Green City Is Back In The Top 10 Of The Industry, Why Investors Still Don'T Buy It?

On the evening of March 22, greencity China (03900. HK, hereinafter referred to as "Greentown") released its 2020 annual performance report, and a number of core financial data such as revenue, profit, net profit and basic profit per share increased. Among them, the revenue was 65.78 billion yuan (RMB, the same below), with a year-on-year growth of 6.8%; the profit was 5.763 billion yuan, with a year-on-year growth of 46.5%; the net profit was 3.796 billion yuan, with a year-on-year increase of 53.1%; the basic earnings per share was 1.05 yuan, with a year-on-year increase of 90.9%.

In 2020, with the total sales of 289.2 billion yuan, green city will return to the top ten in the industry, even ranking eighth in some lists.

At the performance conference held on March 23, Zhang Yadong, chairman of the board of directors of Greentown China, put forward a "new five-year plan". It is estimated that the company's real estate development contract sales target will reach 650 billion yuan by 2025.

As Zhang Yadong said, after the rehabilitation period of 2015-2018 and the fitness period of 2018-2020, green city will enter the starting stage in 2020-2025.

However, investors are not buying. At the midday close of March 23, the share price of Greentown fell sharply by 8.94%. After the performance conference in the afternoon of the same day, the share price still fell, closing at HK $10.38/share, down 12.48%, ranking first among Hong Kong stock real estate enterprises. On March 24, Greentown closed at HK $9.91, down 4.53% again.

According to the annual report, the main reasons why the capital market holds a reserved attitude towards the company are that the price limit policy affects the gross profit rate, resulting in "income increase but no profit increase" and asset impairment accrual. It is worth mentioning that on the same day of the annual report, Greentown released a notice on the change of board members. Liu Wensheng and Zhou Lianying, two directors appointed by CCCC, retired and transferred back to CCCC respectively. Wu Wende and Ren Honglei, two other "CCCC personnel", were replaced. The management is coming and going, and the company's operation is completely solidified. In the past, the green city in Song Weiping's era seems to be gradually moving away.

History short board

According to the annual report, of the 289.2 billion contract sales of Greentown China in 2020, 214.7 billion are self investment sales, of which equity sales are 119.4 billion, accounting for 55.61% of the total. Among the head real estate enterprises, only Xuhui holding (00884. HK) and Greentown equity account for less than 60%. Lin Zhong, chairman of Xuhui holdings, also said publicly that it would increase its equity ratio.

In 2020, there will be 85 new projects in green city China, with an estimated value of 328.8 billion, of which the value of equity goods is about 188.5 billion, accounting for 57.33% of the total. In the future, is there any room to increase the equity proportion of green city?

In this regard, Guo Jiafeng, executive director and chief executive of green city, explained that the proportion of land acquisition rights and interests of green city in 2020 will be 57%, which is related to the development of projects and companies, but green city has the initiative to increase or decrease by 10%. For example, he said that the projects obtained last year were of high quality, which attracted some companies including Ping An and other financial institutions to participate in the shares; in the first half of this year, the equity proportion of the projects was estimated to be more than 80%, such as Hangzhou land acquisition, which was basically 100% equity. "On the one hand, due to economic considerations, the efficiency of not using cash on account will also be reduced; on the other hand, for the sake of team training, it is better to introduce strategic partners and do more projects to cultivate teams with the same amount of money."

In addition, cost control is still a problem for green city. In the "three fees" of green city in 2020, the administrative expenses will rise slightly, the sales expenses will increase by 10.6% and the financial expenses will increase by 41.8%. Among them, 20.618 billion perpetual bonds, the annual financing cost reached 7.12%. On the one hand, the perpetual bonds devour the profits of green city; on the other hand, it provides financial support for the investment and development of green city. However, Geng Zhongqiang, executive director and CEO of green city, also revealed that he would not continue to do perpetual debt after maturity.

In addition, the company's assets impairment was 1.334 billion. Among them, 856 million have been withdrawn from football assets and hotel assets, and 478 million have been withdrawn for real estate. Green city had withdrawn bad debts for four consecutive years before. From 2016 to 2019, the impairment provision of Greentown was 214 million yuan, 980 million yuan, 1.735 billion yuan and 1.376 billion yuan respectively.

The problem of green city is not only due to the background of the industry, but also to the historical problems of the past few years. How to smooth out the negative impact of these problems on the company in the future development, I'm afraid the company's management can not avoid.

The future of green city

Perhaps in order to stimulate the capital market, Zhang Yadong, chairman of the board of directors of green city, put forward a plan for the next five years at the performance meeting: a sprint of 650 billion yuan. Of course, this includes 150 billion yuan of agent construction business and 40 billion yuan of "green city +" emerging business. In 2021, green city is ready to achieve a sales target of 310 billion yuan.

In the head of the housing enterprises gradually diversified, no longer emphasizing the scale of today, green city still hopes to expand the scale. Zhang Yadong is very confident that the total contract sales of green city will reach 650 billion in 2025, saying that it is not difficult to achieve a growth rate of 15% a year. He believes that the real estate market will be good money to drive out bad money, quality enterprises will certainly become stronger and stronger.

It is worth mentioning that as of December 31, 2020, the deposits and cash (including mortgage bank deposits) of Greentown bank were 65.203 billion yuan, an increase of more than 10 billion yuan compared with 51.894 billion yuan in the same period of 2019. Green city may also face the problem of how to improve capital efficiency and how to spend money.

According to the market value of green city's land reserve, it is feasible to achieve the above sales target, but investors are not concerned about the scale, but the power of sustainable growth of enterprises in the future, or the growth with quality. Another question of green city by the capital market is the problem of profit. Although the gross profit increased, the gross profit rate declined, which is a typical performance of "increasing income but not increasing profit". This is related to the low proportion of equity sales, and the industry's gross profit rate has also shown signs of decline in recent years.

In 2020, the gross profit of green city is 15.573 billion yuan, which is the same as that in 2019; the gross profit rate is 23.7%, which is 1.7% lower than that in 2019; the core net profit is 3.993 billion yuan, which is 7.9% lower than that of 4.336 billion yuan in 2019

Year on year decline. The gross profit rate of property sales was 23.5%, 1.3 percentage points lower than that of 24.8% in 2019.

Greentown management said that the decline in core net profit and main gross margin was mainly due to the product premium not fully reflected due to the price limit policy. Guo Jiafeng said that in order to prevent systemic risks, investment strategies will be adjusted in 2020, such as Hangzhou and Ningbo, which have obvious advantages and high efficiency in overall operation, but the average profit margin is not very high. Therefore, green city did not get much land in Hangzhou last year, but increased investment in Ningbo. Guo Jiafeng believes that since the second half of last year, the premium rate of the national land market has gone up. Under this background, green city has begun to increase the acquisition of acquisition and acquisition and land acquisition projects, especially in the Yangtze River Delta region.

According to the "three red lines" index, green city is still a "yellow file" real estate enterprise, and one of the "asset liability ratio excluding accounts receivable" is not up to standard. This is also a high turnover Housing enterprises generally failed to meet the standard.

Geng Zhongqiang said that as of the end of last year, the asset liability ratio excluding pre-sale accounts was 71%, slightly crossing the line, which was 73% in 2018. He predicted that before 2023, the asset liability ratio of green city excluding accounts receivable will reach the standard, thus turning into "green file". Geng Zhongqiang pointed out that green city is actively controlling the debt scale and improving the sales division, so as to improve the return flow of the group's cash flow and investment efficiency.