On March 2, Lenovo Group announced that its wholly-owned subsidiary, Lenovo (Beijing) Co., Ltd. has entered into an equity transfer agreement with Beijing Sunac Financial Co., Ltd., which will be backed by a price of approximately RMB 1.617 billion. The company sold a 49% stake in Chengdu Lianchuang Rongjin Investment Co., Ltd. According to the announcement, Chengdu Lianchuang Rongjin and its subsidiaries are mainly engaged in residential and commercial real estate development.
Net profit for the third quarter of fiscal 2016 decreased by 67.3% year-on-year
Lenovo Group said that the proceeds from the sale will provide general working capital for Lenovo’s operations and investments, and promote the company’s long-term competitiveness and profit growth.
It is worth noting that in the past year, Lenovo has sold real estate several times. On September 18, 2016, Legend Holdings sold its 41 real estate companies to Sunac China for a price tag of RMB 13.8 billion. On September 30, Legend Holdings announced that its wholly-owned subsidiary, Lenovo (Beijing), signed a share transfer agreement with Beijing Haidian District State-owned Capital Management Center, and planned to sell Lianchuang Ruiye (Beijing) Asset Management for RMB 1.78 billion. Equity, its main asset is Beijing Lenovo Research Institute Building.
The parent company of Beijing Rongchuang Rongke Real Estate Co., Ltd., which bought the house, has invested in LeTV. It also frequently launched in the main real estate sector. On March 1, it announced the acquisition of the interests of Rongke Zhidi Hefei Rongke City and Wuhan Rongke Tianyu, becoming the wholly-owned owners of these two projects.
Along with the frequent sale of real estate by Lenovo, the decline in revenue and layoffs.
Lenovo Group announced on February 16 that as of December 31 last year, the company’s total revenue for the third quarter of fiscal 2016 was 12.169 billion US dollars, down 6% year-on-year, and third-quarter net profit was $98 million, down 67.3% year-on-year. Total revenue for the first three quarters was also 6% lower than last year, a decrease of approximately $2.323 billion.
Since 2015, Lenovo has been laying off employees significantly, and industry analysts believe that Lenovo is increasing profits by reducing employee welfare costs. According to the financial report, Lenovo’s employee welfare costs decreased by US$76 million in the second quarter of 2016, accounting for about 40% of the current net profit.
“Real estate is no longer the focus of investment strategy”
From the past financial reports, the sales of the building did have a brightening effect on Lenovo’s financial report.
On August 18 last year, Lenovo released its first-quarter earnings report as of June 30. The mobile phone business that Lenovo had vigorously grasped before was still losing money. However, thanks to the one-off asset sales, the company’s net profit increased by nearly 2/3. Lenovo’s net profit for the first fiscal quarter was $173 million, a year-on-year increase of 64%. Among them, Lenovo’s proceeds from the sale of Beijing office buildings were US$132 million. Foreign media analysis believes that Lenovo has begun to sell non-core assets.
Independent IT analyst Li Chengdong believes that Lenovo’s move is first of all due to financial considerations, for profit considerations. Second, because Lenovo has a large number of real estate assets, selling some of the assets to withdraw funds, indicating that real estate is no longer the focus of its investment strategy.
Independent IT analyst Tang Xin believes that Lenovo’s PC, mobile phone and other consumer electronics business is not a business that requires a lot of cash flow. Therefore, this time the sale of real estate is more based on the judgment of the real estate market, which is an act of optimizing the investment portfolio.