Is the development of the fundraising project progressing smoothly? Will Hubei Fuxing Science and Technology (000926.SZ) become the next real estate company to successfully implement the additional share issuance?

"Since the launch of the 'Three Arrows', the path of private placement financing for real estate companies is still full of uncertainties. Compared to the first and second arrows, the third arrow has complex transactions, long process cycles, and strict reviews. Now, it has been a year since the launch of the third arrow, and although many real estate companies intend to participate, most of them have not made substantial progress in their planned private placements. Only a few real estate companies have successfully carried out private placements. Among the first seven real estate companies that obtained approval for private placements, it took an average of about 194 days from initiating the private placement to obtaining approval from the China Securities Regulatory Commission. The approved companies include state-owned enterprises, private enterprises, and others, all of which are well-qualified real estate companies. Among them, Hubei Fuxing Science and Technology (000926.SZ), one of the first real estate companies to receive approval for a private placement, obtained approval from the China Securities Regulatory Commission in June this year and is expected to become the next real estate company to complete a private placement. The projects funded by the first approved private placements are in line with national policies. It is understood that since the introduction of the new regulations for the 'Three Arrows', Hubei Fuxing Science and Technology responded promptly and actively applied. In February 2023, it completed the issuance of medium-term notes with a total amount of 6 billion yuan, and the successful registration of the first 2 billion yuan application. In addition, Hubei Fuxing Science and Technology initiated the private placement at the end of November 2022 and became one of the first private real estate companies to apply and obtain approval for refinancing at the end of June this year, with a financing scale of approximately 1.341 billion yuan. Regarding the use of funds raised, the company plans to use the net proceeds after deducting relevant issuance expenses for the Hongqiao City K6 residential project, the K15 project, and supplementary working capital. According to Hubei Fuxing Science and Technology's response during institutional research, the Hongqiao City K6 project has a saleable area of approximately 37,200 square meters, and 86% has been presold. The external wall coating, system doors and windows, elevators, and decorative works for public areas have been completed, and the project is expected to be completed and filed by the end of December 2023. The Hongqiao City K15 project has a saleable area of approximately 127,000 square meters. Buildings 1-3 have been completed and delivered, and buildings 4-5 have entered the final stage of sales. The project is expected to be completed and filed by the end of December 2024. Currently, the development of the funded projects is progressing smoothly. It is understood that Hubei Fuxing Science and Technology's controlling shareholder is Fuxing Group Holding Co., Ltd., which currently holds a 25.57% stake. In addition to investing in listed companies, it also has layouts in industries such as biomedicine, high-end food additives, modern agriculture, logistics, and private education. It is worth mentioning that in 2004, when Wuhan city introduced the policy to initiate the transformation of 'urban villages', Hubei Fuxing Science and Technology seized the development opportunity and became one of the first real estate companies to enter the field of urban village transformation. After more than 20 years of operation in Wuhan and active layout in some regions across the country, Hubei Fuxing Science and Technology has become a leading enterprise in urban renewal and transformation in Hubei Province. It has developed a development model that synergizes the real estate industry and the metal products industry. With its dual advantages, the company is driving the construction of a new development pattern and creating a second growth curve. Through long-term operation and accumulation in the field of urban renewal and transformation, Hubei Fuxing Science and Technology has gradually accumulated comprehensive professional strength in "old city renovation," "urban village transformation," and "construction of high-end residential areas in major city centers," and has developed a comprehensive and effective development process. So far, the company has invested over 100 billion yuan in urban renewal and transformation, completing a transformation area of over 20 million square meters. Among them, the transformation of urban villages accounts for more than 9 million square meters, creating a series of benchmark projects such as "Fuxing City," "Huafu," "Waterfront," and "International City." It is understood that due to its long-term operation, Hubei Fuxing Science and Technology can identify core locations in central urban areas with complete supporting facilities and high-quality reserve projects at an early stage, thereby enhancing the company's risk resistance ability and accelerating project turnover. At the same time, the company can formulate development plans based on the characteristics of the projects combined with government development guidance. The level of project benefits is generally higher than that of net land projects in the same period. Due to the large scale of the development and the main focus on rigid demand and improvement, strong cash flow can often be achieved. In terms of reserve projects, relying on the advantages accumulated in "old city renovation," in addition to the aforementioned funded projects, the company has developed high-quality reserve projects. It is understood that the company's current reserve projects are mainly located in the Wuhan Administrative District, Financial Street Holdings, transportation hub areas, and other core locations, with obvious advantages in nearby educational resources. As of the end of June 2023, the company's land reserve area is approximately 2.9 million square meters, accounting for about 70% in the Wuhan region. Taking the Fuxing Huafu Chenjing project as an example, it has a planned area of approximately 170,000 square meters. In August this year, the first building was launched for sale, with 124 units sold and a total sales amount of over 335 million yuan before discounts. The turnover rate reached 70%, far exceeding the average turnover level in Wuhan. According to Hubei Fuxing Science and Technology, after more than 10 years of accumulation from demolition, the company has removed important factors constraining development milestones, and with the support of the government, it has ensured the development plan milestones, and major development projects are about to enter a comprehensive development stage. Among them, the total construction area of Hongqiao City (Houhu Property) is about 640,000 square meters, and it has entered the preliminary construction preparation stage, with presales expected to start next year. On the other hand, while deepening its real estate business, Hubei Fuxing Science and Technology is also actively exploring new industries. Early this year, the company conducted in-depth research on the photovoltaic industry and began to explore the 'dual carbon' industry."Proactively laying out, deciding to focus on research and development of the "carbon-based fund linear bus project".According to the announcement, Hubei Fuxing Science and Technology has invested 18 million yuan to establish a controlling subsidiary, Fuxingbaotan, with a 60% stake, to layout carbon neutrality-related businesses. It is expected that the early stage will mainly focus on the development of low-carbon indicators (distributed photovoltaics, methane utilization, forest carbon sinks, etc.) and carbon fund businesses. According to market research reports, the global demand for diamond wire is expected to reach 392 million kilometers by 2025. At the same time, the trend of wire thinning is driving the stabilization and rebound of diamond wire product prices, and there is the possibility of achieving a pattern of simultaneous increase in quantity and price. Hubei Fuxing Science and Technology's construction carbon fund diamond wire busbar project has about 80% overlap with the existing steel cord wire process with solid technological accumulation. It has complete equipment and mature experience, and the industrial chain is unimpeded. According to the company's introduction during the survey, the carbon fund diamond wire busbar project has entered the formal production stage, and the product has been recognized by multiple downstream manufacturers. In the future, other production line technological improvements will be promoted according to market demands. Based on the current development progress, the company is actively expanding its business areas, hoping to open up new profit growth points and create a second growth curve. Riding the trend of urban renewal and carbon neutrality, the company has considerable potential for valuation recovery. In recent years, despite the impact of the pandemic and macroeconomic regulation and control, Hubei Fuxing Science and Technology has still achieved overall stable financial performance. From 2020 to 2022, and the first three quarters of 2023, the company's operating income reached 7.5 billion, 12.54 billion, 15.14 billion, and 4.437 billion, respectively, showing a rapid upward trend. In the first three quarters of 2023, the net profit attributable to shareholders of the listed company reached 80.77 million yuan, a year-on-year increase of 33.44%. The overall gross profit margin was 24.83%, an increase of 9.55 percentage points compared to the same period last year (15.28%). According to Zhongtai, both of the company's projects for this fundraising have started construction. If the private placement is successfully implemented, these two shantytown redevelopment projects are expected to accelerate with sufficient funds and may accelerate the release of performance. It is worth mentioning that starting in 2019, Hubei Fuxing Science and Technology anticipated market and policy changes in advance, no longer added land reserves, and proactively reduced debt. Data shows that the company's asset-liability ratio, excluding advance receipts, decreased from 66.07% at the end of 2020 to 56.65% at the end of the third quarter of this year; the net debt ratio decreased from 97.66% at the end of 2020 to 44.83% at the end of the third quarter of this year; the company had cash on hand of 2.371 billion yuan at the end of the period, which, combined with sales receipts, can cover interest-bearing debts due within one year, indicating a healthy level. The overall decrease in the debt side is obvious, and the financial risk continues to decrease. In terms of cash flow, the company's operating net cash flow in the first three quarters amounted to 1.32 billion yuan, providing sufficient liquidity for the company. Combining the decrease in the company's debt ratio and inventory, Hubei Fuxing Science and Technology is accelerating project turnover on the one hand, while ensuring its own safety and reducing its debt ratio, conforming to the current development situation of the real estate industry. Since 2022, the real estate industry has launched "three arrows" to support real estate companies in meeting reasonable financing needs. The credit, bond, and equity financing channels have supported the stable and healthy development of the real estate market. In October of this year, the Central Economic Work Conference emphasized the need to "construct a new model of real estate development." With the gradual expansion and implementation of policies, the sales momentum is expected to rebound, which will have a positive impact on the company's future development, sales, and new reserve projects. Currently, Hubei Fuxing Science and Technology has gradually formed a new development pattern driven by "urban renewal" and "carbon neutrality." With the overall improvement in urban renewal and carbon neutrality trends, the company's development is expected to further accelerate. According to the latest data, the current price-to-book ratio of Hubei Fuxing Science and Technology is about 0.36, indicating significant potential for valuation recovery. With the assistance of more funds from the implementation of the private placement, the company's business growth is expected to open up new prospects, boosting the company's profitability and market performance to new heights.