An unqualified red line data is the asset-liability ratio after excluding advance receipts. The latest performance is 78.5%.
Viewpoint Real Estate Network The “Three Red Lines” policy announced in mid-2020 will be fully implemented on January 1 this year. By controlling the leverage ratio of real estate industry participants, this policy forces real estate companies to reduce debt and leverage on the agenda. A developer must learn to adapt to the rhythm of this era.
Aoyuan carried out a series of management structure changes at the end of the year, which Guo Ziwen, the chairman of the group, called the initiative to seek change. At the 2021 mid-year performance meeting, the company’s attitude to change its business thinking is even more obvious.
In the past, Aoyuan, which emphasized the need for scale growth, recently stated that it would become a “stable and long-lived enterprise.” Ma Jun, the co-president who is currently in charge of the business development and operation management of Aoyuan’s real estate sector, said: “We have entered a’rhythm run’ in the era of management dividends.”
This is a new concept proposed by the management of Aoyuan, which refers to the period of rapid growth from 2015 to 2019 as the “full speed running” in the era of scale dividends. At that time, Aoyuan was regarded as a dark horse in the industry, and its sales compound growth rate reached 67% in the past five years.
Facing an inflection point of growth, Aoyuan pointed out that high-quality development should be an important strategic measure for the company, and then as long as it maintains a moderate growth in scale.
Because “the current task is still to reduce debt.” Another co-president Chen Zhibin said that this year the company’s resources will be tilted in this regard.
Red line
In the environment of strong supervision, Aoyuan Group has plans to meet the three red lines as soon as possible. Therefore, all requirements have been advanced or advanced.
According to the management’s speech at the performance meeting at the beginning of this year, Aoyuan originally planned to achieve all three red lines in 2023, and now this goal is set by the end of 2022. At the same time, Aoyuan originally planned to reduce its interest-bearing liabilities by 5% each year, but Guo Ziwen now hopes to reduce it by at least 10% in 2021 to below 100 billion yuan.
To this end, Aoyuan will implement the compliance measures of “promoting payment, adjusting performance, reducing costs, and quickly delivering”, corresponding to several important indicators of sales, land, cash flow, and profit and carryover. It embodies a new “high turnover model”.
The high turnover model of the golden age of real estate requires companies to improve the efficiency of capital turnover and strive to expand and develop new projects as soon as possible. The developer’s goal is to achieve scale growth. Today’s high turnover emphasizes cautious investment, returning funds to repay debts as soon as possible, and real estate companies’ focus has become financial security.
“Our main task at this stage is to step up the layout of the three red lines.” Ma Jun said. Chen Zhibin also said that Aoyuan currently attaches great importance to the three red lines, especially in reducing debt and promoting payment collection. Within the company, the assessment and structural adjustments were organized in the first half of the year, including the inclusion of repayments into the performance appraisal system.
It is understood that in the first half of this year, Aoyuan achieved contracted sales of approximately 67.58 billion yuan, and the return rate reached 87%, which means that 58.79 billion yuan in cash was returned. In contrast, Aoyuan’s full-year payment collection rate in 2020 was 85%, compared with 78% in 2019.
On the other hand, before this, speeding up the carry-over has never officially become one of Aoyuan’s main strategies. In the past, due to the long-term mismatch between the speed of carry-over and the speed of sales, Aoyuan may have accumulated a large amount of sold but not carried forward in order to save construction costs. As of the end of December 2019, the data was 170.5 billion yuan, 1.5 times the sales in 2019.
At the beginning of last year, the management of Aoyuan mentioned the need to deal with the problem of lagging transfer. That year, the company’s new construction area exceeded 10 million square meters for the first time, but as of the end of 2020, the outstanding sales still reached 196 billion yuan.
In this regard, the management of Aoyuan revealed the specific goal of accelerating the transfer of property delivery: the compound annual growth rate of full-caliber property confirmation sales should reach 25% or more. It is understood that the confirmed sales of Aoyuan’s full-caliber properties in 2020 will be 69.517 billion yuan. Based on this calculation, Aoyuan needs to settle about 86.9 billion yuan this year.
Aoyuan hopes to rapidly increase its net assets by accelerating project delivery and carrying forward, for example, and they also set a goal for this: It is hoped that the compound annual growth rate of net assets will reach 15% or more from 2020 to 2023. Statistics show that Aoyuan currently has a net asset of 53.29 billion yuan.
In terms of debt, Aoyuan will reduce its interest-bearing liabilities from 114.9 billion yuan to 111.3 billion yuan within six months. According to the goal of a 10%-15% decline for the whole year, Aoyuan will also drop by at least 7.89 billion yuan this year. In other words, it will fall to 103.41 billion yuan by the end of the year.
Using the newly disclosed average interest rate of 7%, Aoyuan can save at least more than 800 million yuan in interest expenses this year.
Reflected in the specific indicators of the three red lines, as of the first half of the year, Aoyuan has met the standards in two lines. Among them, the net debt ratio dropped from 82.7% at the beginning of the year to 80.7%; the cash short-term debt ratio was 1.3 times, as opposed to 68.3 billion yuan in cash. In addition, Aoyuan’s debts due in the second half of the year are about 15 billion yuan.
An unqualified red line data is the asset-liability ratio after excluding advance receipts. The latest performance is 78.5%. According to the plan, this line will be completed before the end of 2022.
Land
Funds are tilted towards lowering liabilities, and other investments will inevitably be reduced. The most concentrated manifestation is Aoyuan’s restraint in land purchase in the first half of the year.
According to reports, Aoyuan only purchased 1.071 million square meters of land reserves in Guangzhou, Zhuhai, Xuzhou and Tianjin during the period. The floor price was 6,161 yuan per square meter, and the total land purchase expenditure was about 7 billion yuan.
Compared with the past few years, the intensity of this land purchase is extremely different. Looking back on the development history of Aoyuan, the company went north to enter multiple provinces and cities in 2017 and established four major areas in the Bohai Rim, East China, Central and Western core areas, and South China. During the year, a land bank of 12.86 million square meters was added.
In 2018, Aoyuan entered 25 new cities and purchased 12.58 million square meters of land. In the following year, Aoyuan added 16.09 million square meters of developable building area during the year.
Faced with the epidemic in 2020, Aoyuan’s land purchase efforts are unprecedented. During the year, the land purchase expenditure reached 45.4 billion yuan, the newly added construction area was 20.15 million square meters, and the new value of goods was 242.6 billion yuan. Among them, 44 projects and 6.95 million square meters of land were purchased in the first half of the year. According to management, Aoyuan will “deploy ahead of schedule and actively swap positions in 2020.”
During this period of rapid development, Aoyuan emphasized the role of mergers and acquisitions. In a few years, the area of land acquired through mergers and acquisitions accounted for 80-90% of the total area newly increased during the year.
In the past two years, as it has been found that mergers and acquisitions are not as cost-effective as before, Aoyuan has consciously lowered the intensity of mergers and acquisitions and shifted its energy to the direction of bidding, auction, listing and urban renewal. It is understood that in 2020, based on the value of goods, Aoyuan’s new land bank through acquisitions and acquisitions accounted for 57%, while auctions and listings accounted for 27%, and urban renewal and others accounted for 16%.
However, Aoyuan’s enthusiasm for bidding, auctioning and listing was basically wiped out after the first round of centralized land supply. “The overall premium rate of hot cities is still relatively high.” Ma Jun said that looking at the land transactions in the first half of the year, developers are still relatively motivated to acquire land. Although the transaction area has declined compared with previous years, the unilateral cost of land is Significant improvement.
This is an overdraft for the profits of real estate companies. Ma Jun said that Aoyuan’s attitude towards centralized land supply is to “watch as closely as possible.” He said that he heard that there may be some patches and adjustments in the second round of centralized land supply. He said: “I hope there will be a corresponding buffer method for land prices.”
Mergers and acquisitions have always been the main method of obtaining land for Aoyuan, and Ma Jun believes that the group will still adhere to this method in the future. But in general, Superimposing Group’s actual demand for debt reduction will reserve more funds in the future to complete the three red lines to the green file. In terms of investment, it will focus on the transformation of existing old reform projects.
On the other hand, Aoyuan’s management used to like to mention disciplinary land purchases. The standard at the time was “to use 30%-40% of contract sales as budget to increase land reserves.” For example, Aoyuan’s budget was based on 114.1 billion yuan in early 2019. A land acquisition budget of about 40 billion yuan was formulated for the yuan sales target, and about 39.2 billion yuan was used in the whole year.
The latest Aoyuan reduced the standard to “the annual land purchase budget is controlled within 20% of the contracted sales of the year.” “We will remain prudent in purchasing land.” Ma Jun said that the group’s land purchase budget for this year will remain at the 30 billion yuan set at the beginning of the year, but it will not take the land too aggressively, and will adjust it based on the stability of cash flow. Budget, and “see the timing to make up some suitable volume.”
Under this policy, Aoyuan’s new land bank in the first half of the year was divided by construction area, and the proportion of urban renewal and others rose to 63%. On the contrary, the proportion of mergers and acquisitions fell to 23%, and the proportion of bids and auctions was only 14%.
After vigorously expanding reserves in the past few years, Aoyuan’s current land reserves can withstand the above-mentioned strategic changes. As of the end of the reporting period, Aoyuan has a confirmed land reserve with a total construction area of 53.58 million square meters, with a total value of approximately 593.9 billion yuan. The land bank floor price is 2826 yuan/square meter, while the current average sales price of Aoyuan is 11100 yuan/square meter.
In terms of urban renewal, there are 70 projects with a locked value of 754.3 billion yuan, of which 99%, or 748.7 billion yuan, are located in the Greater Bay Area, while 97%, or 731.7 billion yuan, comes from old village projects. It is reported that this batch of projects is expected to have a gross profit margin of 35% to 40% and a net profit margin of 15% to 20%.
Aoyuan is accelerating the conversion of old renovation projects. In the first half of 2021, the value of 13.5 billion yuan was converted from the Foshan Nanhai Luocun Project, Zhuhai Xiangzhou Cuiwei Village Project Phase I, and Guangzhou Zengcheng Nandi Village Project. The latter two The winners will be on sale within this year.
In the rest of this year, Aoyuan expects to continue to transform old renovation projects worth 26.5 billion yuan.
The following is an excerpt from the Q&A of China Aoyuan Group Co., Ltd. 2021 Interim Results Meeting:
On-site questioning: The regulatory indicator that the previous news came out was that the ratio of real estate acquisition to land sales should not exceed 40%. What kind of impact does this regulation have on the company’s investment and acquisition of land? What is the company’s annual land purchase budget? Regarding financing, how do you view the financing market of the entire real estate industry this year? What is Aoyuan’s plan to reduce financing costs in the second half of the year?
Ma Jun:Let me answer the first question. As we have just introduced, our investment expenditure last year was about 45 billion, which exceeded the original budget. We did not take many projects in the first half of this year. On the one hand, we are also observing the current situation of centralized land supply.
Another point is that the main work at this stage is to step up the layout of the three red lines. Therefore, we are now paying more attention to the transformation of existing old reform projects in terms of investment, because there are still some old reform projects that will continue to be transformed in the second half of the year. We still plan to not exceed the original amount of 30 billion land purchases. In this case, we will make up some suitable quantities depending on the timing.
Chen Zhibin:Regarding the financing situation, the entire financing situation in the first half of the year was generally tightened, which is an objective situation. Of course, some normal financing, we are still proceeding normally, including domestic and overseas bond issuance. The tightening is mainly in the front financing category. In fact, we also contracted sharply in the first half of the year. Looking at the overall financing situation as a whole, Because we are still focusing on reducing debt this year, the cash flow to the company is actually controllable.
In the second half of the year, we still have debts that are about 20 billion yuan, and we have repaid more than 5 billion debts so far. The repayment in the second half of the year is expected to exceed 70 billion yuan, so we are very confident about the pressure of repayment in the second half of the year. The main task now is to replace these short-term debts with some long-term debts, so that our short-term debts can be reduced to a more reasonable level.
In terms of interest rate costs, this matter has something to do with the external environment. Our overall interest rate in the first half of the year was 7%, which was a drop from last year. We are confident that we can at least maintain this interest rate.
Chen Jiayang:Let me add a little bit about the overseas situation. As I just introduced, we successfully issued a six-year bond with a maturity of 350 million U.S. dollars in February this year, and in June we also issued a 3-year U.S. dollar bond. In addition, we issued three-year overseas syndicated loans in two rounds around March and May this year, which is also conducive to us to further extend the debt repayment date.
In addition, we have three old US dollar bonds that have all been redeemed this year. First, in February this year, we redeemed an old US dollar bond of 188 million US dollars on time; secondly, we redeemed in advance in March this year and arrived in September this year. A 500 million U.S. dollar plus 100 million Singapore dollar offshore bond was completed at the end of March. In addition, an old U.S. dollar bond of 425 million U.S. dollars was also redeemed on time in May of this year, so all announcements were made this year. We have all redeemed the overseas bonds.
On-site questioning: After the first round of centralized land supply, I would like to ask how the management views the impact of this policy on the company? The company’s sales target this year is 150 billion. What is the company’s view on future sales growth? I also want to ask the management’s view on the prospects of the real estate industry?
Ma Jun:We see the overall performance of the first round of centralized land supply market. Different cities, including different regions in the same city, are still in a state of differentiation. The overall premium rate of hotspot cities is still relatively high. In the half-year land transaction, although the transaction area has decreased compared with previous years, the unilateral cost of land has increased significantly. This shows that developers are still relatively enthusiastic about acquiring land. We have also heard that the second round of There may be some patches and adjustments in the centralized land supply, and it is hoped that there will be a corresponding buffer method for the land price.
In general, we still pay close attention to the centralized land supply as much as possible. Aoyuan’s main method of obtaining land has always been acquisitions and acquisitions, and we will still stick to the main method of obtaining land. In addition, from our own perspective, our old reform projects have a characteristic. Once they are launched, the corresponding land amount will be relatively large. Therefore, we will combine the progress of our own old reform projects to obtain some of our corresponding land. Expenditures.
Regarding the issue of sales growth, as a whole, under the current real estate regulation and control situation, you can see that this year’s regulation is different from previous years. This year, as a whole, different cities are the main body of regulation, and the regulation and control policies show high frequency and precision. , Effective characteristics, and we can also see that the current regulation and control policies are more reasonable.
Regarding the current financial policy control, we really feel that the tightening trend has put a certain pressure on the industry, whether it is for the financing of developers themselves or for loans to customers and residents. Therefore, developers are actively promoting products. Marketing, no matter what, after the overall running-in and adjustments over the past few years, all parties are still in a relatively adaptive state. Therefore, in terms of the overall transaction amount this year, it has reached a new high in the past few years. But for our company, we have entered a “rhythm run” in the era of management dividends. Therefore, we will take high-quality development as an important strategic measure for the company. We will maintain a moderate scale growth. This is the next few years. The overall strategic development direction.
We feel that with this wave of adjustments, everyone can see that the entire industry as a whole is showing a steady head. Therefore, you can see that after these adjustments, the overall transaction volume has not declined greatly, but has remained at a high level. At the same time, the current regulation is more focused on the regulation of selling prices. It can be seen from the situation in the first half of this year that, except for a few limited cities where housing prices have increased significantly, the growth rates of housing prices in other cities are basically the same. Not much, the growth of new houses is less than 2%, and second-hand houses are also about 4%, so the overall control of housing prices should still be reflected.
In the case of controlling housing prices, the overall transaction volume and the industry can show a stable trend, indicating that the industry as a whole is relatively healthy, and we are still relatively optimistic.
On-site questioning: The company’s goal is to have all three red lines all green by the end of next year. What specific measures will be taken to reduce them?
Chen Zhibin:In fact, our company attaches great importance to the situation of the three red lines, especially in terms of debt reduction and payment promotion. In the first half of the year, the company adopted organizational structure adjustments and appraisal adjustments. These two aspects are vigorously inclined.
Therefore, we have also seen that the entire collection rate and the amount of collection in the first half of the year have been greatly improved. This is our most basic goal to meet the three red lines. From the perspective of debt, everyone also sees that our debt balance is going downward, so the three indicators of the three red lines have improved compared with the end of last year.
On-site questioning: Earlier, the Ministry of Housing and Urban-Rural Development announced a notice to prevent major demolition and construction of urban renewal, and Guangzhou encourages state-owned enterprises to participate in urban renewal. What impact will these policies have on the company? Let me ask further, what is the current situation of the company’s old reforms? The current status of old reforms and conversions.
Guo Zining:Aoyuan is an early enterprise that participated in the transformation of the three olds and urban renewal. It has been around for 10 years. For so many years, we have promoted the urban renewal work in accordance with the relevant national and government policies. This time the Ministry of Housing and Urban-Rural Development issued a draft , I think this policy is to better promote the transformation of the urban renewal development model. Aoyuan has always advocated organic renewal, that is, a systematic renewal model that inherits historical context, improves public facilities, and implants emerging industries. It is suitable for the orientation of national policy.
In terms of old renovation, Aoyuan mainly focuses on the renovation of old villages and old factories, and does not involve the renovation of renewal units in the old city. Therefore, the ratio of demolition and construction is in line with the policy requirements. In terms of new construction, public service facilities will be built to enhance the function of the district. Quality. In terms of resettlement, it respects the residents’ willingness to resettle and adopts local resettlement. In terms of urban memory, Aoyuan strictly conducts project surveys, evaluates building conditions, and protects special urban resources according to local conditions. For example, our Cuiwei Old Village Reconstruction Project in Zhuhai fully respects Historical buildings are preserved, and historical buildings are preserved on the original site, which blends modern life with traditional historical culture and completes the inheritance and development of Cantonese culture. Therefore, the scheme of this project won the Greater Bay Area Urban Design Award issued by the Hong Kong Institute of Urban Design.
Just now, some media asked that Guangzhou City has recently solicited some policies, that is, Guangzhou’s old reforms encourage state-owned enterprises to dominate. In recent years, we have had a number of old reform projects in cooperation with state-owned enterprises, so in this regard, we believe that this will have little impact on us, especially Aoyuan has our advantages in urban renewal. There are many state-owned enterprises and state-owned enterprises. What are our advantages if we take the initiative to cooperate with us? First, we are a local company in the Greater Bay Area, second, we have a professional team, and third, we have a professional team. After these 10 years of implementation of the Three Olds Reconstruction Project, we have cultivated and attracted a large number of specializations in this area. A highly professional team.
We also have a number of successful cases of old renovation projects, such as the Luogang Aoyuan Plaza developed in 2016, and the Zhuhai Aoyuan Plaza project. These are all old renovation projects and have been very successful. In recent years, we have developed the University Town Xueyuan No. 1 project in Panyu, which is also an old renovation project, and it is also an old village renovation project in Zhuhai Cuiwei. These two projects will also be on sale soon. The current market response is very enthusiastic, and the registered customers are very Many, so we have many successful cases.
In addition, we have a greater advantage in giving the government and society the impression that Aoyuan is an enterprise with a high sense of social responsibility. Therefore, the villagers and the government trust us very much. The advantage of updating. So at present, 99% of our old renovation projects are in the Greater Bay Area. There are more than 70 projects, and the value of the converted value is more than 750 billion. This is also a major advantage of Aoyuan’s future development.
On-site question: In addition to the two listed companies of Aoyuan Health and Aoyuan Meigu, does the company plan to spin off other businesses in the future? For the future development direction and development goals of the non-housing sector?
Chen Zhibin:Now we have a total of three listing platforms, one is 3883, 3662 and A-share Meigu 612. Currently, we do not have any other plans for the spin-off of the non-real estate business.
However, we have participated in some companies that are going public, such as China Cultural Tourism, including the previous Gudou, have participated in the equity, but this is not our non-house sector, currently we are still focusing on these three platforms. , One of them is a real estate platform, and the other is an industry platform. We believe that in the future, the three platforms can be connected and can develop in coordination with each other. The development of our entire company in the future must be very healthy, so there is no other division. Demolition plan.
On-site questioning: I see that the profit of the real estate industry has a downward trend. In addition, it is also observed that the gross profit of the semi-annual report of Zhong Aoyuan has decreased by 1.8% year-on-year, and the profit attributable to shareholders has also decreased correspondingly. I would like to ask about the reasons for this, and for The outlook for future profitability.
Chen Zhibin:In terms of gross profit margin, our guideline is to maintain a gross margin level of more than 25%. This guideline remains unchanged. In the first half of the year, we also achieved 25%. In the next one to two years, we will still maintain a gross margin level guideline of 25%, including We are now investing in land, whether it is old reforms, mergers and acquisitions, or bidding, auctions and listing, our investment standards are also implemented at a gross profit margin of not less than 25%.
Of course, it will fluctuate to a certain extent. It involves several factors, including market prices, rising construction costs, etc., and there will be certain fluctuations, but the 25% level is still our goal and can still be maintained.
In terms of profit, our core profit rate in the first half of this year is 8.8%. If compared with the whole year of last year, it is basically the same. We are confident that the whole year will not be lower than last year’s level. Looking ahead to 2022 and 2023, we are also confident of maintaining or even higher than this profit rate. As more value of old goods enter the market, we believe that better profit margins will improve.
As for the core profit of the parent company, due to the dilution of minority shareholders, there will be some decline in the first half of the year. We can basically expect that our return to the parent company will basically remain at about 75% in the next one or two years. We think this ratio is still relatively good. Suitable.
On-site questioning: In the first half of this year, the group’s contract liabilities declined slightly. I would like to ask what is the reason, and will it affect future settlement?
Chen Zhibin:This aspect of contract liabilities reflects the company’s collection, which is the collection of items within the scope of consolidation. There are two types, one is a joint venture project, and the other is a project in the scope of consolidation. Combining these two, we have some growth in the first half of the year, but with the opening of some large joint venture projects, there are indeed some contracts. The liabilities were transferred to the joint venture project, which led to a slight decrease in contract liabilities in the first half of the year.
In general, our collection in the first half of the year was relatively high, which was in line with our goal. Therefore, we are not too worried about contract liabilities. We think that the whole year should be able to increase compared with the end of last year’s contract liabilities.
On-site questioning: Regarding the issue of repurchase and holdings, seeing that the entire real estate sector has been affected by the policy, and the stock price performance continues to weaken, I would like to ask if the management and the chairman have any ideas about repurchasing and holdings?
Guo Ziwen:I am full of confidence in the company’s development prospects. Everyone has seen that I have increased my holdings many times in the past, so I do not rule out that I will continue to increase my holdings in due course.
Chen Jiayang:Let me add a little bit. Since Aoyuan’s listing, Aoyuan’s major shareholders and executives have increased their holdings and repurchased the company’s stocks to a total of 1.03 billion Hong Kong dollars. This also proves that Chairman Guo and the management’s outlook for the company is Full of confidence.
The chairman just said that he will increase its holdings without hesitation when appropriate, and the company has always focused on its main business to improve the company’s operating performance. Therefore, the company’s capital use must also be based on corporate operations and business development. Our priority factors are believed to be in line with the company’s long-term development and safeguarding the best interests of shareholders.
