Under the "housing and not speculation", the measures to stabilize land prices, stabilize housing prices and stabilize expectations will be conducive to the stable and healthy development of the real estate market in the long run.
The current market is reluctant to highly leveraged real estate developers, but from another point of view, the reshuffle of housing enterprises and the survival of the fittest will be conducive to the long-term sustainable growth of the market, and thanks to this growth expectation, it will be asset-light operation of the agency construction company.
At present, the listed companies on behalf of the Hong Kong stock market are very scarce, and there are only two largest construction companies, namely Zhongyuan Construction (09982. HK) and Greentown Management (09979.HK), of which zhongyuan jianye's development prospects may be more ideal.
Zhongyuan Jianye's valuation is low?
Wind's data shows that the current median price-to-earnings ratio of the 20 largest mainland real estate development companies in Hong Kong stocks is 3.76 times, an average of 4.47 times, or reflects the market's cautious attitude towards real estate-related industries. The price-earnings ratio of Zhongyuan Jianye, a stock with different value logic and real estate development, is 5.03 times, which is not too big a gap with the housing enterprise stocks with undervaluation pressure, but it may mean that its value is undervalued.
At present, the capital market gives housing enterprises a lower valuation mainly because of their extremely high leverage ratio, which may drag down their business operations and expansion in the later stage, and the business model of the agency construction company is completely different and does not apply to this set of risk logic.
"Agency construction" means that a project holder with real estate development needs entrusts all or part of the design, development, construction, management or other functions of a real estate development project to a real estate agency with real estate development expertise, and shares part of the proceeds of the development project with it.
The main differences between real estate agency construction companies and traditional real estate developers are: 1) asset-light operation, the agency construction company does not need to acquire land, and collects the management service fee of the project holder by providing services; 2) the profitability is better, because the agency construction company operates with light assets, which can significantly reduce the cost of capital occupation, and the agency construction company has established a standardized operation system, which can achieve cost-effectiveness through scale; 3) it is more flexible in the market downturn. Because small and medium-sized housing enterprises can resist cyclical risks through the brand and professional services of the agency construction company.
It can be seen that the profit model of real estate development enterprises and agency construction companies is completely different, housing enterprises take land, pre-sale, development, delivery, recognition of revenue and profits, for end customers, need to bear the whole process of operation and capital risks from land acquisition to delivery, and the agency construction company and project holders sign up to provide services, and charge the corresponding service fees, without paying a large amount of money in advance to get land, nor do they need to bear the risks related to development and delivery.
Wind's data shows that the above 20 Hong Kong stock market value of the highest domestic real estate enterprises are extremely leveraged, as of the end of June 2021, the median asset-liability ratio reached 75.65%, the average of 71.67%, while the median operating margin in the first half of 2021 was only 18.03%, the average of 20.74%.
In contrast, Zhongyuan Jianye's asset-liability ratio at the end of 2021 was only 20.58%, lower than 40.90% of Greentown Management, while its operating profit margin in the first half of 2021 was as high as 78.66%, which was 3.8 times the average of the 20 major housing enterprises, and it was also much higher than the 25.04% of Greentown Management, reflecting that Zhongyuan Jianye's asset-liability situation was very stable, and its profitability was better than that of its peers, while its valuation was not far from its peers, or it should have the potential for appreciation.
Good prospects for development
According to the Data of the Middle Finger Research Institute, Zhongyuan Construction ranks first among all its peers in China in terms of the compound annual growth rate of the total sold construction area of the projects under management in 2020 and the total contracted sales amount from 2017 to 2020.
Zhongyuan Jianye has a strategic focus on Henan Province, a province with a large population. The report of the Middle Finger Research Institute predicts that the potential size of the real estate commercial construction market in Henan Province will increase from 29.7 million square meters in 2020 to 62.8 million square meters in 2025, with a compound annual growth rate of 16.2%, and most of zhongyuan construction projects are located in Henan Province, which will benefit from the strong growth of the Henan agency construction market in the next five years.
In addition to strengthening the penetration rate of Henan Province, the company has expanded its strategy to the "Great central plains" area centered on Zhengzhou and within 500 kilometers of the surrounding area, including 8 provinces and 6 state-level urban agglomerations (the middle reaches of the Yangtze River, the Yangtze River Delta urban agglomeration, the Central Plains urban agglomeration, the Guanzhong Plain urban agglomeration, the Beijing-Tianjin-Hebei urban agglomeration and the Shandong Peninsula urban agglomeration), and its current layout has covered Hebei, Anhui, Shaanxi and Shanxi.
The latest unaudited operating data released in October shows that Zhongyuan Construction Industry signed 76 new contract projects in the first 10 months of 2021, an increase of 16.9% year-on-year, and the new contracted construction area has exceeded the new contracted construction area in 2020, reaching 8.805 million square meters, an increase of 27.1% year-on-year, equivalent to 1.03 times the new contract construction area of 8.581 million square meters in 2020.
Among them, the business development outside the province has achieved remarkable results, obtaining 10 newly signed projects during the period, an increase of 66.7% year-on-year, and the new contract construction area reached 1.01 million square meters, an increase of 72.1% year-on-year.
As of October 31, 2021, Zhongyuan Jianye had 258 projects under management with a total GFA of 30.755 million square meters, of which 23 projects under management in provinces outside Henan Province had a total GFA of 2.293 million square meters, accounting for 7.5% of the total GFA of all its projects under management, a significant increase from 5.2% at the end of 2020.
Contracted sales continued to climb, supported by business expansion. In the first 10 months of 2021, Zhongyuan Construction's contracted sales floor area increased by 9% year-on-year to 4.655 million square meters; the average selling price increased by 4.4% year-on-year to RMB6,207 per square meter; and the contracted sales revenue increased by 13.7% year-on-year to 28.891 billion yuan.
In addition to laying out key city markets, strengthening research on second-tier cities, and doing a good job in business layout planning for high-energy cities to grasp the opportunities of emerging urbanization and urban-rural integration development, Zhongyuan Jianye enriches its service varieties with its expertise and brand in agency construction to further enhance its comprehensive competitiveness.
Domestic real estate agency construction services are generally divided into three categories: 1) government agency construction, projects or including affordable housing, museums, schools or hospitals, etc.; 2) real estate commercial construction, the project holder is generally a small and medium-sized real estate developer, usually enjoy a higher rate than the real estate government construction agency; 3) real estate capital construction, appointed by the client of financial institutions, because of its lack of relevant expertise in real estate development, and may not obtain land use rights, the agency construction service provider can provide investment advice to it. Establishment of project companies and other ancillary services.
At present, Zhongyuan Jianye focuses on real estate commercial agency construction, and the company plans to expand the real estate agency construction service to the government agency construction and real estate capital construction market to seize the development opportunities of the increase in the proportion of policy-oriented housing in key cities and the rising demand for public housing and urban renewal.
summary
The "Blue Book of The Agency Construction Industry" released by the first China Agency Construction Value Summit in May this year predicts that the penetration rate of the construction industry will be 4.8% in the 2021 years, far lower than the penetration rate of 20%-30% in European and American countries, which means that China's agency construction industry still has a very broad room for growth. As the second largest construction service provider in China, Zhongyuan Construction will undoubtedly benefit from this development trend.
Although its profitability, growth rate and development are quite ideal, the valuation of Zhongyuan Construction is still low, or it is related to the market's lack of understanding of the business logic of the agency construction enterprise. In the future, with the clear development of the real estate market, the valuation of the stock will be recognized, and Zhongyuan Jianye, which has high fundamentals and low valuation, will have the potential to appreciate.
In recent months, Zhongyuan Jianye's controlling shareholders have frequently increased their stakes in the open market, proving their confidence in the company's development prospects and growth potential.
In addition to the major shareholders, many investors in the industry have given positive comments to Zhongyuan Construction. On the whole, investors praised Zhongyuan Jianye's brand, product strength, high quality, and management team, for example, some investors pointed out: "Zhongyuan Jianye's product strength is very good, the strategy is also a very smart strategy, the industry space is very good, so we feel that this is the prototype of a great company." And highly recognized the operational efficiency of Zhongyuan Jianye, some investors pointed out: "The quality of Zhongyuan Jianye's construction, the environment of the community, the standard of delivery, and even the sales team and the final property management team have implemented the standards of Jianye Real Estate, and the execution is very in place." ”
More importantly, investors have realized that the valuation of Zhongyuan Construction is low, which has a lot to do with the market's unclear understanding of the agency construction industry. Some investors said: "Zhongyuan Jianye is not a real estate development, but a representative construction, exporting the brand and outputting the ability, but this is where the market is not very clear." "Zhongyuan Jianye's stock is undervalued, and we see that Zhongyuan Jianye's mid-report has a net profit of 360 million, and then there is a 65% dividend, even in the medium term, the current market value dividend yield of about 4 billion Hong Kong dollars is also 7%-8%. So look at the whole year, the dividend yield can reach a level of about 15%, considering that the performance of Zhongyuan Jianye in the past two years is still growing steadily, so I think this is a very undervalued stock, and the room for future growth should not be small. ”
It can be seen from the high praise of third-party investors that Zhongyuan Construction's mature business model and product strength are highly recognized, and when the market has an understanding of the agency construction industry, its value is expected to be released.
This article originated from Caihua Network
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