Rebirth in Hong Kong: From Dessert Shop to Industrial Empire

Chapter 162 An Unexpected Incident (Seeking monthly votes, recommendations, and subscriptions!)
Before leaving, Vincent Fang turned around and asked a question or suggestion that he had been wanting to ask for some time but hadn't had the chance to ask: "Mr. Chen, the Hong Kong real estate market is so hot right now, and land prices have risen significantly. If you can successfully obtain a loan of HK$300 million, would you consider using a portion of it to invest in real estate?"

Fang Wenshan's question before leaving left Chen Bingwen with mixed feelings.

"estate."

Chen Bingwen repeated the word in a low voice, a subtle, complex smile appearing on his lips.

How could he not know that the real estate market was booming?

He knew better than anyone that this frenzy would continue for a while and peak in the next year or two.

As is well known, with the global economic crisis of 82, coupled with the Iron Lady's fall on the steps of the City Hall at the end of 82, political uncertainty increased sharply, triggering a collapse of both the Hong Kong economy and real estate market.

By the end of 82, property prices on Hong Kong Island had fallen by 60% compared to 81.

By 83, market confidence had completely collapsed, and that was a real crash. Countless highly leveraged speculators lost everything and even became 'negative equity'!
Rushing in now might make you some quick money, but that's like dancing on a knife's edge, gambling that you can grab a chair before the music stops.

Chen Ji's foundation lies in its real economy, and its core profitability comes from operating profit and continuous cash flow. Cash flow is stable and predictable, and the main risk is operational risk.

The core of profitability in the real estate industry lies in asset appreciation, with huge fluctuations in cash flow and dependence on credit cycles.

The risks are financial and policy risks, which are highly volatile.

The advantage is that it can offer extremely high returns during an upward cycle, but it can also face devastating blows during a crash.

Using the stable cash flow of real businesses to gamble on the high volatility risks of the real estate market is tantamount to using one's strengths to rely on someone else's luck, which is by no means a wise move.

What Chen Bingwen needs to do now is to accumulate funds, maintain liquidity, and wait for the best opportunity to "pick up" those high-quality assets that are forced to be sold off, rather than becoming the one who gets picked up.

Thinking of this, he took a deep breath and looked at Fang Wenshan.

He couldn't tell Vincent Fang about future economic trends, but he could persuade him with business logic based on current facts.

"You asked a very good and timely question."

Chen Bingwen gestured for Fang Wenshan to sit down again. "Sit down, let's talk about this issue."

Regarding whether to invest in real estate with loans, my answer is no, at least not at this stage.

Fang Wenshan sat down as instructed, and asked with a puzzled look, "Mr. Chen, the real estate market is booming right now, and many companies have made huge profits from it. We have a lot of money in our hands, and it would be a real shame to miss out."

He paused, his voice tinged with the helplessness of someone in the manufacturing industry, “Those in manufacturing are not as well off as those in real estate, and that’s compounded by the Hong Kong government’s proactive, non-interventionist policy toward the manufacturing sector.”

We work hard all year, and our profits might not even amount to a fraction of what someone makes from speculating on a single piece of land.

Chen Bingwen sighed inwardly, this was the madness of the times, and also the biggest trap.

Everyone saw the huge profits in front of them, but selectively ignored the precipice beneath their feet.

The Hong Kong government's neglect of the manufacturing industry is forcing excellent companies and funds to move away from the real economy and towards speculative investments, which is tantamount to drinking poison to quench thirst.

Chen Bingwen did not directly refute him, but patiently explained: "What you said is all true."

But it is precisely because it is true that we must be even more vigilant.

When a market's profits become unreasonably high, attracting everyone to flock in, it often means that risks are accumulating rapidly, and a bubble burst is not far off.

He pointed to the financial journals on the table and said, "You only see other people making money, but have you ever thought about why they make this money?"
It relied on high leverage, bank credit support, and a blind confidence that the market would rise forever.

What would happen if any one of these three foundations were shaken?

Chen Bingwen did not give Fang Wenshan time to answer, and continued to ask and answer his own questions, "First, real estate is a capital-intensive industry. Profits come from asset appreciation, but the premise of appreciation is that it can be sold at a higher price."

Once the market reverses, high leverage becomes a death sentence, and losses from falling prices will be magnified many times over.

Our business profits come from product sales and brand premium, with stable cash flow and controllable risks.

Using our stable cash flow to support highly leveraged real estate speculation is tantamount to gambling our foundation on someone else's luck; the risk and return are completely disproportionate!

"Secondly, the Hong Kong government's attitude toward the property market is ambiguous, but it will never allow the bubble to expand indefinitely and endanger financial stability."

With inflation soaring, raising interest rates is inevitable.

Once credit tightens, the real estate industry will inevitably be the first to be impacted.

Our energy drinks and sugary drinks are necessities with strong counter-cyclical properties, so interest rate hikes have a far smaller direct impact on us than real estate.

We cannot place our hopes on the benevolence of policy.

"Third, be fearful when others are greedy, and greedy when others are fearful."

Chen Bingwen solemnly stated this investment maxim: "Now is the time when everyone is greedy, and we should be even more fearful. Our 'greed' should be saved for when others are fearful!"
Rushing in now means paying the price at the top of the bubble.

By holding cash and maintaining liquidity, we can ensure that when the bubble bursts and others are forced to sell off quality assets, we have the strength and confidence to "buy bargains"!
That's the real opportunity for us—low risk, high potential return!

Then, he said with some distress, "The Hong Kong government's indifference towards the manufacturing industry is indeed the current situation."

But precisely because of this, we must not lose our composure or abandon our core strengths to chase short-term illusions.

What we need to do is leverage this period of real estate frenzy to accelerate the growth of our core business and build a deeper competitive advantage.

"The acquisition of Watsons is to control the distribution channels, reduce reliance on end consumers, and put the traffic in our own hands!"

"The purpose of a backdoor listing is to build a capital platform, obtain continuous financing capabilities, and no longer rely entirely on bank loans!"

"Developing new products and expanding into overseas markets are to diversify risks and find broader growth opportunities!"

"All of these are aimed at strengthening our industrial foundation and making us more resilient in the face of storms!"

Chen Bingwen concluded: "When the real estate bubble bursts and the economy is in turmoil, you will find that those companies that rely on real estate speculation and whose main business has become hollowed out will be in dire straits."

Companies like ours, with a solid core business, healthy cash flow, and ample cash reserves, will have the best opportunity to expand!

We can acquire high-quality assets at extremely low prices, attract top talent, and seize market share lost by our competitors!

"Director Fang," Chen Bingwen said to Fang Wenshan earnestly, "what we should be comparing is not who makes more money in a bull market, but who survives longer and better in a bear market, and can use the crisis to achieve leapfrog development."

Our goal is to be the strong ones who navigate through cycles, not the gamblers at the peak of them.

As for real estate…

He paused, then announced with a smile, "We will certainly invest in real estate in the future, but definitely not in the speculative way we are now."

Once our core business is strong enough and our capital platform is firmly established, we will invest in self-owned properties related to our core business, such as headquarters buildings, R&D centers, regional distribution centers, and flagship stores.

This not only locks in long-term operating costs and prevents them from being eroded by rising rents, but it is also a high-quality fixed asset that can greatly enhance our balance sheet strength and financing capabilities.

Chen Bingwen had planned long ago to buy up prime properties in core locations when the real estate market completely collapsed in 83, making them permanent assets for the company. That would be the true foundation for a century-old enterprise, and the cost would only be a fraction of what it is now.

As Fang Wenshan listened to Chen Bingwen's meticulous analysis, especially the phrases "be fearful when others are greedy" and "the strong who can transcend cycles," he felt enlightened, and the doubts on his face completely disappeared.

He finally understood Chen Bingwen's vision and foresight.

The boss is not looking at the gains and losses of a single city or battle, but at the cycle of the entire economic cycle and the company's strategic position within it.

This ability to remain calm amidst fervor, to stay true to oneself in the face of temptation, and to be fully prepared for future crises deeply impressed him.

"Mr. Chen, I understand!" Fang Wenshan said sincerely, and said with some shame, "I didn't think things through. I was attracted by the temptation of short-term profits and almost lost my way."

You're right. Our core business is manufacturing, and we must concentrate all our resources to ensure victory in both the acquisition of Watsons and the backdoor listing.

Real estate speculation is too risky and runs counter to our strategic direction.

Maintaining ample and flexible cash flow is key.

Chen Bingwen nodded and smiled with satisfaction: "It's good that you can understand and agree with it so quickly."

As a CFO, your sensitivity to risk is an advantage, but it's even more important to learn to assess risks and opportunities within a holistic and long-term strategic framework.

Every penny we spend must be used wisely, serving the long-term development of Chen's Group.

"Yes, Mr. Chen! I know what to do next." Fang Wenshan stood up and prepared to leave.

"Okay! Go ahead and get busy." Chen Bingwen nodded, pleased that Fang Wenshan had come to his senses.

Over the next two days, the Huoduoli acquisition team reached an agreement with Chenji on the details of the formal cooperation.

Immediately afterwards, Chan Ping-man, Vincent Fang, and other senior executives of Chan's Group witnessed the influence that Victor had within the HSBC group of companies.

After receiving Chen's letter of intent to acquire the company, Hutchison Whampoa surprisingly agreed readily.

The letter of intent for acquisition, which was carefully drafted by the Huoduoli team and issued in the name of Chenji Foods, received a positive response just three days after it was delivered to the board of directors of Hutchison Whampoa.

Hutchison Whampoa stated that it has agreed in principle to sell its shares in its subsidiary Watsons and to allow the acquisition team from Hutchison Whampoa to conduct background checks at Watsons.

When the news reached the Weiye Building, even the usually composed Vincent Fang was somewhat surprised.

(End of this chapter)