring matters. On October 13, Cofco Real Estate issued an announcement revealing the latest progress of the restructuring.

According to the announcement, Cofco Real Estate and related parties are actively promoting the work of this major asset restructuring, including the selection of independent financial advisers, legal advisers, audit institutions, evaluation institutions and other intermediary agencies involved in this restructuring; to communicate, consult and demonstrate the major asset restructuring plan and related matters. Organize the intermediary agencies involved in this major asset restructuring to carry out due diligence, audit, evaluation and other related work.

Take the route of light assets to speed up expansion

It takes a good blacksmith to make steel. The share price of Dayue City Real Estate can usher in the small best part in the second half of the year, in addition to the stimulation of the above news side, in essence, it is supported by beautiful performance.

Zhitong Financial APP noted that "Dayue City system" began with Beijing's Xidan Dayue City, which was launched at the end of 2007. In 10 years, there were 9 Dayue City in the mainland. According to the company's 2017 report, the rest are: Shenyang Dayue City, Chaoyang Dayue City, Shanghai Jing'an Dayue City, Tianjin Dayue City, Yantai Dayue City, Chengdu Dayue City, Hangzhou Dayue City, Shanghai Changfeng Dayue City.

The brand of Dayue City is positioned as "young, fashionable, fashionable and tasteful", focusing on the new middle-class customers aged 18-35. The successful operation of these projects has accumulated rich experience in the transformation of Dayue City Real Estate. Dayue City once said that it plans to open 20 Dayue City across the country by 2020. At present, the plan is only half finished. How to realize your dream in a short time? Great Yuecheng adjusts its direction from "heavy" to "light" to speed up the pace of expansion. In addition, the advent of the era of commercial destocking has also prompted it to take this step.

In October 2016, Dayue City Real Estate issued a "big asset management" plan, announcing that it was officially embarking on the road of transition from developer to asset management. The first step of the "big asset management" strategy is to invigorate high-quality stock assets. The first light asset export management project of Dayue City is Tianjin Heping Dayue City.

The company's expansion and development in recent years has made a good return on its performance. In the first half of 2017, the group achieved operating income of 4.814 billion yuan (the same unit below), an increase of 73 per cent over the same period last year, and profit attributable to shareholders was 654 million, up 64 per cent from the same period last year.

The Group said that the substantial increase in performance was mainly due to the excellent performance of the property development and investment property leasing business. In terms of investment property, with the gradual recovery of retail sales in the mainland, investment property rental income and related property management income in Dayue City increased by about 12% over the same period last year. Among them, Chengdu Dayue City has greatly increased its performance by optimizing the brand portfolio and expanding the source of customers, with sales up 62% year-on-year and rental income up 31%. In addition, Shanghai Jingan Dayue City, Yantai Dayue City sales and rental income have achieved double-digit growth.

It is worth mentioning that during the period under review, the group successfully acquired the Xi'an Qin-Han-Tang project and Dayue City was successfully stationed in Xi'an. In addition, the group's 20% stake in the Apple Orchard project has also successfully achieved the export of business management capabilities.

The management of Dayuecheng Real Estate said at this year's interim performance meeting that the proportion of future company development, on the one hand, should be based on the stock of assets, with particular emphasis on building the Yangtze River Delta, Pearl River Delta and Bohai Rim. In this process, the importance is emphasized simultaneously, and the stock is combined with the new development. In the future, the ratio of new development land acquisition to stock mergers and acquisitions may be 50 or 50, and the proportion of mergers and acquisitions may be a little more. This is not to say that the company should not focus on assets, but to securitize a certain proportion so that more investors can participate in the construction and development of Dayue City and increase the speed.

M & A Fund will ease the Cash burden of Dayue City's expansion

In fact, one of the obstacles to the rapid expansion of Dayue City Real Estate in the past few years is the capital barrier. Commercial real estate needs to invest a lot of money, but the cash return is slow, which is a great test of the cash turnover capacity of enterprises.

As early as August 18, 2016, Dayue City sold 49% shares in three subsidiaries, including Xidan Dayue City, Chaoyang Dayue City, Shanghai Dayue City and Tianjin Dayue City, to establish a fund cooperation platform, thus obtaining 9.3 billion yuan. Dayue City uses the money to expand its commercial real estate business, expand the influence of its brand and repay its debts.

It is worth noting that in August this year, Dayuecheng Real Estate announced that it had set up a fund with a number of institutions, with a capital size of 11.4 billion yuan, and Dayuecheng Real Estate held a 30% interest. The duration of the fund is 8 years, which can be extended by one year.

As for the fund, Xu Hanping, financial director of Dayue City, said that this approach is the relatively light part of "both priorities". It can help Dayue City to occupy the market in the core area as soon as possible. "the positioning of this fund is very clear. To be a Dayue City shopping mall, mainly in the core areas of first-and second-tier cities, to transform existing shopping centers for a year to a year and a half."

The industry is also very optimistic about the role of the fund in promoting the expansion of Dayue City real estate. China International Capital Corporation said in an August report that M & A funds are expected to provide strong support for the financial position of Dayuecheng Real Estate.

According to CICC's conservative calculation, the internal rate of return of Dayuecheng real estate is expected to reach 16.6%, and the profit of its investment property sector will increase by about 25% in 2020 and 32% in 2023. In addition, by the end of 2023, the profit of the Dayuecheng real estate mall business section will reach 97% of the profit before dealing with some of the original mall rights and interests. This fund will ease the cash burden of expansion and make effective use of Dayue City's professional advantages in shopping malls.