Viewpoint Network At noon on March 29, China Resources Land Co., Ltd. released its 2022 performance announcement and held an investor conference call in the afternoon of the same day.
According to the investors who participated in the meeting, the management team present at this meeting is the same as in the past, including Li Xin, Chairman of China Resources Land, Zhang Dawei, Chief Operating Officer, Xie Ji, Chief Strategy Officer, and Guo Shiqing, Chief Financial Officer.
2022 is the bottom year in the real estate cycle. The decline in profits brought about by the industry downturn, the impairment of inventory and investment properties, are further impacting the quality of corporate profits, causing some real estate companies to fall into the quagmire of losses.
Although China Resources Land has the courage to be a “rebel” and continues to maintain a relatively high investment intensity during the market downturn, behind the large-scale expansion of reserves is the rising leverage, liabilities and costs, as well as the compression of profit margins that have to be faced.
These factors are all testing China Resources Land’s ability to withstand pressure in the future.
Performance in a down year
Looking back at China Resources Land’s 2022 performance, the annual consolidated turnover was RMB 207.06 billion, a year-on-year decrease of 2.4%; of which, the property turnover decreased by 4.2% year-on-year to RMB 176.11 billion; the investment property turnover decreased by 2.4% year-on-year. Influenced by rent reduction, this data increased by 10.5% year-on-year, recording a turnover of 19.26 billion yuan.
In terms of gross profit, it is consistent with the downward trend of the industry. The gross profit recorded in 2022 is 54.291 billion yuan, a decrease of 5.1% from the 57.2 billion in the same period last year; the comprehensive gross profit rate will continue to decline by 0.8 percentage points compared with 2021, to 26.2%. Gross profit margins of investment properties both declined compared to the same period, recording a year-on-year decrease of 0.7% and 2.6% respectively.
Therefore, under the influence of the decline in gross profit margin of development properties, rent reduction arrangements during the year, decline in income from changes in fair value of investment properties, and exchange losses of 2.19 billion yuan, the net profit attributable to the parent company during the period fell by 13.3% year-on-year to 28.092 billion yuan. .
From the perspective of the three major revenue businesses, in fiscal year 2022, the settlement revenue of China Resources Land’s development and sales business fell by 4.2% year-on-year to 176.162 billion yuan, and the settlement area decreased by 16.5% year-on-year. The clearing area decreased significantly, while the clearing revenue was less affected, which was due to the company’s increase in the average settlement price and the change in the proportion of settlement cities during the reporting period.
During the reporting period, the average settlement price of China Resources Land stopped falling and rebounded, stopping the decline for three consecutive fiscal years. It increased by 14.7% year-on-year to 14,200 yuan per square meter, but it was still lower than in 2020 when the epidemic began.
In addition, the company’s proportion of settlement income in first-tier cities in the fiscal year increased by 4 percentage points, while second-tier cities continued to maintain the level of 67%, and settlement revenue in third-tier cities dropped to 17%.
The increase in the settlement unit price and the change in the proportion of urban revenue will help China Resources Land to resist the profit compression brought about by the industry downturn.
However, from the perspective of settlement costs, the recorded cost in 2022 is 10,900 per square meter, an increase of 15.91% over the previous period, of which the land cost rose by 9.7% to 4,953 yuan per square meter, and the construction and installation cost was 4,951 yuan per square meter, an increase year-on-year 19.32%; the interest cost rose by 29.51% to 471 yuan per square meter.
With the continuous pursuit of product quality by customers and the improvement of the quality of auxiliary construction projects, there will still be a large room for improvement in the cost of subsequent construction and installation.
Looking back at the contracted amount in 2022, East China is still the ballast of China Resources’ performance. The contracted value in a single region accounts for 31.9% of the total, followed by the North China region, accounting for 22.7%, and Shenzhen and West China regions both accounting for 10.5%. The proportion of the contracted value in the above-mentioned regions, except for the West China region, has increased compared with the previous period, while the remaining South China, Central China and Northeast regions have declined year-on-year.
In the operating real estate business, due to the cumulative rent reduction and exemption of eligible tenants totaling about 2.52 billion yuan in fiscal year 2022, China Resources Land’s revenue from this data decreased by 2.4% year-on-year to 17 billion yuan. After restoring the impact of rent reduction, rental income was recorded at 19.3 billion yuan, an increase of 10.5% year-on-year, accounting for 9.2% of revenue.
In terms of rental coverage dividend and interest multiples, it recorded 0.88 times in this fiscal year, down 0.13 times from the previous year. Excluding the impact of rent reduction, it was 0.99 times, which also declined from the previous period. In the mid-term report last year, the company expected the figure to be 1.03 times, and now it has failed to reach the expected level.
In the performance investor meeting, the management pointed out that due to the impact of the epidemic and the impact of rent reduction, the company’s annual rental growth rate in 2022 was lower than expected, achieving a value increase of 7 billion yuan, a year-on-year decrease of 10.5%.
According to Guandian New Media statistics, as of the end of 2022, the land reserve area of China Resources Land’s investment properties will be 9.87 million square meters, a decrease of 1.08 million square meters from the previous period, of which the equity area is 6.82 million square meters, also a decrease of 1.16 million square meters from the previous period.
Combined with the decrease in income from changes in the fair value of investment properties mentioned above, it may be that the entry of this part of China Resources Land’s investment properties into the market during the period has brought about an increase in scale, but it has not effectively driven changes in fair value, and there is a risk of slowdown in valuation or depreciation.
Finally, in the light asset management business, as of the end of 2022, China Resources Vientiane Life has continued to maintain its growth momentum in the two years since its listing, achieving a turnover of 12.02 billion yuan in this fiscal year, a year-on-year increase of 35.4%; core net profit recorded 2.23 billion yuan, The year-on-year growth rate also exceeded 30%.
Now that the basic property services of the property management sector are facing a situation where the gross profit margin is under pressure, China Resources Vientiane Life is also unable to survive alone. During the period, the gross profit margin fell by 1% compared with the same period of the previous year to 30.1%.
Reserve Expansion, Leverage and Mergers and Acquisitions
In order to achieve the goal of “rebuilding a China Resources Land”, China Resources Land chose to maintain a relatively large investment intensity during the industry’s deep adjustment period, but the leverage that came with scale expansion also grew faster than the same period.
Fortunately, China Resources’ own financing advantages and optimized debt structure have reduced some of its worries.
According to the statistics of Guandian New Media, in 2022, China Resources Land will acquire 71 new projects, an increase of 10 compared with the previous period, but the total land price will decrease by 6.76 billion yuan year-on-year to 144.2 billion yuan, of which the equity land price will be 110.2 billion yuan, and the equity ratio will be 76%. A slight increase of 0.37 percentage points in the previous year; the newly added land storage area in the whole year was 10.95 million square meters, and the equity area was 7.89 million square meters.
As of the end of 2022, China Resources Land’s total land bank area is 64.78 million square meters, of which the land bank area of development and sales business is 54.91 million square meters, and the area of first- and second-tier cities accounts for 71%; the land bank area of investment properties is 9.87 million square meters, of which shopping malls account for The area of first- and second-tier cities accounted for 78%, and the current project reserve can guarantee the development needs of the company in the next three years or more.
According to investors’ disclosure to Guandian New Media, the management of China Resources Land stated in the investment meeting that the gross profit rate of land acquisition for the whole year is expected to be around 23% in 2022, and the quality of land acquisition is relatively high.
In addition to making efforts in the traditional bidding, auction and listing market, China Resources also sought more opportunities for mergers and acquisitions last year.
In the 2022 interim results, Xie Ji, chief strategy officer of China Resources Land, once pointed out that he had been exposed to a large number of mergers and acquisitions projects that year, but overall, mergers and acquisitions projects were relatively complicated. Balancing is more difficult.
In the second half of the year, China Resources Land has successively completed acquisitions in mergers and acquisitions. At the end of 2022, the company acquired three projects of China Fortune Land Development in Nanjing and Wuhan and a Shenzhen property management company for 12.4 billion yuan, which is the largest merger and acquisition case in the real estate industry in 2022. In August of the same year, China Resources Land also signed an agreement with Shimao to acquire the Beijing Minute Temple land for 3.3 billion yuan.
China Resources, which “sells when it’s time to sell”, has expanded its reserves while its debt scale has also grown faster than the same period. In 2022, the company’s net debt will increase by 43.878 billion yuan, a year-on-year increase of nearly 50%, to 49.5%.
The total debt increased by 32.597 billion yuan from the previous period to 230.037 billion yuan, of which the debt due within one year rose by 15.0% to 62.743 billion yuan. During the period, the growth rate of the net interest-bearing debt ratio was also higher than the level in the past five years, an increase of 8.4% from the previous year to 38.8%, and the debt level also reached a high in the past five years.
At the financing level, China Resources Land has issued corporate bonds, medium-term notes and asset-backed special plans for a total of 39.1 billion yuan in financing, of which the average cost of the three-year period is 2.83%, and the average cost of the five-year period is 3.26%.
During the period, the company successfully issued three commercial real estate mortgage-backed securities totaling 8.1 billion yuan, with an average financing cost of 3.44%, relying on the continuous income of Shenyang Tiexi Mixc Plaza, Beijing China Resources Building and Shijiazhuang Mixc City.
Guandian New Media learned that although the average financing cost of China Resources Land in 2022 increased by 0.04 percentage points from the previous period to 3.75%, it is still at a relatively low level in the industry.
Taking a closer look at the debt structure, although the scale and financing level have increased in the previous period, the average debt maturity has also been further extended to 5.4 years. In the debt structure, new debts were mainly fixed rate, which recorded 10.7 billion yuan, and floating rate debts decreased by 200 million yuan compared with the previous period. At the end of the period, the financing reserve was equivalent to 96.4 billion yuan, and the short-term debt coverage ratio reached 1.54 times.
As for whether to consider equity financing in the future, investors at the meeting revealed that Li Xin, chairman of China Resources Land, pointed out that there is no consideration for equity financing at present. The company’s current cash flow, sales, and cash creation capabilities can support the entire investment needs of this year, including land auctions. market and capital needs for mergers and acquisitions.
The investor said that Li Xin is relatively satisfied with the development of China Resources Land in the past two years, and will strive to achieve both profit and scale growth in 2023, and has also specified performance guidelines for related businesses: “The gross profit margin of the development property settlement will remain at 20%. %, the gross profit margin of operating real estate is maintained at 65%-70%, and the gross profit margin of shopping centers is maintained at 70-75%.
Guandian New Media learned that in the media performance conference on the afternoon of March 29, the senior management of China Resources Land set a target of exceeding 300 billion in annual sales in 2023 based on the current inventory value and supply plan.
According to previous data, China Resources Land’s cumulative contracted sales in 2021 will be about 315.76 billion yuan, a year-on-year increase of 10.8%, which is the first time it has reached 300 billion yuan.
In 2022, China Resources Land recorded a contracted sales amount of approximately RMB 301.33 billion, and a total contracted sales floor area of approximately 14.2546 million square meters, a year-on-year decrease of 4.6% and 14.4% respectively.
