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No more high growth for China's real estate? Target sales show no ambition
The period of results announcements has just passed. In general, companies in the mainland real estate sector have demonstrated satisfactory performance. However, their target sales set for this year are relatively conservative. In some cases, there is only low single digit growth. The target sales of Agile Group (3383) has only increased 2.7% from last year’s. Along with the high growth in the past, the cardinals of mainland’s real estate sales figures have also grown. Is the age of high growth over?
Taking into account 15 companies in the mainland’s real estate sector, each with a market value of over 50 billion, 2 (13%) have set target sales that only demonstrate single digit growth for this year. And Agile Group is the most conservative among all, with a target sales of only RMB 113 billion, showing nearly zero growth from last year; its target in 2016 was RMB 46 billion, in 2017 RMB 65 billion, in 2018 its target was RMB 110 billion.
China Evergrande Group (3333), which had always been ambitious and had consistently achieved sales that were high above its targets in the past, has set this year’s sales target with only a 9% growth at RMB 600 billion after barely reaching its target and under reduced financial stress (in 2018 debt ratio was 83.58% and net gearing ratio dropped to 151.9%; in 2016 its sales target was RMB 200 billion; in 2017 RMB 450 billion; in 2018 RMB 550 billion).
Longfor Group (960), which had always achieved good growth in the past, has set for this year target sales of 10% growth at RMB 220 billion. In 2016 its target was RMB 62 billion; in 2017 RMB 110 billion; in 2018 was RMB 200 billion.
As for companies with relatively ambitious targets this year, there are 3 (20%), with target sales growth reaching 50% year-on-year. They are Shimao Property (813), Future Land Development (1030), and China Jinmao Holdings (817). Other listed companies in mainland real estate have generally set sales targets with growth still between 20%-30%.
Liability kept relatively stable
From the financial perspective, the debt/asset ratio (total debts / total assets) of 15 listed companies in mainland real estate was generally kept at levels similar to 2017’s. Near half of these companies (7) are with ratios over 80%. 7 companies have ratios over 70%. Among them, China Overseas (688) has the lowest. Although its debt ratio for last year increased 1.9 percentage point from 2017’s, it is still the lowest among the 15 companies, at 59.52%. Sunac China (1918) has the highest ratio - although it dropped 0.5 percentage point from 2017’s, it still reached a level of 89.8%.
Regarding net gearing ratio (net debt/shareholders’ equity), ratios for Guangzhou R&F Properties (2777) and China Evergrande Group are still over 100%. Guangzhou R&F’s ratio rose 14.1 percentage point to 184.1%; however, China Evergrande Group’s ratio dropped 31.8 percentage point to 151.9%. It is worth mentioning that the net gearing ratio of Future Land Development also dropped from 2017’s 100.4% to last year’s approximately 78.6%.
Gross profit margin generally rose last year
As for gross profit margin, of the 15 listed companies in mainland real estate, 13 have margins that rose, two of which even rose over 40%. Agile Group‘s gross profit margin increased 17.4 percentage points year-on-year to 43.9%. China Resources Land (1109), whose income from investment property reached a proportion of 13.24%, had a gross profit margin reaching 43.4% last year. Country Garden Holdings (2007) and Sunac China both have relatively lower gross profit margin, at 25% and 27.03% respectively. The gross profit margin of the remaining 11 companies rose over the industry level of 30%.