Original title: Vanke’s net profit declines in the first half of 2021
In 2018, Vanke held a regular autumn meeting in Shenzhen. The slogan “Live” on the screen and side wall of the venue quickly ignited the mood of the industry. At that time, most outsiders believed that Vanke’s “live” was a wake-up call to its peers. No one would have thought that now, three years later, “live” has become Vanke’s current real existence.
Vanke handed over a poor 2021 mid-year report. Since the 2008 annual report, this is the first time that Vanke has recorded a decline in net profit. According to the interim report, in the first half of this year, Vanke achieved operating income of 167.11 billion yuan, a year-on-year increase of 14.2%. The net profit attributable to shareholders of listed companies was 11.05 billion yuan, a year-on-year decrease of 11.7. %.
At the performance meeting, Vanke President and CEO Zhu Jiusheng explained the reasons for the decline in net profit and also made a presentation on Vanke’s mid- and long-term plan on behalf of Vanke’s management.
Zhu Jiusheng said, “The rules of the game in the entire industry are changing, and Vanke’s development thinking must be adjusted accordingly. We did not take scale and speed as the only goal. In terms of trade-offs, Vanke insists on’stabilizing the word’ and’surviving’ is more important than anything in our perception.”
As in the past, Vanke did not give the market precise growth plans for the same outstanding companies as China Shipping, China Resources and even Longfor. It regards stability as the top priority for survival, which is beyond reproach. But Vanke, which has been excellent for many years, the outside world expects not only to survive, but to live well and live long.
In the context where other outstanding peers are still performing well, Vanke’s development and business operations must also allow investors and industry peers to see its potential and see its highlights worthy of being highlighted.
Review diversified business
Compared with the previous reporting period, Vanke’s overall profit data is difficult to satisfy investors. In addition to the decline in net profit, Vanke’s profit margin level has also dropped again. According to Vanke’s management caliber, Vanke’s mid-term gross profit margin has dropped from 24% after tax to 18%. Compared with its peers, the gross profit margin without tax deduction has dropped from 32% to 23%.
Even if Vanke’s profit margin has fallen significantly, Vanke management believes that such pressure will still exist in the next two years.
Han Huihua, head of Vanke’s finance, analyzed that since 2017, Vanke’s land sales ratio has been rising, so the gross profit margin of the development business will show a downward trend. From the sales end to the settlement end, it can be seen that Vanke may also follow such a logic from the first quarter, mid-term and even the whole year, and there will be a certain amount of pressure on gross profit margins in the next two years.
Declining profits and future performance are the most concerned aspects of performance. The first question raised by investors is also directed at this. Zhu Jiusheng described that he was in a nervous mood now: “It’s just like the feeling when I was in school. After the midterm exam results come out, how can I answer the teacher if I don’t have a good exam.”
Zhu Jiusheng also explained several reasons for the decline in net profit. He believes that there are three main reasons. First, the growth of the sales scale is limited; the second development business has a rapid decline in gross profit margin, and the proportion of land prices is rising. This will gradually be reflected in the future. The third is the impact of business transformation, and it will take time for the transformation effect to be reflected.
Although Vanke’s mid-year report released some operating data on property services, long-term rental apartments, warehousing and logistics, and business management, revenue and profitability have not been accurately reflected in the report. In addition, many diversified businesses are not completely consolidated, and it is difficult for investors and peers to see Vanke’s development potential in this area.
Zhu Jiusheng said frankly that there are many places to review Vanke’s new business after its transformation. “Vanke was seriously underestimating or seriously underestimating the time required to complete this process, the difficulty encountered, and the ability to be built. Today, we are going to review, review, and review. We were optimistic that year.”
Zhu Jiusheng said, “Vanke’s transformation business must also change its view of its contribution points or contribution manifestations. Even if all the business services are done well and succeeded, its contribution to the traditional sales scale and profit It’s still limited. What it can contribute to is a company’s corporate value, or mid- to long-term valuation.”
Cast your net and catch fish carefully
Looking at Vanke from another aspect, its business strategy and financial indicators still allow the outside world to see the prudence and stability of a leading real estate company.
At the end of the first quarter of this year, Vanke realized that all the “three red lines” were returned to the green level and will continue to be maintained. As of the end of June 2021, Vanke held 195.22 billion yuan in cash in currency, and the short-term debt ratio after deducting pre-sale regulatory funds and restricted funds was 1.67 times; the net debt ratio was 20.2%, which was lower than 40% for 20 consecutive years; excluding advance receipts The asset-liability ratio of the fund is 69.7%. In addition, Vanke’s comprehensive financing costs in the first half of the year were 4.27%, a year-on-year decrease of 32 basis points.
Zhu Jiusheng said that Vanke is courageous and has always been prudent, so there will be more cash on the long-term books. “Vanke’s net debt ratio in the past 20 years is the lowest in the industry, and the net debt ratio in the past 20 years has been below 40%. This is Vanke’s consistent style. There are many returns to shareholders, and Vanke feels that before pursuing returns to shareholders, being able to survive long-term and steadily may take priority over short-term returns.”
Vanke’s cash has reached an unprecedented level. As a real estate company that is good at mergers and acquisitions and cooperative land acquisition, the current opportunities are unprecedented. At the performance meeting, Zhu Jiusheng also said when answering a question from a reporter from the 21st Century Business Herald that for Vanke, it should do something that is beneficial to the entire industry. No matter what kind of peers, they have had different contacts and cooperation. If the number of Vanke’s projects is counted, about 70% of them are cooperative.
Zhu Jiusheng also responded to the rumors of the acquisition of Evergrande and the progress of taking a stake in Tahoe. Zhu Jiusheng told the 21st Century Business Herald reporter, “Vanke and Evergrande have had project-level cooperation in the past, and there have been some contacts and discussions in recent months, but there is no substantial cooperation at present.” And the progress of Vanke’s investment in Tahoe Zhu Jiusheng said, “We have set up a team to closely contact them and provide some suggestions. Eligible projects will perform their contracts.”
“Cooperation must be stable and far-reaching. This is our basic consideration. Of course, the effect of cooperation must be tested by customers. How to avoid causing trouble to customers and shareholders, or bringing bad and unbearable impacts, this It is a problem that we must take special precautions against.” Zhu Jiusheng emphasized.
Regarding the overall pressure on Vanke’s stock price this year, Zhu Xu, the secretary of the board of Vanke, also said, “The company’s stock price has indeed fallen sharply, and the real estate industry as a whole has also fallen sharply.”
Zhu Xu said that the decline in stock prices may be affected by many factors, but in the long run, we still need to see whether the company can create long-term value for shareholders, and the management will continue to work hard for this. “Vanke business partners also hold shares, and partners and shareholders feel the same.”
(Author: Wu Shuying Editor: Li Qingyu)
.