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Hopefluent
05-01-2020, 12:05 PM.
Post: #1
Hopefluent
Hopefluent is a real estate broker in China whose key market is in the Guangzhou region, with smaller presence in the other provinces and major cities. It also has a small segment in providing financing to developers and home buyers. 

The company has a long record of listing, growth, profitability, cash flow, and dividend distribution. It is also trading near its 10-year lows, near net cash level, and if previous year's dividend distribution is maintained, will be yielding 6.6%. These characteristics make Hopefluent attractive. But is it any good?

Its present cheapness is a result of weak property sales, and slow collection of receivables from developers, which means possible credit losses. The slowing economy and tight credit conditions in China also expose its financing segment to more credit losses. 

Hopefluent also recently merged through a share swap with Poly Consulting -- a competing broker from the Poly Real Estate Group -- which resulted in large minority ownership on its financial statements. Through the deal, Hopefluent will gain exclusive rights to market developments from Poly Real Estate. But whether the merger will prove economically beneficial to Hopefluent shareholders in the long-term is not certain, since past and present financial results of Poly Consulting -- the merging entity -- does not seem to be available. 

If Hopefluent is able to improve on its collection of receivables, and maintain/increase profit/dividends in the coming years or so, its present cheapness will likely reverse, all else being the same. For now, it looks like the market is pricing in an expectation of heavy credit losses.

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06-01-2020, 06:39 AM.
Post: #2
RE: Hopefluent
(05-01-2020, 12:05 PM)karlmarx Wrote: Hopefluent is a real estate broker in China whose key market is in the Guangzhou region, with smaller presence in the other provinces and major cities. It also has a small segment in providing financing to developers and home buyers. 

The company has a long record of listing, growth, profitability, cash flow, and dividend distribution. It is also trading near its 10-year lows, near net cash level, and if previous year's dividend distribution is maintained, will be yielding 6.6%. These characteristics make Hopefluent attractive. But is it any good?

Its present cheapness is a result of weak property sales, and slow collection of receivables from developers, which means possible credit losses. The slowing economy and tight credit conditions in China also expose its financing segment to more credit losses. 

Hopefluent also recently merged through a share swap with Poly Consulting -- a competing broker from the Poly Real Estate Group -- which resulted in large minority ownership on its financial statements. Through the deal, Hopefluent will gain exclusive rights to market developments from Poly Real Estate. But whether the merger will prove economically beneficial to Hopefluent shareholders in the long-term is not certain, since past and present financial results of Poly Consulting -- the merging entity -- does not seem to be available. 

If Hopefluent is able to improve on its collection of receivables, and maintain/increase profit/dividends in the coming years or so, its present cheapness will likely reverse, all else being the same. For now, it looks like the market is pricing in an expectation of heavy credit losses.
It is a classic net net situation (Ben Graham ) and cash levels have gone up further as they have exited property management business. Yes working capital is a concern but most of receivables pertain to property developers which company claims to be large and state owned ( including Poly) where default risk is unlikely. It trades at 1/3rd of book.

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06-01-2020, 10:57 AM.
Post: #3
RE: Hopefluent
Their sale of the property management business does not look like a good move. It is an easy business which is recurring, light on capital requirement, and growing. The sale price also looks a little too cheap at a p/e of about 10, and that includes certain performance targets being met. Although the stated reason for the disposal is to allow the company to focus on the agency and financing businesses, the cheap sale price tells me that the company may be more concerned about quickly building up its cash balance. Perhaps in anticipation of credit losses. The only cheer for shareholders is that about a third of the proceeds will be used to fund "future dividends."

https://www1.hkexnews.hk/listedco/listco...710157.pdf



Hopefluent moves property for developers at a commission of about 1% or so, depending on the size of the development. Although most of the customers are so-called large and state-owned, the fact that the developers are taking longer than usual to pay just 1% of a property's sale price to Hopefluent says a lot about the developers' present financial situation. 

As part of the Hopefluent-Poly Consulting merger, Poly Real Estate (the developer) is paying Poly Consulting (the agency) the agency fees over a 3 year period. Why do they need to take years to settle payments?

See extracts from the merger announcement:

As at 30 June 2018, the total amount due from the Poly Real Estate Group to the Poly Consultancy Group was approximately RMB723.35 million. 

The parties have agreed that upon completion of the Cooperation Restructuring, the Poly Real Estate Group would settle the abovementioned outstanding amount by instalments. It was further agreed that by 31 December 2018, the total amount due from the Poly Real Estate Group would not exceed RMB320.00 million; by 31 December 2019, the said total amount due from the Poly Real Estate Group would not exceed RMB120.00 million and by 31 December 2020, the said total amount due from the Poly Real Estate Group would be fully settled

https://www1.hkexnews.hk/listedco/listco...727906.pdf



Assuming that the Chinese property market does not crash, property buyers do not lose their jobs/income, and property developers do not face liquidity/solvency issues, then concerns about Hopefluent's credit losses are probably moot. 

If there are no large credit losses, then yes, its share price is unreasonably cheap. And more so if the longer-term growth of the Chinese property market -- assuming Hopefluent is able to grow together with it -- is considered.

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06-01-2020, 01:43 PM.
Post: #4
RE: Hopefluent
(06-01-2020, 10:57 AM)karlmarx Wrote: Their sale of the property management business does not look like a good move. It is an easy business which is recurring, light on capital requirement, and growing. The sale price also looks a little too cheap at a p/e of about 10, and that includes certain performance targets being met. Although the stated reason for the disposal is to allow the company to focus on the agency and financing businesses, the cheap sale price tells me that the company may be more concerned about quickly building up its cash balance. Perhaps in anticipation of credit losses. The only cheer for shareholders is that about a third of the proceeds will be used to fund "future dividends."

https://www1.hkexnews.hk/listedco/listco...710157.pdf



Hopefluent moves property for developers at a commission of about 1% or so, depending on the size of the development. Although most of the customers are so-called large and state-owned, the fact that the developers are taking longer than usual to pay just 1% of a property's sale price to Hopefluent says a lot about the developers' present financial situation. 

As part of the Hopefluent-Poly Consulting merger, Poly Real Estate (the developer) is paying Poly Consulting (the agency) the agency fees over a 3 year period. Why do they need to take years to settle payments?

See extracts from the merger announcement:

As at 30 June 2018, the total amount due from the Poly Real Estate Group to the Poly Consultancy Group was approximately RMB723.35 million. 

The parties have agreed that upon completion of the Cooperation Restructuring, the Poly Real Estate Group would settle the abovementioned outstanding amount by instalments. It was further agreed that by 31 December 2018, the total amount due from the Poly Real Estate Group would not exceed RMB320.00 million; by 31 December 2019, the said total amount due from the Poly Real Estate Group would not exceed RMB120.00 million and by 31 December 2020, the said total amount due from the Poly Real Estate Group would be fully settled

https://www1.hkexnews.hk/listedco/listco...727906.pdf



Assuming that the Chinese property market does not crash, property buyers do not lose their jobs/income, and property developers do not face liquidity/solvency issues, then concerns about Hopefluent's credit losses are probably moot. 

If there are no large credit losses, then yes, its share price is unreasonably cheap. And more so if the longer-term growth of the Chinese property market -- assuming Hopefluent is able to grow together with it -- is considered.

1) proceeds for dividend does not mean much as there is no special dividend. it can be used to pay regular dividend.                                       2) yes there is cash and receivable in books & stock price is reflecting that there are major defaults coming which i doubt the case given their customer size. people dont like the fact that they have debt and cash on books.                                                                                              Disclosure : I am vested

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08-01-2020, 12:07 AM.
Post: #5
RE: Hopefluent
The co's reason for the disposal of the property mgmt bizness is to focus on the other 2 core bizness - real estate agency business and financial services business. I think this cld be the mgmt's strategy to mitigate the less favourable economic and property mkt conditions in China(as compared to the previous stellar growth period).

From 2015 to 2017, the property mgmt segment's revenue ranged from $350m to $520m, whereas profit varied from $50m to $67m. However, in 2018, profit was just $38m on a revenue of $544m. The property mgmt business seems to be getting less attractive and anyway not as profitable as the other 2 segments.

As for its very profitable financial services segment, it was stated that “As at 31st December, 2018, the carrying amounts of loan receivables of HK$423 million were receivable in more than one year. The loans bear fixed interest rates ranging from 1% to 24% per annum." I wonder abt the risk profile of loan receivables warranting an interest rate north of 15%. Also, the effective interest rates on bank/other borrowings of up to 14.4% seems rather high to me.

In any case, Hopefluent's amt of trade receivables past 180 days seems to be very high compared agst our local Propnex and APAC Realty. However, I am not sure whether this is due to the different country "property business practices" or it is just super competitive business environment in China.

Though Hopefluent is trading at a much cheaper valuation than our 2 listed property agents, I think one has to consider the usual forex, custody fees, SGX lending fees, economic conditions in China.

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