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Sohu: Transformation of Oceanwide Holdings Seeks More Support Because of the Sustained Real Estate Regulation


EEO, By Du Yuan | At the end of the year, there was no sign of relaxation on the macro regulation on the real estate market, which in turn affected the performance of real estate companies to varying degrees. As for Oceanwide Holdings, despite the significant decline in revenue generated from its real estate business, the path of transformation Oceanwide Holdings embarked on three years ago has become an important support for the company's performance.

With real estate as the traditional main business, Oceanwide Holdings implemented the transformation strategy at a time coinciding with the last round of strong regulation on the domestic real estate market.

The Notice of the General Office of the State Council on Further Improving Regulation on the Real Estate Market came into force in February 2013. The combined measures stipulated in the notice, known as the "Five New Regulation Measures" from the accountability system for local governments to restrictions on purchase and loans, opened up a strong round of real estate regulation. By the second half of 2014, the domestic real estate market entered a slow-moving and falling period as a whole.

Oceanwide Holdings initially proposed the transformation strategy in 2014, given the strong real estate regulation that began in 2013 and the consequent end of the so-called "golden age" of the real estate industry.

Oceanwide Holdings made clear the goal of transformation from a traditional real estate company to a comprehensive holding company. According to the 2014 semi-annual report, "In the face of the changes in the external environment and the needs of business development, Oceanwide Holdings should integrate financial and strategic investment business segments with high-growth potential on the back of its superior real estate business, in an effort to build a comprehensive holding listed company covering finance, real estate, and strategic investment." Since then, with the further adjustment of the structure of the Board of Directors, Oceanwide Holdings officially implemented the comprehensive transformation strategy in 2015.

In the past three years, Oceanwide Holdings has achieved remarkable results in the transformation. Comparing the semi-annual reports in 2014 and 2017, we can find:

In the first half of 2014, Oceanwide Holdings achieved the revenue of about RMB1.4 billion and the net profit of about RMB160 million. In the first half of 2017, Oceanwide Holdings achieved the revenue of about RMB5.3 billion and the net profit of about RMB900 million, up 278% and 462% as compared with three years ago, respectively.

The domestic real estate market experienced two strong rounds of regulation from 2013 to 2017. The more than four-fold increase in the net profit of Oceanwide Holdings during this period lied in the incremental growth of financial and strategic investment business segments after the transformation.

Since its full-scale transformation in 2015, Oceanwide Holdings has made continuous moves in the financial sector. It incorporated Minsheng Securities and Minsheng Trust into its listed companies and acquired Asia-Pacific Property & Casualty Insurance (formerly Min An Property & Casualty Insurance) and Hong Kong-based securities firm Quam Limited (now renamed Oceanwide International Financial Limited), thereby establishing a complete integrated financial service system in the financial sector.

After nearly two years of substantial adjustments, Oceanwide Holdings' financial business has gradually exhibited a strong growth.

In the first half of 2017, Minsheng Securities' investment banking business achieved the net income of RMB331 million, an increase of 44.63%, leading to a significant increase in Minsheng Securities' revenue and profit. Minsheng Trust's net profit amounted to RMB516 million in the first half, a year-on-year increase of 124%. Asia-Pacific Property & Casualty Insurance, which had suffered losses for many years before being merged into Oceanwide Holdings, turned losses into gains in the second quarter of 2017. In the first half of the year, the entire financial business of Oceanwide Holdings achieved the total revenue of about RMB3.11 billion, a year-on-year increase of about 31%.

The strategic investment business has also performed well thanks to the transformation of Oceanwide Holdings. According to the 2017 Q3 quarterly report, Oceanwide Holdings' current investment income amounted to about RMB1.056 billion, most of which came from the strategic investment business, with the exception of a small amount from the investment business of the financial institutions.

In terms of the strategic investment business, Oceanwide Holdings also made clear that it will also focus on industries and fields such as finance, big data, real estate, smart home, mixed ownership reform of state-owned enterprise and digital marketing, in addition to BAIC BJEV, WeWork and other projects. Moreover, Oceanwide Holdings was involved in the A-share IPOs of several companies this year, including Sanjiang Electronics, a high-quality enterprise in the fire safety industry, and CATL, a leading enterprise in the domestic power battery industry.

It is worth noting that while Oceanwide Holdings is accelerating the development of its financial business and strategic investment business, its real estate business will continue to be an important foundation for its transformation in the future due to its concentration in major cities such as Beijing, Shanghai and Wuhan. An industry insider believed that, although the current real estate regulation will not be relaxed in the short term, high quality lands in domestic core cities remain scarce resources in the long run.

"Currently, policymakers suggest 'supply by multiple players' in the real estate market. That is, developers supply commercial houses and governments supply affordable houses. Policymakers also proposed the development of leasing market. In the medium and long term, the value of good-quality commercial residential buildings in core cities is still optimistic," said the insider.

Oceanwide Holdings' foresight has always been commended by the market. At the end of "laying a solid foundation in three years" which is one part of the transformation strategy, Oceanwide Holdings signed an agreement with Central South University which has a profound medical background, in early November. The two sides will jointly build Xiang Ya Nursing School and Xiangya-Oceanwide Health Management Research Institute, and will actively carry out related research and international cooperation in the fields of long-term elderly care insurance, the building of a long-term care service system, and elderly care techniques. Considering the acquisition of Genworth, a long-term care insurance company in the United States, Oceanwide Holdings undoubtedly has more ambitious goals as its transformation is advancing.