Cathay Pacific Haitong: Property industry accounts receivable growth rate narrows, independence is a key indicator

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that considering the long-term logic of property enterprise development and operation, it believes that having the ability to compete independently in business can reasonably reduce the number of related transactions occurring and reduce the proportion of related transactions is an important measurement standard. In addition, the bank is also considering 1) companies with a high-quality parent company background and maintaining the top real estate sales rankings can still provide performance support to property companies while effectively avoiding the risks caused by related parties' accounts; 2) commercial management enterprises have natural advantages, are better able to recover merchant payments, and there are no long-term arrears. At the same time, the bank considers enterprises whose receivables growth rate is properly controlled, the accrual ratio is relatively adequate, the account age structure is healthy, and the repayment rate is high.

Cathay Pacific Haitong's main views are as follows:

Why study property accounts receivable

Considering accounts receivable as an important factor affecting an enterprise's cash flow, it has a substantial impact on the potential sustainability of an enterprise's dividends to a large extent. This article, as the second part in the Property Report Research Series, will review and analyze the essential changes in corporate cash flow management through a detailed breakdown of accounts receivable from 30 sample companies. Affected by the recent downturn in the real estate industry, related party insurance, and the slowdown in repayment rates from third party owners, the scale of accounts receivable in the industry began to grow in 2021. Based on the above changes in industry trends, the bank believes that an orderly understanding of the processing methods and development characteristics of accounts receivable in the property industry is of obvious significance for correctly understanding changes in property cash flow and finding a balanced “scale, quality, and profit” development model.

The growth rate of the scale of accounts receivable in the industry has narrowed significantly

In 2020-2024, the total amount of accounts receivable from the 30 listed companies tracked by the bank reached 29.18 billion yuan, 48.32 billion yuan, 68.34 billion yuan, 74.25 billion yuan, and 75.37 billion yuan, respectively. The growth rate of accounts receivable was +42.6%, +65.6%, +41.4%, +8.7% and +1.5%, respectively. Since 2023, the growth rate of accounts receivable has narrowed significantly. The parent company has an excellent background and the share of receivable/revenue of commercial management companies is relatively low.

The influence of related parties is gradually weakening, and business independence is increasing

Looking at the past five years, thanks to various types of settlement, impairment accrual, and debt settlement carried out by property enterprises and related companies, the proportion of accounts receivable from related parties in the sample enterprise fell from 47% to 39%, and the share of third party receivables increased from 53% to 61%. In terms of trends, the parent company's risk related to insurance companies is gradually being mitigated. The share of related party receivables of such property companies fell from 91% in 2019 to 44% in 2024. Considering that credit risk in the real estate industry has been concentrated, the bank determines that the impact of related party accounts receivable on the trend should continue to weaken.

Account periods have been lengthened, depreciation has increased dramatically, and repayment rates are under pressure

The sample company's billing period was lengthened. The share of accounts receivable within 1 year fell from 89% in 2019 to 58% in 2024, and the difficulty of recovering money increased. Corresponsibly, the accrual ratio of corporate accounts receivable (impairment provisions/trade receivables) increased significantly, from 4% in 2019 to 26% in 2024. In 2019 and 2024, the comprehensive repayment rate of the sample companies dropped from 90% to 78%. Among them, the repayment rate of insured property companies by the parent company continued to be under pressure, which was lower than the overall level of the sample companies, and the repayment rate of some companies was only about 50%.