Original title: China Evergrande’s mid-term net profit of 10.5 billion yuan, selling houses and reducing debt, the property sector becomes a bright spot
Our reporter Dong Zhijun
On August 31, China Evergrande and Evergrande Property both released their 2021 interim results reports.
In the first half of this year, China Evergrande achieved sales of 356.79 billion yuan, sales receipts of 321.19 billion yuan, and core net profit of 10.5 billion yuan, but the real estate development business lost 4.1 billion yuan; Evergrande Real Estate was responsible for operating income of 7.873 billion yuan in the first half of the year. A year-on-year increase of 68.3%, gross profit of 2.939 billion yuan, a year-on-year increase of 68.7%, net profit of 1.934 billion yuan, a year-on-year increase of 68.6%, and various core indicators are at the leading level in the industry.
As of the close of the market on August 31, China Evergrande reported HK$4.36 per share, down 0.68%, with a total market value of HK$57.765 billion; Evergrande Property reported HK$5.84 per share, with a total market value of HK$63.135 billion.
For China Evergrande, despite the decline in profitability, “survival” is obviously more important. With the help of large-scale price-cutting promotions, Evergrande was able to quickly withdraw cash and greatly ease the debt pressure. Data shows that Evergrande’s interest-bearing debt has dropped by about 300 billion yuan from the end of March last year, and the net debt ratio has fallen below 100%, realizing a red line to green.
“Price for volume” sells a house to reduce debt
China Evergrande’s performance report shows that in the first half of 2021, the company achieved revenue of 222.69 billion yuan, down 16.5% year-on-year; gross profit was 28.84 billion yuan, down 56.7% year-on-year; net profit was 10.5 billion yuan, down 29% year-on-year. The real estate business of Da Real Estate Group and Evergrande Children’s World Group recorded a loss of about 4.1 billion yuan, and a loss of about 4.9 billion yuan in the new energy vehicle business.
As of the end of July, Evergrande’s cumulative sales for the year reached RMB 40.56 billion, with a sales area of 48.449 million square meters. The sales growth rate is considerable, but the average transaction price is the lowest in recent years.
In this regard, some analysts believe that the decline in China’s Evergrande profits is closely related to the sale of houses at discounted prices. It is reported that Evergrande has been implementing “online house selling” since February last year and has continued to launch several phased special preferential measures to vigorously promote and accelerate the return of cash flow.
In the context of the loss of the main real estate business and the automobile business, the key to China Evergrande’s profitability lies in the disposal of some of its assets. It is reported that China Evergrande previously sold 11% of Hengteng Network’s shares for approximately HK$1.18 billion; sold 1.9% of Shengjing Bank’s shares for a total of 1 billion yuan; sold 7.08% of Shenzhen Gaoxin Investment’s shares for a total of approximately 1.04 billion yuan ; Sale of 49% equity of Evergrande Bingquan, total amount of about 2 billion yuan; sale of 5 real estate project equity and non-core assets, total consideration of about 9.27 billion yuan.
Market participants pointed out that Evergrande’s performance report highlights the general status quo of the current real estate industry. In recent years, the real estate industry has been on the decline. Under the condition of “housing to live without speculation”, housing prices have been strictly controlled, and the pressure of the “three red lines” has become more and more serious. The refined control policies have brought the real estate industry into the era of the most stringent supervision in history. In order to eliminate debt and reduce debt, real estate companies have to exchange price for volume, which is bound to have a certain impact on profits.
Evergrande’s property revenue surged 68%
Compared with the difficult situation of the parent company, Evergrande Property has become one of the few eye-catching sectors of the group in the first half of the year. In the first half of the year, Evergrande Real Estate achieved revenue of 7.873 billion yuan and net profit of 1.934 billion yuan, a year-on-year increase of nearly 70%.
Aiming at the trillion-yuan blue ocean in the property management market, Evergrande Properties has formed a national layout. As of the end of June 2021, its business scope has expanded to 317 cities across the country, covering 3.2 million owners.
The substantial increase in profitability is inseparable from the continuous growth of the area under management. According to the announcement, as of the first half of the year, Evergrande’s contract area reached 810 million square meters, a year-on-year increase of 58%; the area under management reached 450 million square meters, a year-on-year increase of 77%.
On August 11, Evergrande announced that it was considering selling part of its equity in the property sector. In response, Xie Yifeng, president of the China Urban Real Estate Research Institute, told a reporter from the Securities Daily that the property sector, as a relatively high-quality asset under China Evergrande, has strong profitability. Whether it is a sale or a blood transfusion, it is for the group’s current difficulties. All help.
Relying on the large number of high-quality projects provided by the parent company each year, third-party projects have also become a strong growth engine for Evergrande Properties. In the first half of this year, the area under management of Evergrande Property’s third-party projects surged 137 times year-on-year. The company strives to achieve a contract area of over 900 million square meters and an area under management of 600 million square meters by the end of this year.
At the same time, value-added services have also become the second growth curve of Evergrande Property. In the first half of the year, Evergrande’s property community value-added service income was 1.139 billion yuan, a year-on-year increase of 83%, of which the income from home furnishings increased by 873%.
According to the Zhongzhi Institute’s estimates, by 2022, the scale of the national basic property management market will be about 1.2 trillion yuan, and Evergrande Property’s future performance may open up new growth space.
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