Wongtee International Steps into “Big Business Management,” JD Capital Being the Driving Force
According to a recent report from the Chinese Academy of Social Sciences, there had been a wave of bankruptcy in China’s general merchandise industry since 2013, and the situation is getting even worse. It is widely believed that the outdated and highly-homogeneous conventional general merchandise industry is no longer able to meet consumers’ changing demands, which is an important reason for such a close-down wave. Hence, transformation is urgent for commercial real estate enterprises to find their way out.
Under this background, many commercial real estate enterprises are faced with the choice of whether to remain and fight in the heavy-asset sector or to shift and operate in a light-asset mode. Recently, JD Capital, a specialist in equity investment, addressed this issue by providing a concrete and feasible transformational orientation, i.e., forming the “Big Business Management Mode” based on light asset. In this mode, real estate enterprises will attach more importance to managerial experience output and business maintenance, and thus greatly improve brand values.
Following this idea, Shenzhen Wongtee International Enterprise Co., Ltd. (000056.SZ), a well-known real estate enterprise, entered into close cooperation with JD Capital. So far, its “Big Business Management Mode” has basically taken shape, and its transformation has also been recognized by the capital market. It is introduced that similar to the cooperation with leading enterprises in industrial segments such as UTour Group Co., Ltd. (002707.SZ), Sino Great Wall Co., Ltd. (000018.SZ), China High-Speed Railway Technology Co., Ltd. (000008.SZ), and Wangsu Science & Technology Co., Ltd. (300017.SZ), this project is another practice of JD Capital’s “Bellwether Plan.”
The “Bellwether Plan” means that JD Capital shall become a strategic shareholder of leading enterprises in industrial segments as an institutional investor and, within three to five years, help quality enterprises in these segments to gradually grow into absolute industrial bellwethers with market values of tens or hundreds of billion by means of M&A and integration.
Capital promotes “denotative light-asset” expansion
New mode for commercial real estate takes shape
Wongtee International, originally named Shenzhen International Enterprise (Shenguoshang), is situated in Shenzhen, Guangdong Province. Before its transformation, it used to be engaged in commercial real estate development and operation. In the environment of excess capacity, there had been a sharp decline in its profitability, with a market value plateauing at around 4 billion – far lower than the estimated value of its core assets.
After reaching and understanding its transformational needs in 2015, JD Capital customized an orientation for its strategic transformation featuring “denotative light-asset expansion + profound content build-up.” JD Capital believed that the “light-asset” business mode will possibly be the trend in the commercial real estate industry. Therefore, it is likely to help Wongtee International forge its own ecological business system and gradually get rid of the conventional heavy-asset mode by outputting business management capacity, incubating quality enterprises, and offering financial capital services.
To achieve this strategic goal, in September 2014, with the aid of capital market, Wongtee International accomplished a private placement of nearly 2 billion, of which 0.6 billion was subscribed by JD Capital through its funds. This will render it possible for Wongtee International to shift to a growing industry and enable the corporate value to be reevaluated. In fact, the enterprise’s successful transformation has been recognized by the capital market: within as short as one year, its market value has increased from over 4 billion to the current 12 billion.
Following the private placement, Wongtee International speeded up its transformation. In July 2015, jointly with JD Capital, it set up an M&A fund with a total scale of one billion. Based on the corporate idea of industrial integration, the investment fields shall include industrial projects related to consumption and financial services both within and beyond the national borders.
From the perspective of JD Capital, it is known that on one hand, setting up M&A fund as a platform for industrial integration opens up investment channels, reasonably reduces potential risks, and realizes the company’s transformational planning; on the other hand, with JD Capital’s professional judgement and industrial resources, such effort is also beneficial to fostering new growth points and achieving denotative development.
Acquire Wongtee Hotel Company with Wangfujing Management Company
Reach out to commercial real estate operation and management
To prepare itself for the transformation, Wongtee International split off its original forestry business and poured its efforts into high-end consumption services of Wongtee Plaza, a quality asset, with Wangfujing Management Company, a domestically-famous business group.
Wangfujing Management Company, partially controlled by Wangfujing Group Co., Ltd. (600859.SH), is managed by a team with abundant resources of business operation and rich experience in business management. In January 2016, Wongtee International founded a joint venture with Wangfujing, and entrusted the latter to manage the Wongtee Plaza. The joint venture, with Wongtee International holding 51% of its shares, has a registered capital of RMB 10 million. It is said that following this, the joint venture will offer a series of services to Wongtee Plaza including investment attraction, planning and business management, so as to accelerate the company’s development in the business management industry of commercial shopping centers.
A director from JD Capital said:
“The cooperation with Wangfujing is a key step for Wongtee International towards light-asset management. By integrating both sides’ resources in business clients, brands, talents and managerial experience, the company’s efficiency has been improved. Meanwhile, as core commercial real estate operators in the Pearl River Delta and Beijing-Tianjin-Hebei region respectively, the two parties shall continue their cross-regional brand advantages through cooperation and contribute to subsequent denotative expansion.”
To further realize its strategic transformation from being heavy-asset to light-asset, and to expand its real estate management service businesses, in June 2016, Wongtee International purchased 100%shares of Shenzhen Wongtee Hotel Company, one under the same actual controller. Its main business, including self-management of Wongtee V Hotel and provision of business management services, belongs to quality light assets. In the same year, another three entrusted projects were handed over to Wongtee Hotel Company, namely Wongtee Hotel Apartment, Youganwan Resort and Evergreen Resort, which further expanded the scope of the company’s real estate management services.
Build up ecological business content
Make a perfect match of “content investment + business operation”
While making efforts in the management of commercial real estate, Wongtee International has also stepped into business operation and content investment.
In January 2016, Wongtee International invested 60 million to establish a joint venture with Beijing Shengli Business Investment Management Co., Ltd. (hereinafter referred to as Shengli Business) and set about content investment of business operations, focusing on commercial projects related to kids, entertainment and modern lifestyle. Meanwhile, the joint venture also provided content support for commercial management projects with strong senses of experience, interaction and engagement.
A director from JD Capital introduced:
“With similar business types and brands, the conventional shopping centers are highly homogeneous and face intense competitions. Therefore, developing innovative and prospective commercial projects can help them stand out. The establishment of joint venture with Shengli Business makes it possible to set up the asset reserve of quality content projects by means of self-construction or M&A, and to apply them to future commercial projects.”
Acquire “Tongxin Fund”
Promote Commercial Real Estate Financial Services
In January 2016, by receiving 17% shares of the Harmony Fund, Wongtee International became the largest shareholder of Shenzhen Harmony Technology Financial Services Co., Ltd., operator of 88bank, an online financial platform. By taking this step, Wongtee International gained valuable resources in microcredit and P2P.
88bank, a P2P platform operating under the cooperation with microcredit companies, looks for funders for money seekers in the companies’ projects, where microcredit companies provide guarantee. Since Harmony Fund, as 88bank’s major shareholder, holds a scarce license of micro-reloan, the platform is inherently competitive in microcredit company selection and asset risk control. Besides, the state-backed Technology Financial Group, as another shareholder of the platform, offers credit endorsement, which enables the platform to gain the upper hand in the fierce competition of P2P industry and achieve a dramatic rise. By the end of 2015, the platform had ranked among the national top 10 in terms of capital scale. Since the official start of its business in April 2015, the total turnover has exceeded 1.4 billion, with the number of registered investors reaching 170,000.
In addition, Wongtee International plans to take the advantages of the platform with regard to user flow, brand and risk control to design innovative financial products that secure the company’s competitive advantages for its light-asset expansion. This will play an important role in speeding up its expansion and expanding its territory of financial services for commercial real estate.
JD Capital pushes forward its “Bellwether Plan”
Support quality enterprises’ market value enhancement
By now, Wongtee International has formed the shape of the “Big Business Management Mode,” gradually becoming a nationally-leading provider of comprehensive solutions in the real estate industry.
Benefitting from the transformation aided by JD Capital and on top of its original business of real estate operation, Wongtee International has been reaching out to financial services and content services. By October 2016, the market value of this listed company has increased by 2.7 times compared with that in August 2014, when the initial plan for private placement was just published.
It is estimated that by the first half of 2016, there had only been 47 enterprises with a market value of over 100 billion in China’s A-share market, only one in the NEEQ. In contrast, 477 out of the 7,391 listed companies in the US have a market value of over USD 10 billion, accounting for 8.9%. This fully illustrates that the size of leading listed enterprises in China’s industrial segments is still relatively small, and there is still huge room and potential for market integration.
On this account, JD Capital put forward its “Bellwether Plan” in an all-round manner this year to promote sustained financing of target enterprises with China’s capital market by means of being a shareholder or controller of leaders or quasi-leaders with remarkable comparative advantages in different industries. This entails either horizontal M&A for expanding market shares, or vertical M&A for bargaining power along the industry chain. Besides, in proper occasions, cross-border M&A may be implemented to realize internationalized operation, and the internet shall also be flexibly used to further promote the enterprise’s core competence, with a view to realizing the great leap from a market value of one billion to tens or even hundreds of billion. In this way, the target enterprise is allowed to become a real industrial leader nationwide, or even worldwide.
A project director from JD Capital expressed:
“We believe that in the future, some listed companies engaged in with real estate development or operation of commercial real estate may gradually step into such light-asset fields as hotel management, resort management, theme parks and complimentary financial services, and build the “Big Business Management Mode” with brand experience and managerial output. If such a shift from the original commercial real estate to an unfamiliar field comes too abruptly, there may be a high level of uncertainty. Therefore, we suggest that commercial real estate enterprises adjust their moves to different conditions instead of blindly following the trend in capital market.
Amid the new trend when the whole economy is facing structural transformation, “transformation” has been a major problem facing Chinese enterprises. With its professional judgment, JD Capital customizes different transformational approaches based on the needs of listed companies, so as to achieve smooth progress and maximally reduce uncertainty. This will also bring about considerable returns for investors.”