Beware of NAV valuation mistakes

After observing the strong performance of China-owned property stocks in Hong Kong this year, the shares of some of the big land reserves have risen far from those companies that are not eager to reserve land, such as Chinese overseas development, and the price of the city has soared by 15% after it announced the acquisition of a site outside the dongzhimen.　　All these phenomena suggest that the value of net assets (NAV) valuation method has a great comeback. Since the project is generally the first sales after the settlement, the real estate company's annual sales revenue and annual net profit is often fluctuating, the PE valuation is not entirely reasonable. The Nav valuation method used in Hong Kong market can measure the net cash flow of each project, that is, under the assumption of certain sales price, development speed and discount rate, the discounted value of cash flow of the real estate enterprise's current reserve item excludes the net worth after the debt.　　Nav set a "bottom line" for corporate value, more accurate than the price/earnings ratio. Industry insiders pointed out that the Nav valuation method emphasizes the company's land reserves, to determine the value of the company's asset size, but also to consider the expected price changes, development speed and other factors, but also has obvious shortcomings, not to consider the brand, development model and management level and other factors. In a bull market, investors can enjoy the high valuations of land reserves, but in bear markets, investors are wary of companies with large land reserves and high net debt ratios.　　Investors should have a sober understanding of the "double-edged sword" of nav valuation method according to different stages of market evolution. Industry insiders say that the longer the impact of land assets on real estate companies, the smaller the deviation between the value of assets and the total value of the enterprise, otherwise the deviation between the two may be very large.　　and brokerage fellows in the use of NAV for the real estate company valuation, the hypothetical life expectancy generally does not exceed 3-4 years, this time is relatively short, it is easy to produce valuation bias. In the 2007 bull market, nav valuation Law, the high land reserve companies can get high valuations, to promote listed companies or listed companies to hoard land, is going to take a "hoarding-push the price-high financing-and then hoarding" the wonderful route.　　This model to a certain extent by the market recognition, land reserves of the high level of the real estate, stock prices at the peak of the market value almost overtake the leading companies in China overseas development. Recently。　　In the adjustment of the real estate industry, the land reserve of up to 45.8 million square meters of Evergrande Property failed to market, the net debt rate of the substantial real estate from 45.60 Hong Kong dollar fell to the lowest share price of HK $2.30, Greentown China's shares the largest decline also more than 90%. As it turns out, Nav has played a role in helping the fall in property prices. In the bull market, property companies increased their land reserves, and markets were more optimistic about house prices, and nav valuations soared. In a bear market, property companies have reduced their land reserves, markets have tended to be pessimistic about house prices, and nav valuations have fallen sharply.　　It can be seen that the Nav valuation method is difficult to evaluate the long-term profitability of the enterprise. Although the rise in the bull market could not be compared with companies with large land reserves and a high net debt ratio, but in the brutal bear market, China's overseas development and other sound developmentThe company's share price is very resilient. Based on the closing price of HK $8.70 on November 24, 2008, China's overseas development has a total market value of HK $67.6 billion, which is about the market value of 6 Chinese-owned real estate listed companies such as the country Garden, Fuli real estate, Hopewell Exhibition, Agile, Soho China and Shimao real estate. At that time, China's overseas development of land reserves of about 25 million square meters, just equal to the real estate a company's land reserves.　　It is hard to understand why the market value of China's overseas development is so high, measured only by land reserves. Therefore, investors must be integrated business model and other factors for Chinese real estate stocks valuation, conservative investors can also consider the market net rate and dividend rate and other factors. In the Hong Kong market, the business model to create a high NAV premium property companies a few.　　In Soho China, for example, the company gained a market value of HK $48.9 billion on the first day of the market with a mere more than 1 million square metres of land reserves, which is inseparable from its fast-selling model and brand value. In fact, even in a bull market, the Chinese property companies that hoard land are often "treated" by big foreign firms, making the premium on NAV lower, or even showing a significant discount. The nav discount means that the price of land may even be higher than the valuation given by the capital market, which is a great irony for a company that has been hoarding heavily. The important reason of NAV discount is that, because of business model, development speed, capital turnover, financing ability and so on, getting land does not necessarily mean that the value of the real estate is completely changed.