Today (August 21), Country Garden released its 2018 interim results.
For the six months ended June 30, 2018, Country Garden's sales amount, area, and profitability index both increased significantly. The net interest rate of high attention was also very impressive, at 59%, lower than the industry average.
"High performance, high profitability, low debt", this is the most intuitive experience of Ruiteng after reading this semi-annual performance report.
At the same time as the interim results announcement, Yang Guoqiang, Chairman of the Country Garden Group Board of Directors, in a letter to investors, reviewed the security incidents in the past two months and said that Country Garden is re-examining the company's management system. It is better to slow down some development speeds and pursue the overall management level of the company.
It seems that Country Garden, which is "a ride on the dust", may really want to "slow down."
Country Garden 2018 Interim Results Summary
1. Double growth in sales and profitability indicators
According to the performance report, Country Garden achieved contracted sales of RMB 412.49 billion for the six months ended June 30, 2018, a year-on-year increase of 42.8%, and completed 74.9% of last year's sales.
Selling more than 400 billion in half a year, this achievement is not unexpected.
After all, from the 47.6 billion in 2012, to the 100 billion mark for the first time in 2013, and to 550.8 billion in 2017, Country Garden has been refreshing the scale of the entire industry, and the growth rate is obvious to all.
Rui Teng is more concerned about whether this momentum can be maintained in the second half of the year.
Although Country Garden has no sales target in 2018, from the performance report, as of June 30, the land bank in mainland China reached 364 million square meters, and the total number of mainland China projects that have been signed or delisted by Country Garden is 1991. With such abundant land reserves and value as the basis, it should be very promising to achieve 800 billion yuan this year.
Country Garden 2010-2018 contract sales amount in the first half of the year
In addition to the sales performance of the first half of the year exceeded 400 billion, from the data disclosed in the performance announcement, Country Garden also has a good performance in the contract sales area.
In the first half of 2018, Country Garden achieved a contracted sales area of approximately 43.89 million square meters, a significant increase of 36.1% year-on-year.
In Rui Teng's view, the increase in sales area is more worthy of attention than the sales amount.
Because, in recent years, the sales performance of many housing companies has soared, largely due to the rise in housing prices, but in fact the development of sales area, product volume has not increased much; in other words, today's 100 billion, in fact, It is equivalent to the previous tens of billions.
This is like taking a salary of four or five thousand now, but it is similar to the income level of one or two thousand ten years ago. It is a truth.
Country Garden 2013-2018 contract sales area in the first half of the year
Country Garden is able to achieve double growth in sales amount and area. In addition to the 70% rate of de-conversion, it is largely due to its balanced layout concept of “full line layout”, which is “one, two, three, five, five-line cities. The firepower is fully open, radiating county towns and townships.
According to the performance report, as of June 31, 2018, Country Garden's business covers 261 prefecture-level cities and 1051 counties/towns in 30 provinces/autonomous regions/municipalities in Mainland China. It can be said that where there is a market, there is a Country Garden.
Country Garden layout situation list
In addition, in the first half of 2018, Country Garden, while expanding its scale, also steadily improved its profitability and demonstrated better competitiveness.
In the first half of 2018, Country Garden realized revenue of approximately 131.89 billion yuan, gross profit of approximately 34.97 billion yuan, and net profit of approximately 16.32 billion yuan, representing a year-on-year increase of 69.7%, 104.6%, and 94.9%;
Among them, the profit attributable to shareholders of listed companies was 12.94 billion yuan, and the core net profit attributable to shareholders was about 12.95 billion yuan, up 72.5% and 80.2% respectively; the basic earnings per share was 60.03 points, an increase of 71.8%.
Really "increasing income and increasing profits."
2. Financial stability is optimistic about the capital market
If the scale determines whether a real estate company can survive, then the financial situation can make a company fall at any time.
Especially when a housing company achieves the first scale, the pressure on funds, products and personnel will be very large, and the risk of high leverage and high debt will be very large.
But it is worth noting that the continued growth of scale has not brought too much financial burden to Country Garden.
According to the performance data, in the first half of 2018, Country Garden's sales of cash for building sales were about 336.02 billion yuan, a year-on-year increase of 52.4%. After 2016 and 2017, it realized another positive net operating cash flow; the available cash balance was about 2099.1. 100 million yuan, accounting for 15% of total assets, and another bank credit line of about 281.39 billion yuan has not been used.
Let's look at the debt again.
According to the performance data, Country Garden's net borrowing ratio in the first half of 2018 was 59.0%, which was lower than the industry average, and the net lending ratio remained below 70% for 11 consecutive years since its listing.
It can be seen that the financial level of Country Garden is relatively stable and the capital structure is relatively safe.
Country Garden 2013-2018 first half of the net loan ratio list
According to Ruiteng, Country Garden is able to maintain its stable financial development. Thanks to its policy of “lower leverage” from the listing to the present, it has adhered to the “two red lines”:
1. Operating debt ratio does not exceed 70%
2. The proportion of available cash to total assets is not less than 10%.
This "two red lines" is very important. To put it bluntly, it is the safety bottom line of Country Garden.
Once the market has a sudden, uncontrollable factor, if you control the debt and ensure a certain percentage of the available cash flow, you can help Country Garden to be more comfortable when it comes to the storm. On the contrary, companies may encounter big troubles.
With good financial fundamentals, Country Garden has also been optimistic about the capital market.
For example, Goldman Sachs released a research report on August 1 that the market is worried about execution risks and reiterated its Buy rating with a target price of HK$25.50.
The “market is too worried about execution risk” here mainly refers to the recent negative public opinion about the quality of Country Garden products and construction accidents.
However, Goldman Sachs believes that Country Garden will overcome the recent challenges and continue to maintain rapid growth in the next few years, so its contract sales and earnings forecasts remain unchanged.
In this regard, Goldman Sachs gave four reasons:
1. These paradoxes can be the driving force for continuous improvement of operations and product standards at the critical stage of Country Garden's current growth;
2. During the further integration of the industry, suspending such doubts will help extend Country Garden's success in further expanding its market share (the national market share in the first half of 2018 is 6%);
3. Country Garden has announced that it is taking steps to further reduce future implementation risks;
4. Compared with Vanke, Evergrande and other companies that have been advancing the diversification strategy for many years, Goldman Sachs has maintained a more positive attitude towards Country Garden's strategy of focusing on the main business of real estate development, recognizing the long-standing execution and the realization of Country Garden.
In addition to Goldman Sachs, a number of rating agencies have also given a relatively positive response.
Morgan Stanley released a research report on July 30, 2018, saying that investors are concerned that building outsourcing is the cause of security problems. However, this is a common practice in the industry. The management stated that the company's selection of construction partners is very strict. Give Country Garden an overweight rating with a target price of HK$19.20.
Deutsche Bank released a research report on July 25, 2018, saying that considering the factor of RMB depreciation, and based on the latest land reserve, it raised its profit for Country Garden for 18-20 years by 3-5%, reaffirming Country Garden as the company's market capitalization. Preferred stock.
Due to the strong support of 2.6 trillion of available resources, Country Garden believes that Country Garden will continue to achieve strong growth in the next three years (more than 40% compound annual growth rate). It also believes that the stock price has been overreacted due to recent negative news, which has made the company The most attractive blue-chip stocks with high growth and high dividend yields (5-10%).
It is expected that Country Garden's strong sales growth momentum will continue in the second half of the year and achieve annual sales of 800 billion.
JP Morgan Chase released a research report on July 30, 2018, saying that Country Garden will not adjust its target for full-year construction and completion, and its profit is still firm. Maintain the company's overweight rating with a target price of HK$22.5.
Deutsche Bank released a research report on June 28, 2018, saying that the valuation of the real estate industry is currently at a historical low. It has strong execution capabilities (especially in third- and fourth-tier cities) and has a diversified distribution of land, such as Country Garden, New Town Holdings, China Overseas, Shimao and Aoyuan. Give Country Garden a Buy rating with a target price of HK$20.43.
Judging from the reaction of these rating agencies, although Country Garden has recently been affected by engineering safety issues, it is very optimistic about the long-term development of Country Garden.
We must know that the real estate industry is very realistic. There is no high growth in housing enterprises. There is not enough land storage and no strong execution. Capital institutions will not sympathize with you.
3. A new round of safety quality control upgrade
I have to admit that Country Garden's rapid growth in scale has indeed raised the scale and struggle index of the entire real estate industry. But at the same time, the voices of various public opinions, positive, pertinent, and negative, are also coming one after another.
For the right and wrong, Rui Teng does not judge, but very much agrees with the statement that no one can guarantee that there will be no problems, but after the problem, the first reaction should be reflection and action, which is better than any explanation. Both are effective.
At the same time as the interim results announcement, Yang Guoqiang, Chairman of the Country Garden Group Board of Directors, responded to recent events in a letter to investors.
The letter said, "We have reviewed the safety incidents that have occurred in the past two months, and we have paid less attention to safety." It is said that Country Garden is re-examining the company's management system, preferring to slow down some development speeds and pursue the source. Comprehensively improve the company's management level.
In response to the recent site safety accidents, Yang Guoqiang proposed the following measures to improve the safety management system of Country Garden. The long-term goal is “zero casualties”:
1. Established the Safety Production Committee, Yang Guoqiang personally served as the director of the committee, and president Mo Bin served as the executive deputy director. To further implement the Group's "safety first, people-oriented" safety production guidelines;
2. Further select the construction partners and cooperate with the companies that attach the most importance and ability to do safety and quality;
3. Strengthen the management of the partners. In the terms of the contract, it is further clarified that the contractor needs to perform the contract under the conditions of ensuring safety and quality. The construction construction instructions of the project have hidden dangers in terms of safety and quality. The construction enterprise can refuse to implement and report to the group. At headquarters, all constructions that cannot guarantee safety and quality must be stopped;
4. Strengthen the corporate culture of safe production and strengthen the education and training on the recognized safety and quality of the project;
5. Introduce local authoritative third-party agencies to monitor the safety and quality of the project. At the same time, further promote the opening of the site and take the initiative to accept the supervision of the owners and the media;
6. Improve the safety risk management and control program under severe weather, and make cross-checking and self-checking in different areas become the norm;
7. Increase investment and use of technological innovation to reduce dependence on manpower and reduce accidents. Country Garden is currently piloting more than 400 projects to promote the innovative SSGF high quality construction system, which will be used in a wider range after maturity. The construction method uses a number of core technologies, including building industrialization technology, to effectively ensure safety, energy conservation and emission reduction while improving building quality.
From the above seven points, it is still relatively comprehensive, involving safety culture, organization management, construction, cooperation, third-party monitoring, technological innovation, special circumstances, then see if Country Garden can do it. , the implementation is in place.
In fact, according to Ruiteng, Country Garden has also done a lot of work on the quality of the project.
As early as 2014, Country Garden strictly followed the quality management requirements of the National Compulsory Provisions for Engineering Construction, and set up the possible quality problems, such as structural safety, leakage cracking, perception, damage to finished products, and some security loopholes. The quality of the project is red, and the quality of the project is strictly controlled.
After continuous upgrading, today's “Ten Red Lines” cover four aspects: structural safety, two anti-bottom lines, process control, and key process control. This is the life and death line of Country Garden's strict quality control. It is said that those who violate the "red line" will be removed from office, which is also very strict.
This year, Country Garden has designated 2018 as the “Management Quality Year” of the company, which is expected to go further in terms of project quality and product quality. In fact, everyone can also give Country Garden a little time to see if the Country Garden after the new action can have new changes and improvements.
In the capital-intensive real estate industry, scale, profit and liabilities are often difficult to balance, but Country Garden’s performance report released this time, let us see this possibility.
From the performance data of the first half of 2018, Country Garden is showing strong and steady progress. In the future, with the help of sufficient value and effective ability to withstand market volatility, and with the help of deep-rooted brand influence, there will be more points of interest.
However, the industry is still regulating, shuffling, and differentiation. For Country Garden, the future is still to control the rhythm. While leading the scale, simultaneously improve the management level and product quality. After all, it will take longer to go.