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Peggy Sito

Renhe Commercial Holdings, a builder and operator of underground shopping centres in mainland cities, is a rare exception to the big sell-off of property stocks by investors.
Thanks to its distinct market niche,  analysts say, the Hong Kong-listed developer has enjoyed strong support from the market, reflected in a stellar share price performance.
Listed on October 22 at an offer price of HK$1.31, Renhe's shares  surged  47.3 per cent to a record high of HK$1.93 on January 29. Last Friday, the stock  closed at HK$1.92.
For mainland developers, profit margins have been steadily declining  with  property prices, and some investors  have turned to high-risk, high-return stocks such as Renhe.
The company  builds and operates dual-purpose underground shopping centres. During times of war, these centres will be used by the government as civil air defence shelters, and this entitles Renhe  to preferential treatment on land use rights and property taxes.
According to analysts, this could ensure the company operates at an estimated profit margin of more than 55 per cent in the next few years, and while the longer-term stability of its business model is debatable, short-term growth is attractive.
'Our underground shopping centres are categorised as civil air defence projects rather than property development projects, and therefore they are not subject to property development laws and regulations,' said Wang Hongfang, the executive  president and executive director of Renhe.
Its first underground shopping centre was opened in the northern city of Harbin in 1992.  Other   centres are  in  Guangzhou, Zhengzhou and Shenyang.  All are designed and constructed as  civil air defence shelters in accordance with standards set by the National Civil Air Defence Office.
The arrangement also means Renhe has access to prime locations underneath central streets in mainland cities as long as it obtains approval from the air defence office, according to Mr Wang.  As a result of the special treatment,   Renhe posted a net profit margin of 73 per cent last year.
In the absence of certificates of land use rights  (which banks require for  property loans), the company was able to raise only 50 per cent of its required development loans,  Mr Wang said. 'That's why we insisted on listing the company just after the collapse of Lehman Brothers,' said Mr Wang, who hoped the status of a publicly listed company would make fund-raising easier.
In October, Renhe raised HK$3.39 billion from an initial public offering by fixing the offer price at  HK$1.31,  below the  indicative range of HK$1.40 to HK$1.71. At that price, the deal's size shrank almost 34 per cent from the initially targeted HK$5.13 billion.
But for the moment, with cash on hand of HK$3 billion and no debts, there was no urgent need to raise additional capital,  Mr Wang said.
He expects to see more competitors fighting for the niche that Renhe has dominated.
'Some developers are showing interest in joining this market, but our strategy is to seize the first-mover advantage in China's underground shopping industry with fast expansion,' he said.
The company plans to  develop seven more projects in Guangzhou and Harbin this year, with a total gross floor area of more than 770,000 square metres.
HSBC analyst Alvin Wong said long-term growth for the company could be at risk if there were a change in regulations or if it failed to identify suitable sites.
Future expansion would depend on securing  various permits,  licences and certificates from the relevant administrative authorities, he said.
However,   since the company provided loan guarantees to operators of shops in the underground centres, this could also expose it to default risk.



Market niche allows Renhe to buck sell-off