The year 2021 is doomed to be a “cold and warm” year.
By April 6, 2022, taking the 2021 financial reports (including unaudited performance) of 25 listed real estate enterprises that have entered the “100 billion club (based on full caliber sales)” as the sample, according to the statistics of the reporter of Securities Daily, the net profits attributable to the shareholders of the parent company, including CNOOC real estate, China Resources Land and Longhu group, exceeded 20 billion yuan, including Longhu group, China Resources Land, Greentown China China’s five Jinmao and Jinhui holdings increased year-on-year, and the net profits of the other 20 fell year-on-year.
“In 2021, the top 100 real estate enterprises’ increasing income without increasing profit ‘became more and more serious. The average net profit margin and return on net assets were 9.8% and 8.1% respectively, down 2.2 and 1.8 percentage points respectively compared with the previous year.” Liu Shui, the research director of the enterprise business department of China Index Research Institute, told the Securities Daily that the high land price and the de financialization of real estate limit the profit space of real estate enterprises. In the next one to two years, the industry may still be in the era of reducing profits.
“In the past, the KPI of professional managers’ investment and land acquisition was determined by ‘quantity’, the voice of ensuring scale was the first, and the investment quality was the secondary. Even if the 2% net profit margin still had to be hard headed to acquire land, resulting in inadequate financial risk control and insufficient short-term solvency. As a result, the number of ‘100 billion real estate enterprises’ exceeded 40, but the market value exceeded 100 billion yuan, accounting for less than one third.” An insider of the investment and expansion line of real estate enterprises told the reporter of Securities Daily that after this round of realistic impact and review, the efficiency, profit and market value of one yuan are new topics that the helmsman has to think about and face.
gross profit margin red line reduced to 20%
When the “shrinking the table and clearing out” was carried out, the “scale only theory” of the real estate industry was no longer applicable, and the “bigger but not stronger” real estate enterprises had fallen into a liquidity crisis. In the downturn of the industry, after resumption, reflection and review, the leaders of real estate enterprises began to realize that the era of “radical” high leverage driven development of the real estate industry is indeed over.
It seems that by coincidence, compared with the previous performance description meeting, the “sales target” is the protagonist. This year, the “average good” head real estate enterprises are releasing a message, taking profit as the guidance, reducing cost and increasing efficiency, changing profit rather than scale as the KPI assessment target, taking IRR (internal rate of return) as the criterion for investment and digging a profit reservoir for non real estate development business.
Behind the release of this information is the profound examination brought by the decline of the profitability of the industry to match that of the manufacturing industry after the era of land dividends and financial dividends faded.
Taking the 2021 financial report data of the above 25 “100 billion real estate enterprises” as a sample, the gross profit margin of all 25 real estate enterprises fell, ranging from 0.01 percentage point to 17 percentage points. Even CNOOC real estate, known as the “king of profits”, also fell by more than 6 percentage points; Based on the 25% gross profit margin red line agreed by the industry in the past, only 7 enterprises such as Longhu group and CNOOC real estate have crossed the red line. If the gross profit margin red line is reduced to 20%, 14 real estate enterprises have crossed the line.
Looking back at the average profit margin data of the real estate industry in the past three years, according to Sinolink Securities Co.Ltd(600109) statistics, from 2018 to 2020, the gross profit margins of real estate enterprises were 28.77%, 26.96% and 23.35% respectively, and the decline expanded year by year. From the performance announcement of 2021 released at present, the average gross profit margin is 18.74% and the average net profit margin is 8.21%; The gross profit margin of the manufacturing industry in 2021 was 20.53% and the net profit margin was 7.96%.
This may be the basis for the prediction of jumping over the “Bronze Age” and directly entering the “black iron age”. Therefore, Yu Liang, chairman of Vanke’s board of directors, spent 28 minutes on reflection and analysis at the performance presentation meeting after handing in the transaction order with almost half of the parent’s net profit. After all, this is the third decline in net profit in 31 years of listing. At the same time, Vanke’s gross profit margin also fell to 21.8%, which has just crossed the new red line reached consensus in the industry.
“We all agree that the gross profit margin will return to about 20% or more.” Li Xin, President of China Resources Land, said, “the situation of each company is different, but there is no great difference in the target of gross profit margin level. It is unlikely to return to 30% or more.”
“In 2021, the overall gross profit margin of Longhu group is 25% and that of the real estate development sector is 23%, which is relatively high in the industry. In the next one to two years, the projects taken in 2017 and 2018 when the land market is hot will gradually enter the settlement channel. It is expected that the gross profit margin of real estate development will maintain a level of 20%, and the overall gross profit margin of the group hopes to maintain 25%.” Chen Xuping, CEO of Longhu group, told the Securities Daily that if the high leverage of the land market is cleared and (Longhu) continues to obtain plots with lower prices, the gross profit margin of the real estate sector can be repaired in the future.
what is the support for future valuation
From the current structural adjustment measures on both sides of supply and demand, development is still the main business of most real estate enterprises and still plays a decisive role in the profit pool. However, relying on development without operation and service business alone cannot develop a new real estate development model without departing from the scope of customer base and capability circle, nor can it support “quality development”.
It is very important for us to do a good job in the layout of commercial housing, which may have reached the ceiling of 18.64 trillion yuan before the arrival of 2021; Second, although there will be fewer players in the end, if the core still develops according to the old playing method of “adding with speed as the scale and multiplying with leverage”, it will eventually “retreat” from the camp of outstanding students, and the valuation will not be fully recognized by investors.
Based on the closing price on April 6, the total market value of seven real estate enterprises in A-share and Hong Kong stock markets exceeded 100 billion yuan, China Vanke Co.Ltd(000002) was 246.7 billion yuan, China Overseas Development 234.1 billion yuan, China Resources Land 225.7 billion yuan, Poly Developments And Holdings Group Co.Ltd(600048) 219 billion yuan, Longhu group 211.7 billion yuan, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) 129.0 billion yuan and country garden 122.1 billion yuan.
According to the observation of the reporter of Securities Daily, the real estate enterprises standing in the market value camp of 200 billion yuan have four common characteristics. First, the financial disk is stable, for example, the net profit scale exceeds 20 billion yuan and the gross profit margin exceeds 20%, which are all green real estate enterprises; Second, the proportion of non real estate development income has gradually increased, and its high gross profit margin has increased the profit space of the company; Third, land reserves are mostly concentrated in the first and second tier cities; Fourth, the rating is stable and the PE multiple is high.
Taking Longhu group, the only private housing enterprise in the market value camp of 200 billion yuan as an example, the operating business income in 2021 was 18.8 billion yuan, of which the investment property income was 10.4 billion yuan, and the gross profit margin was about 75% (the mall rental income was 8.15 billion yuan, and the overall rental rate was 97%; Guanyu rental income was 2.23 billion yuan, and the rental rate of houses opened for more than half a year was 94.3%); Property management and other income amounted to 10.4 billion yuan (8.4 billion yuan after the combined offset of property management and other income, with a gross profit margin of 25%), and the business scale outside the main channel of real estate development has ranked among the top three in the industry. In addition, taking China Resources Land as an example, its non real estate development revenue in 2021 was operating real estate business and its light asset management business, China Resources Vientiane life, with revenue of 17.4 billion yuan and 8.88 billion yuan respectively, with a year-on-year increase of more than 30%.
In this regard, Southwest Securities Co.Ltd(600369) gave CR land 6.5 times PE for 2022 performance, and Zheshang Securities Co.Ltd(601878) gave Longhu group 10 times PE for 2022 performance.
In the view of the industry, like real estate enterprises such as Longhu group, China Resources Land and CNOOC real estate, the diversified business with non real estate development business as the core has become stronger and entered the harvest period, and has become a stable source of cash flow for the group. Most of the “tuition fees” of its segments have been paid, the business model and its replicable model have been run through, and it has the ability to explore new development models of real estate, which is the layout of the future, It is also based on the concept of long-term ism and the ability to cross the cycle with strategic determination. It is also one of the core elements of high valuation given by the capital market.
“After the real estate industry entered the era of reducing profits, the traditional model of high turnover and high debt is no longer applicable, and the scale is no longer the key to success. The industry is moving towards high-quality development, and the financial stability and operation level have become the key factors that real estate enterprises must pay attention to.” Chen Xiao, senior analyst of Zhuge housing search data research center, told the Securities Daily that looking forward to the future, under the background of increasing industry concentration and intensifying competition, real estate enterprises with excellent operation and management level, stable financial situation and clear diversified development path will be more likely to enjoy overvalued value and high P / E ratio.
