Leading Real Estate Enterprises' Net Profit Growth Slows Down And Transforms Into Deep Water Area

Numbers speak. Whether it is the market downturn, high costs, or the impact of the epidemic, it will eventually be reflected in the financial report.

According to the central report published in August, the growth rate of revenue and net profit of mainstream real estate enterprises generally slowed down or even declined in the first half of the year. At the same time, the capital pressure of some real estate enterprises increased, and the asset liability ratio and net debt ratio tended to go up.

This state may continue for some time.

In the second half of the real estate industry, the traditional business income slowed down, the real estate enterprise transformation entered the deep water area, and the new business was gradually showing strength. During the interim report period, Vanke disclosed rental income for the first time, including new businesses such as long-term rental apartments, commerce and logistics. The rental income of Longhu, China Resources and Zhonghai was also reflected in the statements, and the transformation effect has been realized.

Under the cash flow mode brought by operation and rent income, real estate enterprises have split off new businesses and listed on the market in order to seek new revenue and profit growth points.

The level of profitability has declined

In the first half of the year, the revenue and net profit of several leading real estate enterprises declined. The financial report shows that in the first half of the year, the operating revenue of China Resources land was 44.869 billion yuan, a year-on-year decrease of 2.14%, and the net profit was 11.542 billion yuan, a year-on-year decrease of 9.3%; the operating income of R & F decreased by 4.63% to 33.591 billion yuan, and the net profit decreased by 5.86% to 3.792 billion yuan; the revenue and net profit of country garden also decreased.

There are also some real estate companies only net profit decline. For example, the net profits of China shipping and Greenland were 20.527 billion yuan and 8.020 billion yuan respectively, down 3.74% and 10.76% respectively.

Evergrande issued a profit warning. On August 16, Evergrande announced that it was expected to record a decrease of 37% and 46% in net profit of core business in the first half of the year.

Other leading real estate enterprises, such as rongchuang, poly and Greenland, have not seen a direct decline in revenue and net profit, but their growth rate is also slower than in previous years.

According to the interim report, rongchuang's net profit appeared "sudden brake", which was about 10.959 billion yuan, with a year-on-year growth of about 6.54%. Compared with the first half of 2019, the growth rate dropped by 55.16 percentage points; the net profit of poly development reached 10.124 billion yuan, with a year-on-year growth of 1.70%, while in the middle of 2019, the data was 53.27%, with a sharp decrease in growth.

Such as Vanke and Longhu are no exception. In the first half of the year, the net profit of Vanke was 12.508 billion yuan, a year-on-year increase of 5.62%, but it was also significantly lower than that of 29.79% in the first half of 2019; in the first half of the year, the net profit of Longhu was 6.339 billion yuan, with a year-on-year increase of 0.46%, and the growth rate decreased by 15.75%.

Compared with the slowdown of net profit growth in the whole year of 2019, the net profit performance of the above-mentioned real estate enterprises in the first half of the year is not as good as that in 2019.

Why is the profit level of real estate enterprises lower than that of previous years? Wu Bijun, chief financial officer of country garden, believes that the decline in profits in the first half of the year is related to the delay in delivery and the higher land price two years ago.

Wu Bijun said that in 2020, due to the epidemic situation, construction would be stagnant for two months, and the number of buildings to be delivered would decline year on year. In addition, the land market was relatively hot at the end of 2017 and 2018. During that time, the price of the land bought was relatively high. Now the delivery of the building has lowered the gross profit rate, resulting in the profit less than expected.

Mr. Zhu Xu, director of Vanke, also mentioned the high land price. She said that the increasingly high land sales ratio is reflected in the financial report, which has a significant impact on the settlement and profits of real estate enterprises.

Evergrande said in the announcement that the decline in profits in the first half of the year was mainly due to the impact of the outbreak of the epidemic, which led to lower prices and higher marketing costs.

Commercial real estate developers are also greatly affected by the epidemic. Guo Shiqing, chief financial officer of China Resources Land, believes that the black swan epidemic has led to a "decline in the value-added evaluation of investment properties", which has affected net profits. Real estate enterprises such as Longhu have also been impacted by their holding more commercial real estate.

Guo Shiqing predicted that with the improvement of the epidemic situation and return to normal value-added investment property evaluation, China Resources Land's annual profit is expected to rise.

In addition, under the superposition of various factors, the debt ratio of many real estate enterprises has increased and the pressure on the capital chain has increased.

According to the interim report, the net debt ratio of many real estate enterprises has increased. The net debt ratio of Greenland increased by 24.7 percentage points to 180%, the net debt ratio of poly development of central enterprises increased by about 10 percentage points to 78.5%, and the net debt ratio of China Resources increased by 15.6 percentage points to 45.9%.

The net debt ratios of CNOOC and Longhu were 32.7% and 51.4% respectively, up 1% and 0.4 percentage points, still at the low level of the industry.

But there are also many leading real estate enterprises' net debt ratio has declined. According to the interim report, Vanke's net debt ratio was 27.02%, a decrease of 6.85 percentage points over the end of 2019, and the net debt ratio of Lucheng, Jinmao and Xuhui were 66.1%, 74% and 63.2%, respectively, down 2.9%, 5.and 5.3 percentage points.

The high net debt ratio of real estate enterprises is also actively reducing leverage. The net debt ratio of rongchuang was 149%, a sharp decrease of 23 percentage points; the net debt ratio of Fuli was 177%, a decrease of 21.9 percentage points.

Looking for profit growth point

At the performance meeting, most of the real estate enterprises believe that the decline of the profit level of the development business and the decline of the gross profit rate are inevitable.

What they can do is to speed up the transformation and seek profits from refined management and new business.

Vanke is a sample of diversified transformation of leading real estate enterprises. On August 28, Vanke Zhongbao disclosed for the first time the income of rental housing business, shopping mall (including printing force) business and warehousing logistics business.

Among them, the income from rental housing business was 1.05 billion yuan; the rental of shopping malls (including non consolidated items) was 3.05 billion yuan, with a year-on-year increase of 0.3%; the rental of warehousing and logistics was 0.83 billion yuan, with a year-on-year increase of 36.9%.

By the end of June, the total opening area of commercial projects (including Yinli) under Vanke reached 8.36 million square meters, an increase of 11.1% year-on-year; by the middle of the year, the total area of Vanke logistics warehouse was 6.16 million square meters, including 5.82 million square meters of high-level warehouse, 89.1% of stable period rental rate; 340000 square meters of cold storage opened, with the utilization rate of 81.5% in stable period.

Property is the first to contribute to new business revenue. The consolidated Vanke property is far ahead of the industry in terms of revenue of 6.7 billion yuan in the first half of the year, with a year-on-year growth of 26.8%; the operating income of listed poly properties in the first half of the year was 3.601 billion yuan, with a year-on-year growth of 27.6%.

The residential property management area of China Resources Land is 98 million square meters, and the commercial property management area is 14 million square meters. In the first half of the year, the revenue of China Resources land was 1.68 billion yuan and 1.04 billion yuan, respectively, with a year-on-year increase of 9.3% and 8.9%.

In addition, the operating income of leading enterprises such as China Resources, Longhu, China shipping and poly also came from the rental of investment properties in the first half of the year. The rental income of investment properties of China Resources reached nearly 5 billion yuan in the first half of the year. The commercial rental income of Longhu and Zhonghai in the first half of the year also reached 2.67 billion yuan and 2.03 billion yuan, both higher than the same period last year.

These businesses which bring continuous cash flow income become the starting point of new capitalization of real estate enterprises. Due to the stable cash flow and definite growth of the property sector, it has become the leader in the split listing in recent two years.

In the past year alone, 18 property companies have been listed. This year, the property IPO has accelerated again. Several leading real estate enterprises, including Evergrande, rongchuang and China Resources, intend to be listed separately.

So far, in the four giants of real estate enterprises, only Vanke property has no listing plan. Wang Haiwu, chief operating officer of Vanke, said that he hoped to split the property, commercial and logistics businesses into public offerings in the process of transformation, but there was no clear plan at present.

At present, it is difficult to list commercial real estate with heavy assets. Many real estate enterprises consider that they will package some assets into REITs for listing in the future.

The benefits of spin off are obvious. In addition to financing, China Resources Land said that the split listing can enhance the market value, further strengthen the balance sheet and find new profit growth points.

According to Wu Jianbin, CFO of sunshine city, capital expansion is the eternal theme of enterprises, and also the key factor to go through the cycle and prolong life. In the near two years, the real estate enterprises should face the opportunity of new capital construction, and at the same time, it is necessary to cultivate new capital business.