Viewpoint Network “2022 should be the most difficult year in the history of Country Garden Services.” Li Changjiang, executive director and president of Country Garden Services, set the tone for the past year at the beginning of the performance meeting.
On March 29, Country Garden Services announced its annual report. In 2022, it will achieve revenue of 41.367 billion yuan, a year-on-year increase of 43.4%; gross profit of 10.258 billion yuan, a year-on-year increase of 15.7%; Accounting for core net profit was 5.022 billion yuan, a year-on-year decrease of 9%.
In addition, the Board of Directors of Country Garden Services proposed to declare a final dividend of 14.40 cents and a special dividend of RMB 22.81 cents per share.
Unlike when the stock price dropped 10% when the profit warning was released at the beginning of the month, once the annual report was issued, the capital market responded positively. As of the close on March 29, Country Garden Services led the rise of Hong Kong property stocks with a 6.67% increase, closing at HK$13.44.
maintain independence
As soon as the performance meeting began, Li Changjiang made it clear that although the revenue and profit in 2022 have grown in absolute value, the growth rate has slowed down significantly, especially the profit growth has not met expectations. “2022 should be the fastest in the history of Bifu. Difficult year.”
From the perspective of income, in 2022, when the industry’s growth generally stagnates, Country Garden Services, as a leading material company, will still maintain a relatively leading growth rate, with a growth rate of 43.4% to 41.37 billion, and further get rid of its sibling companies in terms of income structure. Dependence, only 5.6% of income comes from Country Garden.
In 2022, the real estate industry will usher in deep adjustments. The relationship between property companies and related parties will often become a source of market concern, and capital occupation and blood transfusions often affect investors’ nerves.
At this year’s performance meeting, the management of Country Garden Service also repeatedly emphasized the independent relationship between the property company and its brother companies.
Huang Peng, chief financial officer and joint company secretary, said that the company intends to control the proportion of value-added services for non-owners. In 2022, the revenue of this segment will not only not increase, but the proportion of total revenue will further drop to 6.4%. It appears that the company does not rely on value-added services for non-owners. , and rarely rely on associated sibling companies.
It is worth noting that in 2022, Country Garden’s service trade receivables increased by about 5.07 billion yuan to 15.348 billion yuan compared with 2021, of which 1.73 billion came from related parties. Although the proportion is not large, judging from the total income of related parties, there are only 1.7 billion receivables in the 2.3 billion related party income.
Some investors told Guandian New Media that Huang Peng, chief financial officer and joint company secretary, said at the investor meeting that the two companies are independent, but they can support them in the short term if they have difficulties. He expressed his confidence in the recovery of this part of the receivables, describing it as “over thousands of mountains and rivers, after wind and rain, we will finally see a rainbow”.
As for the changes in the relationship between the two parties in the future, Huang Peng said that the two parties will strengthen the linkage between products and services, provide better services in the real estate cycle, and stimulate the product system in the aftermarket.
Gross margins under pressure
As the “ballast stone” business of Country Garden Services, property management services will achieve a 65.7% increase in revenue in 2022 to 22.856 billion yuan, accounting for 55.3% of total revenue, an increase of 7.5 percentage points from the same period in 2021, and further enhance its independence , the proportion of income from third-party properties increased by 13.4 percentage points to 58.2%.
Due to the acquisition of larger property management companies such as Zhongliang Baiyue Zhijia Services, plus the conversion of reserve area and other factors, in 2022 Country Garden’s service charge management area will increase from approximately 766 million square meters in the same period in 2021 to approximately 869 million square meters.
At the same time, the annual report pointed out that due to the macroeconomic downturn, the real estate market has fallen off a cliff, the incremental market has plummeted and the new crown epidemic has repeatedly restricted the growth rate of market expansion business to a certain extent.
Huang Peng mentioned at the performance meeting that in 2022, some projects with unit price quality or unhealthy owner management and maintenance will be voluntarily withdrawn, with a scale of about 84 million square meters, “almost equivalent to the scale of some small listed property management companies.” . Therefore, the revenue area only increased by about 100 million square meters, and the total contracted area increased by 164 million square meters.
In terms of external expansion, Huang Peng said that after four or five years of third-party diversified expansion, Country Garden Services has fully possessed market-oriented independent capabilities and is already a diversified source company. The data shows that in 2022, the income from third-party properties will exceed the income generated by Country Garden real estate. The property income developed by Country Garden Group will account for 41.8% of the property management income, and it will be 55.2% in 2021.
While external expansion brings revenue growth, it will inevitably drag down the gross profit margin.
In 2022, the overall gross profit margin of Country Garden Services will drop by 5.9 percentage points to about 24.8%, of which the gross profit margin of the property management service segment will drop from 30.3% in 2021 to 25.5%. The decline is due to the increase in the amortization cost of intangible assets brought about by mergers and acquisitions And the gross profit margin of newly acquired companies is low.
The gross profit margin of other business segments also declined to varying degrees. The gross profit margin of the community value-added service segment fell by 7.0 percentage points to approximately 53.5%; the gross profit rate of the non-owner value-added service segment decreased by 27.3 percentage points to approximately 13.6%. The gross profit margin of the segment decreased by 14.8 percentage points to approximately 35.5%, mainly due to the lower gross profit margin during the ramp-up period of the Xintuo project.
The gross profit margin of the urban services segment is relatively stable, rising by 1.2 percentage points from approximately 17.6% in 2021 to approximately 18.8%.
The gross profit margin of property management and other related services in the “three supplies and one industry” business segment decreased by 2.8 percentage points to approximately 8.8%. Due to the increase in the proportion of gross profit margin business.
Aftertaste of mergers and acquisitions
Country Garden Services previously stated in its performance forecast that one factor for the decline in net profit attributable to the parent in 2022 is the impairment of intangible assets such as goodwill. According to the annual report, as of the end of 2022, the cumulative impairment of goodwill was 1.738 billion yuan, and the net book value of goodwill reached 17.9 billion yuan.
As of the end of 2022, the net book value of Country Garden Service’s intangible assets was 25.952 billion yuan, accounting for 37% of its assets, a decrease of about 1.99 billion yuan compared with 2021, mainly due to the impairment of goodwill and intangible assets of certain equity acquisition companies during the year. billion, and the disposal of certain subsidiaries resulted in a decrease of approximately RMB 320 million in goodwill and intangible assets.
The financial report shows that as of December 31, 2022, Jiabao Services has confirmed a goodwill impairment of approximately 1.182 billion yuan, resulting in a reduction in the book value of Jiabao Services’ goodwill to 3.588 billion yuan; Caixin Services has confirmed a goodwill impairment of approximately 1.182 billion yuan. RMB 445 million, resulting in a reduction in the book value of the goodwill of Caixin Services to RMB 1.371 billion.
Country Garden Services has decided to exit several property management subsidiaries and certain property management projects of Jiabao Services and Caixin Services because the profit margins and property management fee collection rates of these companies are lower than expected.
On the other hand, the amortization of contracts and customer relationships, insurance brokerage licenses, brands and franchise rights arising from acquisitions during the year was approximately RMB 1.08 billion.
According to the investor, Huang Peng said: “The current impairment is in place, and there is no need to increase the impairment. Overall, the fundamentals are improving this year.”
For this year’s growth target, Country Garden Services proposed to achieve double-digit growth based on a cautious attitude, that is, at least a growth of no less than 10%. In Huang Peng’s view, the gross profit margin will also pick up in 2023.
As of December 31, 2022, the total bank deposits and cash (including restricted bank deposits) of Country Garden Services were approximately 11.377 billion yuan, a decrease of approximately 379 million yuan compared with 2021; the net current assets were approximately 9.662 billion yuan, and the current ratio was 1.4 times .
The following is an excerpt from the 2022 semi-annual results conference of Country Garden Services Holdings Co., Ltd.:
On-site question: The growth rate of incremental area in the residential market is slowing down, and the proportion of property management area delivered by related parties continues to decrease. After losing the support of the main real estate business, what will be relied on to maintain profits and growth in the later period, and what will be the focus of future efforts? place?
Wang Yingwu:The impact of the mid-to-long term housing demand and the decline in real estate growth has had an impact on the property market. However, Country Garden Services, as a leading real estate company with global coverage, has certain advantages in the residential business field in the sinking market.
Moreover, in the past few years, especially in 2022, Country Garden Services has adopted a “one body with two wings” market strategy covering the whole area, focusing on the development of the stock market to deal with the impact of real estate shocks. There are three specific measures:
One is to deeply cultivate the third-, fourth-, and fifth-tier cities by sinking the network to realize the competitive strategy of low-cost broadband products; the second is to dig deep into the stock market and public construction services in the first- and second-tier markets through the community renewal plan; The urban symbiosis plan of urban services opens up the service market of urban public services of TO G and TO B.
Through the above-mentioned measures, in 2022, the number of existing projects in the newly added overseas expansion projects will account for 80.56%, and the proportion of non-residential projects will reach 64.82%, and the entire external expansion will maintain continuous growth. Therefore, as the market shows signs of recovery, we are full of confidence in the future.
On-site question: The real estate industry is transitioning to a new development model. What impact will it have on the property industry? What should real estate companies pay attention to? Country Garden Services has been exploring various businesses in recent years. What is the plan for 2023?
Li Changjiang:The real estate industry has changed from expansion in the past to high-quality development. What will it bring to the property? Undoubtedly, the first impact is that compared with the past period of rapid development, the amount that the real estate industry may bring will decrease. Second, the technological requirements for real estate and housing use are higher.
The second question is that for the future of Country Garden’s services, we will firmly focus on services, so that the services that satisfy customers and meet customer needs will not waver, insist on further improving efficiency and effectiveness, insist on using technology, digital means, and AI means to solve the problems related to high cost unwaveringly.
At the same time, we will unswervingly develop value-added services that closely revolve around the community and the needs of owners. For market expansion, that is, in terms of market share, we will insist on high-quality growth.
On-site question: What is the performance guidance for this year? What are the main growth engines expected to be? Will the gross margin turn around or is there still room for downside?
Huang Peng:This year, we will be more cautious in terms of revenue and profit, because some unfavorable factors have been eliminated, and there are growth drivers for various businesses. Our goal is to achieve double-digit growth. Double digits refer to a growth rate of at least not less than 10%, and specific teams will pursue higher goals.
In terms of gross margin, I think the gross margin will pick up. The driving engine of growth, first of all, through the deep cultivation strategy after the organizational transformation, and the expansion drive under the old and new models, should still be a long-term driver in terms of urban services and multi-format expansion. We have strong product strength and operational capabilities. Capable of managing the full lifecycle of multiple businesses.
In terms of value-added services, there will be some recovery and breakthroughs in some new products. In business, business writing, and “two business” businesses, performance will be transformed.
Urban service will also grow. This business is a little bit expensive, capital expenditure will be larger, and the payment will be slower. Considering the cash flow pressure and its growth balance, I hope it will grow slower and go faster. Be steady.
The intelligentization of technology will continue to reduce costs and form a certain market-oriented capability, but the relatively small scale.