&Zhengrong real estate is experiencing a “painful period” of strategic adjustment. In 2020, Zhengrong real estate achieved a contract sales of 141.9 billion yuan, a year-on-year increase of only 8.6%, which is also its lowest growth rate in recent years.
At the same time, low gross profit rate has been the pain point of Zhengrong real estate. In 2020, the gross profit rate of Zhengrong real estate will continue to decline, from 20% in 2019 to 19.1%, lower than the industry average. According to the “new three-year strategy”, 100 billion Zhengrong has entered its final year. However, while optimizing its financial indicators, how will it get out of the dilemma of low gross profit rate?
Target 150 billion, sales growth reduced to 6%
According to the financial report data, Zhengrong real estate achieved the contract sales amount of 141.9 billion yuan in 2020, and achieved the annual contract sales target. The accumulated contract sales floor area is 8.9 million square meters, and the average contract price is 15949 yuan / square meter.
As a representative of 100 billion real estate enterprises, Zhengrong real estate has maintained a high sales growth rate before, but its sales growth rate in 2020 is only 8.6%, which is also the lowest growth rate of Zhengrong real estate in recent years. According to the annual report of Beijing business daily, from 2017 to 2019, the contract sales of Zhengrong real estate were about 70.1 billion yuan, 108 billion yuan and 130.7 billion yuan respectively, with sales growth of 78%, 54% and 21% respectively.
In terms of sales strategy adjustment, the growth rate of Rong real estate is declining. After breaking through the scale of 100 billion yuan, Zhengrong real estate put forward the “new three-year strategy” in 2019, aiming to achieve high-quality development in three dimensions of scale, profit and financial structure from 2019 to 2021. From the time point of view, the change of sales growth of Zhengrong real estate is also consistent with its “new three-year strategy”.
In 2021, Zhengrong real estate will continue to adopt a “conservative” attitude in terms of scale, and set a new annual sales target of 150 billion yuan, an increase of less than 6% compared with 2020. In this regard, Huang Xianzhi, chairman of the board of directors and chief executive of Zhengrong real estate, revealed at the performance meeting that “for scale growth, I think it’s OK to maintain an appropriate scale advantage. Zhengrong real estate still needs to adhere to high-quality development, especially long-term development.”.
Yan Yuejin, a real estate analyst, said that the scale of 100 billion yuan is a big threshold for real estate enterprises to raise funds, so there will be the phenomenon of small and medium-sized real estate enterprises impacting 100 billion yuan. In order to avoid the risk caused by high debt, especially after the introduction of the “three red lines”, the strategy of active speed reduction has been widely used.
Gross profit rate continues to decline
In terms of profitability, Zhengrong real estate achieved a revenue of 36.126 billion yuan in 2020, an increase of 11% year on year; a profit of 3.559 billion yuan, an increase of 15% year on year; a core profit of 3.304 billion yuan, an increase of 18.9% year on year; and a gross profit of 6.904 billion yuan, an increase of 6.3% year on year.
Although the gross profit keeps growing, the gross profit rate of Zhengrong real estate will continue to decline in 2020, from 20% in 2019 to 19.1%, lower than the industry average.
However, for the decline of gross profit rate, the management of Zhengrong real estate did not give a response at the performance Conference on the same day. However, according to the previous statement of its management, “because Zhengrong handled a batch of old inventory with higher cost, the gross profit rate of inventory was low, which affected the decline of the overall gross profit rate. While solving the problem of old inventory and reducing the cost of development financing, Zhengrong’s gross profit rate should be maintained in the range of 22% to 25%.
Xie Yifeng, President of China Urban Real Estate Research Institute, said that the cost expenditure is a major core point of embezzling Zhengrong real estate’s profits. At present, the real estate market has entered a mature period, and the major real estate enterprises are asking for dividends from the management, which also shows that it is difficult to reduce the above costs to a certain extent.
This year’s equity sales ratio is about 60%
In addition to the decline in gross profit rate, the equity proportion of Zhengrong real estate has always been a “pain point” to be solved.
At the same day’s performance conference, Zhengrong real estate also gave a response to the equity “cooperation” mode. “Zhengrong real estate will continue to adhere to the” cooperation “mode this year, but it is now in the adjustment period, and will continue to try to increase the proportion of project equity in the future.” Liu Weiliang, vice chairman of the board of directors of Zhengrong real estate, said.
According to Liu Weiliang, more than half of the more than 40 plots in 2020 are cooperative projects. In the future, Zhengrong real estate will try to choose two or three to cooperate. In addition, Zhengrong real estate will choose some enterprises with similar concepts and ideas to become strategic partners. In 2020, the equity sales proportion of Zhengrong real estate will increase to 55%, and it is expected that the equity sales proportion will reach about 60% in 2021.
According to financial report data, Zhengrong real estate will add 46 pieces of land in 21 cities nationwide in 2020, with an estimated total construction area of 7.14 million square meters. 43% and 31% of the newly increased land reserves are located in the Yangtze River Delta and the west coast of the Taiwan Strait, which are the two core areas of Zhengrong real estate sales.
From the perspective of the equity proportion of new plots, Zhengrong real estate has taken actions to optimize the equity proportion, and its equity proportion (by construction area) will be about 70% in 2020.
By the end of 2020, Zhengrong real estate has land reserves of 28.5 million square meters in 32 cities in China, 82% of which are located in the first and second tier cities; the proportion of land reserve equity (by building area) has increased from 55% at the end of 2019 to 58% at the end of 2020.
In the first half of next year, all the “three red lines” will reach the standard
After the introduction of the “three red lines”, how to reduce the debt level and realize the steady growth of enterprises has become the core issue of this year’s performance meeting of major real estate enterprises.
Referring to the “three red lines” indicators, Huang Xianzhi said that Zhengrong real estate put forward the “new three year strategy” in 2019, basically achieving the financial stability of the company. By the end of 2020, the net debt ratio of Zhengrong real estate has continued to decline to 64.7%, and the cash to debt ratio has increased to 2.2 times. The two indicators have successfully reached the policy standard of “three red lines”, and strive to achieve all the “three red lines” by the first half of next year.
By the end of 2020, Zhengrong real estate has about 35.478 billion yuan of cash and cash equivalents (28.369 billion yuan in the same period of 2019), about 610 million yuan of mortgaged deposits (1.81 billion yuan in the same period of 2019) and about 6.885 billion yuan of restricted cash (5.137 billion yuan in the same period of 2019).
In terms of debt, by the end of 2020, Zhengrong real estate had outstanding bank and other loans of 41.761 billion yuan, compared with 36.317 billion yuan in the same period of 2019; it had domestic corporate bonds and senior notes with a book value of about 25.523 billion yuan, compared with 22.348 billion yuan in the same period of 2019.
Beijing Business Daily reporter Lu Yang and Wang Yinhao
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