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In the second year after stepping over hundreds of billions of dollars, China reduced financing costs and carefully acquired land.
Sep 1,2020 08:16CST
translation
Source:Viewpoint real estate network
The content below was translated by Tencent automatically for reference.

SMM Network News: extraordinary 2020, the beginning of the epidemic, the overall economic downturn in the context of the real estate industry is facing many challenges, the closure of the sales department at the beginning of the year, the suspension of land transfer, the impact of the completion of the construction progress, the capital market, such as a heavy blow to the scene like yesterday.

Halfway through the journey, the challenges faced by housing companies do not seem to have diminished in the second half of the year. Recent discussions about the "three red lines" and the narrowing of the financing environment have caused panic, and reducing debt has become the mantra of real estate companies.

Near the end of the China News Conference, Rongxin China also released its first-half results report on the last day of August, continuing the tone of the beginning of the year. Careful acquisition of land, grasping sales recovery and reducing financing costs have become the main theme of the past six months.

At noon on August 31st, Rongxin's China interim results report showed that the total income realized was 21.066 billion yuan, gross profit was 3.14 billion yuan, profit during the period was 1.646 billion yuan, the core net profit attributable to the owner of the company was 1.111 billion yuan, the gross profit margin was 23.9%, and the net interest rate was 13.2%. No interim dividend is paid.

In the same period last year, Rongxin China realized a profit of 26.616 billion yuan, a gross profit of 6.3614 billion yuan, and a profit of 3.51 billion yuan during the period. the core net profit attributable to the owner of the company was 1.9563 billion yuan, the gross profit margin was 23.9%, and the net profit rate was 13.2%.

In the past two years, with the gradual slowdown of the pace of expansion, Runxin China began to focus on profit growth, while there are certain requirements for cash flow and debt indicators. However, how to balance scale, profit and debt is still a difficult problem for China to face in the future.

Analysts who attended the investor meeting on the same day told the real estate new media that Rongxin China management said that in the current environment of relatively uncertain factors, Rongxin China is mainly in the first and second tier of land, and the gross profit margin will be a little lower, but it will be much safer.

"in the future, the company will improve efficiency through internal operations, further optimize financing costs, and pay more attention to the profitability of the project. Gross profit margin is expected to pick up gradually after next year."

Sales return and cautious acquisition of land

In fact, most of the projects carried forward by housing enterprises in the current period are projects acquired two or three years ago. Rongxin China management has made a detailed description of the current profit changes, and is still full of confidence in the future carry-over level.

"the projects carried forward in the first half of the year are mainly relatively high-quality land taken in the second half of 2016 and 2017, which is affected by the price limit policy, so the gross profit margin is on the low side. Of course, it is not deliberately carried forward this year, but only to reach the basic turnover point and let nature take its course. In addition, some of the acquired projects have acquisition node sales, and the gross margin is relatively low. "

Rongxin China explained that as this part of the high price is gradually carried forward, the gross profit margin will gradually improve next year, and the gross margin on contract sales in the first half of this year will be between 20% and 25%.

It is worth mentioning that, in addition to paying attention to the profit performance of the current period, the return of sales in Rongxin China in the first half of the year has also attracted market attention.

The latest data show that from January to July this year, Rongxin China's total contract sales were about 72.502 billion yuan, an increase of 4.23 percent over the same period last year. The total contract floor area was about 3.1795 million square meters, and the average contract price was 22803 yuan per square meter, an increase of 9.98 percent over the same period last year.

According to the TOP100 list of Chinese real estate companies from January to July 2020 released by the opinion Index, Rongxin China sold more than 72.5 billion in July, ranking 21st among real estate companies, up from the beginning of the year.

In terms of cities, Rongxin China ranked high in contract sales in Hangzhou, Nanjing, Fuzhou, Shanghai, Wenzhou, Zhengzhou, Suzhou, Ningbo and Huzhou in the first half of the year. Hangzhou, Nanjing and Shanghai accounted for 36.58%, 12.81% and 6.56% of the group's total contract sales, respectively.

According to investors, under the influence of the epidemic, Rongxin China has made a new attempt in its sales strategy, including checking out for no reason, online sales department and live Douyin sales, and so on. Most of the group's layout is in the Yangtze River Delta, and the real estate recovery in the Yangtze River Delta is obviously higher than that in other regions, so the overall sales flow is accelerating very fast.

"as of the end of August this year, the overall sales completion rate is close to 60%, which is still promoted by the sales target set at the beginning of the year, and the total supply in the second half of the year will be higher than that in the first half of this year. If the removal rate achieved in the first half of this year is 68%, I still have more confidence in the overall sales target this year."

In addition, in the first half of 2020, Rongxin China actually launched goods with a value of 88.7 billion, the actual removal rate was 68%, and the actual payback rate was 81%. In the second half of the year, it is expected to launch 130 billion goods, the expected removal rate will remain above 70%, and the expected payback rate will remain at 80%. Contract sales in the second half of the year are mainly concentrated in the Yangtze River Delta and Hercynian.

In terms of land reserve, during the reporting period, Rongxin China added 21 new projects, with an additional land storage of 4.61 million square meters, a total land cost of 29.2 billion yuan, rights and interests of 13.8 billion yuan, and a unilateral land cost of 8550 yuan per square meter. In addition, the new right of the old Taiyuan project is 480000 square meters, and the unilateral land cost is 1222 yuan / square meter.

According to investors, Rongxin first-and second-tier linkage began to participate in the time City of Zhengzhou in 2016, with a total of 4.74 million square meters of rights from 2017 to 2020, with 502 square meters of remaining rights to be confirmed, and the total construction area is expected to be 9.76 million square meters.

As of the first half of the year, Rongxin China has a total of 219 projects, with a total land storage area of 28.03 million square meters, rights and interests land storage area of 14.21 million square meters, with an average land cost of 7767 yuan per square meter. Among them, first-and second-tier cities account for 82%, and the ratio of land price to sales is 33%.

Some investors are concerned that the transformation rate of the first-and second-tier linkage projects of Rongxin is slightly slower. Rongxin management said that in the first half of the year, it was still affected by the epidemic, and epidemic control was given top priority, so the company and the government slowed down the speed of the old reform. it is based on the special environment this year, and does not affect the certainty of the confirmation of the project.

Rongxin management seems to be satisfied with the achievements made in the land market in the first half of the year, and told investors that the projects taken in the Yangtze River Delta this year have a good grasp of the land window.

As for the second half of the year, some industry insiders said that Rongxin focus on the director triangle, starting from 2018, more cautious, attach importance to land acquisition costs, through internal management and urban ploughing, establish a long-term team of regional managers, prepare more adequate cash flow, and continue to look for a better land investment window.

"Land acquisition this year emphasizes deep ploughing and profitability, and on the one hand, it is necessary to speed up the transformation of old reform projects, while actively paying attention to project acquisition opportunities. The annual land acquisition budget is 30% of the sales rebate and 50% of the land funds."

In addition, in August this year, Rongxin made a lot of attention in the soil auction market in Shanghai. after the failure of seizing the Qiantan land in Shanghai with Lujiazui, Rongxin and Xu Hui jointly won the Minhang homestead with 4.5 billion, and then won the residential land in Nanxiang Town, Jiading with 4.871 billion. On both occasions, the premium rate of land in Shanghai was more than 35%.

Reduce financing costs and adjust debt structure

Debt is an important index to observe the stability and safety of the future development of real estate enterprises, and improving financing capacity is a good channel for real estate enterprises to optimize their debt structure.

According to the China News, the debt ratio of Rongxin China is 91%, the total interest-bearing debt is 68.9 billion yuan, the debt due within one year has dropped from 30% in 2019 to 27%, the financing cost has dropped from 6.85% to 6.67%, and the financing cost has decreased by 11.87% to 275 million yuan from 312 million yuan in the middle of last year, mainly due to a reduction in non-capitalized interest expenses.

In the first half of the year, due to the impact of the epidemic, the domestic bond issuance environment was relatively relaxed, and Rongxin also carried out multi-channel financing. In March and April this year, Rongxin China issued 1.29 billion yuan and 1.106 billion yuan of asset-backed securities (ABS), which bear interest at an annual interest rate of 5.9% and are secured by the group's property sales receivables.

In terms of foreign debt, in June 2020, Runxin China issued US $250 million senior notes maturing at 7.35 per cent in 2023, followed by additional issuance of US $160 million senior notes that merged and formed a single series, creating the lowest interest rate on the company's long-term debt.

On August 5 this year, Rongxin China also issued US $200 million of preferred notes maturing in 2024 on the Singapore Exchange at an interest rate of 6.75% per year, which was further reduced.

In addition, by the end of June this year, Rongxin China had issued a total of 12.176 billion yuan of domestic corporate bonds, accounting for 17.66 per cent of the group's total borrowing.

At present, Rongxin has 31.26 billion yuan in cash and bank deposits, a cash-to-debt ratio of 1.7, a total credit line of 143.2 billion yuan, and an unused credit line of 105.9 billion yuan, of which 88% are granted by financial institutions, 12% by other credits, and 168% by interest-bearing liabilities.

Judging from the data, Rongxin China has less debt repayment pressure and more cash on hand, which can meet the payment of basic working capital in the coming year. Starting from 2018, reducing debt is also an important threshold that the group needs to cross after standing on hundreds of billions of dollars in pursuit of sound financing.

For the growth of interest-bearing liabilities in the first half of the year, Rongxin management said that this year, it cooperates with more enterprises to acquire land, so it is generally borrowed at 10% 12% interest, and the real debt ratio is still 80%.

The "three red lines" that have been talked about recently, according to investors, Rongxin management believes that the three red lines put forward higher requirements for developers, and the company has advantages in terms of scale, financing capacity, product power, and interest-bearing liabilities. By the end of this year, it is initially predicted that these three red lines should not be broken.

"We attach great importance to financial security, and the financial policy still maintains a balanced development on a sound basis. In the middle of this year, the net debt ratio of Runxin slightly exceeded 90%, which will be controlled within the management target for the whole year, and the total debt for the whole year is basically the same as that in the medium term."

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