Having emerged as the world’s largest cinema operator in 2016, Chinese company Dalian Wanda Group’s financials should be worth reviewing.
(Wang Jianlin, Wall Street Journal)
The Dalian Wanda Group is currently a private company founded by China's richest man, Wang Jianlin. According to Forbes, Wanda Group chairman Wang Jianlin has a net worth of $31.7 billion, several percentage points higher than the $28.3 billion of Alibaba’s (BABA, Financial) Jack Ma and $30.9 billion of Cheung Kong’s (HKSE:01038, Financial) Li Ka-Shing.
Dalian Wanda Group is a Chinese multinational conglomerate corporation headquartered in Beijing and the world's biggest private property developer and owner and the world's largest cinema chain operator.
According to company filings, Wang Jianlin indirectly held 97.77% of the Dalian Wanda Group through a 98% interest in a Dalian Hexing company.
Meanwhile, Dalian Wanda Commercial Properties (HKSE:03699, Financial)(DWNDF, Financial) – a property subsidiary of Dalian Group – was publicly listed.
As of June 2016, the Dalian Wanda Group held 43.71% of total share capital of Dalian Wanda Commercial Properties. Wang Jianlin directly held 7.1% of total issued shares by Dalian Wanda Commercial Properties.
Earnings performance
The $31 billion commercial property operator and developer delivered its interim fiscal 2016 results in August last year and would have been expected to deliver its full-year operation results in April.
In its six months of operations, Dalian Wanda Commercial Properties grew its sales by 21.8% to 37.6 billion yuan renminbi ($5.47 billion) compared to the year earlier period. The property specialist also recorded a strong 18.5% profit growth to 6.2 billion yuan renminbi.
Nonetheless, the Dalian Wanda Group was successful in a $4.4 billion buyout of the Wanda Commercial Properties in August. According to the Wall Street Journal, the Dalian Wanda Group plans to relist the Wanda Commercial Properties on a Chinese domestic stock exchange for higher valuations.
Total returns
Dalian Wanda Commercial Properties outperformed the broader Standard & Poor's 500 index considerably in the past year. According to Morningstar data, Wanda Commercial Properties had an amazing 52.2% total return for the past year while the S&P 500 index gave back 22.8%.
Valuations
Dalian Wanda Commercial Properties traded at a healthy discount compared to its peers. According to GuruFocus data, the Wanda Commercial Properties had a trailing price-earnings (P/E) ratio of 6.4 times (industry median of 11.8), price-book (P/B) ratio of 1.1 times (industry median of 1.1) and price-sales (P/S) ratio of 1.6 times (industry median of 3.1).
Dalian Wanda Commercial Properties
Dalian Wanda Commercial Properties is China’s largest developer, owner and operator of commercial properties and China’s largest owner and operator of luxury hotels.
Wanda Commercial Properties' $3.7 billion initial public offering in the Hong Kong Stock Exchange in 2014 propelled Wang Jianlin into a net worth of $25 billion.
According to filings, Wanda Commercial’s core product is the urban complex named “Wanda Plaza,” which mainly comprises shopping centers held as investment properties, properties held for sale and luxury hotels.
(Wanda Plaza, ChapmanTaylor)
In review, Wanda Commercial Properties had four segments that forms its overall revenues. These are investment property leasing and property management, sales of properties, hotel operations and other segment.
All of these segments grew year on year as of interim 2016 as both the investment property leasing and property management and sales of properties contributed almost 90%, or 33.4 billion yuan renminbi, of total Wanda Commercial sales for the period.
Property management and leasing also recorded the highest profit before interest and tax margin among the group with 64% followed by sales of properties with 12%. Both the hotel operations and other segments contributed less in sales and ultimately provided losses of 133 million yuan renminbi and 515 million yuan renminbi for Wanda Commercial in the interim.
Overall, Dalian Wanda Commercial Properties had two-year sales and profit growth and operating margin averages of 19.7%, 10.9% and 33% (1).
Cash, debt and book value
As of June, Dalian Wanda Commercial Properties had 77.3 billion yuan renminbi in cash and cash equivalents and 214.6 billion yuan renminbi in debt with a debt-equity ratio of 1.13x compared to 1x the year prior.
Only 0.8% of the Wanda Commercial Properties’ 694.7 billion yuan renminbi assets were identified as goodwill and intangibles having a book value of 181.62 billion yuan renminbi compared to 155.8 billion the year earlier.
Cash flow
(Interim Report 2016, Dalian Wanda Commercial Properties)
As per its interim 2016, Wanda Commercial Properties delivered positive cash flow from operations of 10.9 billion yuan renminbi compared to a loss of 3.7 billion in interim operations in 2015.
Capital expenditures were 1.88 billion yuan renminbi leaving Wanda with 9 billion yuan renminbi in free cash flow compared to a loss of 6.52 billion yuan renminbi the year prior.
Wanda Commercial Properties also paid 43.8%, or 3.95 billion yuan renminbi, in dividends. On average, the company allocated 374% of its free cash flow from 2013 to 2015, according to Morningstar data.
Wanda Commercial Properties also allocated 19.43 billion yuan renminbi of its cash flow in investment properties. Wanda Commercial Properties also took in 22.93 billion in proceeds from bank loans, bonds and notes issuances net repayments and interest charges paid.
Conclusion
Given the recent approval of Wanda Commercial to be bought out by Wang Jianlin’s Dalian Wanda Group, chasing the former for a possible fruitful long-term investment returns will be a challenge and may not be a possibility, which is unfortunate.
A peek into Wanda Commercial Properties’ financials, nonetheless, made it seem that being grossly dominant in China as a property specialist still would require a great deal of leverage and careful allocation of company cash flow.
Wanda Commercial Properties also exhibited that despite being a powerhouse, the company failed to generate any profits in its hotel operations – which brings to case another speculation that can be made that hotel operations in China (Mainland) may not be as healthy compared to Macau’s.
Should Wanda Commercial Properties list itself in foreign markets again in the future, investors should want its hotel and other operations be excluded or spun off or at least be profitable so as to be rewarded with better valuations.
Notes
- Morningstar data.
Disclosure: I do not have shares in any of the companies mentioned.
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