Recent concerns surrounding the debt-laden property developer have crippled all sectors of the China real estate market. Under the superposition of the new normal – COVID-19 pandemic, China’s “14th Five-Year Plan” & “Three Red Lines” policy, and double concentration – China’s real estate market is undergoing one of the most extensive reforms over the past two decades.
The market is overly worried about the possible collapse of the debt-laden property developer and its potential impacts, and negative market sentiment drove Broad Homes’ valuation to hit bottoms. Broad Homes’ management commented: “The Company does not have back-to-back contracts and direct accounts receivables with the debt-laden property developer; most projects are settled in cash or acceptance bills. Additionally, the Company has also strengthened controls over possible risks of default on related projects from a year ago.”
Regulation tightening of China’s real estate industry can be regarded as a fresh new opportunity for Broad Homes’ strategic business development. Broad Home’s “two-wheel” business strategy – To-B business (PC units) + To-C business (total prefabricated construction) – is in line with the “14th Five-Year Plan” and has the potential to reflect the underlying benefits of prefabricated building products, such as higher standardization, lower cost, and shorter construction timespan. In the “14th Five-Year Plan”, the central government further strengthened commitments to “effectively increase affordable housing, support the construction of rental housing, improve long-term rental policy, and expand the supply of affordable rental housing.”
Broad Homes is the first mover amongst its peers to launch corresponding product lines within the fully prefabricated and movable building sector (B-House and BOX Module). The Company is expected to disclose B-House and BOX Module product sales figures in Q3 2021. The overall business structure of Broad Homes is solid, with about 50% of the Company’s revenue coming from social security and public housing projects.
According to Broad Homes’ announcement on September 24, 2021, about 188 million domestic unlisted shares will be converted into H shares, and these shares are listed on the HKEX on September 27. Post the Company’s full circulation of H shares, trading liquidity and market value will likely improve as the market regresses to the true underlying value of the business. The proportion of the Company’s tradable shares increased from 25% to 63%, making share buyback highly likely, given the current low valuation; controlling shareholders may also increase shareholding.
Since the beginning of 2021, Broad Homes’ stock price took a hard hit due to the COVID-19 pandemic and overselling of all related sectors of the China real estate market. However, with a closer look at Broad Homes’ core business, according to 1H21 interim results, the Company’s PC (Preset Concrete) business has shown a steady growth of 19.6% YoY. Meanwhile, new product lines of the To-C business have achieved initial success in the market, shedding a positive light on Broad Homes’ mission to achieve both “scale + efficiency.”