Text: Wise.com
The deep consolidation of the property market has given Poly Development the opportunity to overtake. In just two years, Poly Development has achieved the goal of "entering three and striving for one".
According to the latest data, Poly Development's annual sales in 2023 will be 422.237 billion yuan, and it will win the championship as it wishes, and the distance from Vanke, which ranks second, will widen to 46.1 billion yuan (Vanke's sales in 2023 will be 376.12 billion yuan), becoming the only real estate company with sales exceeding 400 billion yuan.
However, Poly's development, which occupies the first place in the industry, may not be all the way forward.
Compared with 2022, Poly Development's full-year performance in 2023 fell slightly, down 7.67% year-on-year, and even expanded by 2.67 percentage points compared with Fitch's already pessimistic 5% projection.
Hedge industry trends with price for volume
Although the total sales have declined year-on-year, it is a rare result of the new leader in the industry doing its best to accelerate the decentralization under the current property market situation.
In order to speed up decentralization, in 2023, Poly Development will be the first to start from management. For each regional company, it is necessary to specifically assess the stock project de-index, and for every 1 percentage point lower than the completion rate of the stock project, the performance of the senior executives will be deducted 0.5 points, according to the management measures of Poly in previous years, if the senior executive's score is less than 80 points for two consecutive years, or the score of the current year is less than 70 points, the corresponding punishment will be imposed on transfer, demotion, salary reduction and so on.
In addition, Poly Development does not hesitate to "exchange price for volume" to ensure the advantage of the sales side. During the year, there was a lot of news about Poly's discount promotions, and in December, a project in Suzhou caused dissatisfaction among home buyers because of continuous price cuts.
However, these measures are not enough for Poly Development to completely buck the trend, especially since the second half of 2023, Poly Development's monthly sales performance has continued to decline, by October, November, and December, the growth rate of sales amount in a single month was -23.0%, -15.6%, and -60.2%, respectively, and the growth rate of sales area in a single month was -31.3%, -29.6%, and -62.2%, respectively. Among them, only 22.733 billion yuan was sold in December, which was the lowest monthly sales point of the whole year.
While sales were under pressure, a series of positive measures to promote decentralization also caused Poly's gross profit to be damaged.
In fact, as early as 2022, Poly Development's revenue and net profit attributable to the parent company have both declined sharply year-on-year, and the net profit attributable to the parent company has fallen by more than 3%, which is almost the largest decline in the past decade.
In 2023, the average annual contracted price of Poly Development will drop to about 17,696 yuan/square meter, and in 2022, it will be 20,931 yuan/square meter. A further decline in the average contracted price may affect the settlement profit this year and next.
This is already reflected in the income statement for the third quarter of 2023. In the third quarter of 2023, Poly Development achieved revenue of 55.528 billion yuan, an increase of 21.63% year-on-year, but the net profit attributable to the parent company was 1.070 billion yuan, a year-on-year decrease of 52.84%.
In terms of gross profit margin, in the third quarter of 2023, Poly Development's gross profit margin decreased significantly by 7.3 percentage points year-on-year to 14.7%, and the gross profit margin in the first three quarters decreased by 5.1 percentage points year-on-year to 19.4%. The net profit of sales of Poly Development also deservedly declined simultaneously. Wind data shows that from 2019 to the first three quarters of 2023, Poly Development's sales net profit margin was 15.70%, 15.61%, 14.03%, 12.08%, and 8.79% respectively.
Looking forward to 2024, Guotai Junan recently released a research report saying that the pressure on developers' new home sales is still great, especially in the face of the increase in the supply of second-hand housing and the return of housing prices to rationality, the sales of real estate companies are still under pressure.
Focus on countercyclical land acquisition in core areas
Although it is under a lot of pressure on the sales side, Poly Development's performance in the land market in 2023 can be described as active.
According to statistics, Poly Development will add 103 new projects in 2023, and the amount of equity land acquisition will reach 135.9 billion yuan, which is much more radical than in 2022. According to the data, in the same period of 2022, Poly Development will have 91 new expansion projects, with an equity land acquisition amount of 108.2 billion yuan.
Among them, in December 2023 alone, Poly Development won 20 new projects, with a total investment of about 27.426 billion yuan and an additional area of 2.6932 million square meters, covering 13 cities including Chengdu, Nanjing, Guangzhou, Dongguan, Hefei, Xi'an, and Wuhan.
From the perspective of the cities acquired by the project, Poly Development still adheres to the land acquisition strategy of "core city". In the first three quarters of 2023 alone, Poly Development accounted for 99% of the expansion amount in 38 core cities, of which 83% was acquired in first- and second-tier cities, and 43% in the Yangtze River Delta and 32% in the Guangdong-Hong Kong-Macao Greater Bay Area.
This layout can effectively reduce the cyclical risk caused by market adjustment, but it also further increases the cost of land acquisition for Poly Development.
According to the data, from 2020 to 2022, the land cost of Poly Development was 65.069 billion yuan, 83.671 billion yuan and 101.463 billion yuan respectively, a year-on-year increase of 20.79%, 28.59% and 21.26% respectively, and the floor price of new land storage was 7,388 yuan, 6,821 yuan and 15,300 yuan respectively.
Galaxy Securities has previously pointed out that the cost of land has increased year after year, but the average sales price and settlement unit price have not increased significantly, and the narrowing "scissors gap" between the two will continue to put pressure on the gross profit margin of Poly Development.
Of course, this increase in land costs is mainly due to the improvement of the location energy level of the purchased plots. In fact, due to the cooling of the land market in recent years, the new land reserves of Poly Development still have a good cost performance. For example, in the new land reserves announced on January 6, the floor price of the Haitang Street plot in Chaoyang District, Beijing is 51,858 yuan/square meter, and the floor price of the Youdi Road plot in Shunyi District, Beijing is 18,524 yuan/square meter.
In the case of most of its peers in the land auction market, Poly Development has absorbed a large number of high-quality land plots in high-energy locations, and the relevant value will be gradually realized in the next few years.
Market confidence remains to be restored
As a large state-owned enterprise, Poly Development is undoubtedly one of the most financially stable real estate companies. However, as the market becomes more sensitive to the debt situation of real estate companies, the high debt ratio of Poly Development has also attracted attention.
As of the end of the third quarter, Poly Development's asset-liability ratio was 76.76%, a decrease of 1.35 percentage points from the end of the previous year.
According to the data of Galaxy Securities Research Report, as of September 2023, the company's monetary fund balance was 142.672 billion yuan, the cash short-term debt ratio was 2.08, an increase of 0.14 over the same period last year, the asset-liability ratio after excluding contract liabilities was 66.30%, down 1.43 percentage points from the same period last year, and the net debt ratio was 61.42%, down 11.6 percentage points from the same period last year.
However, Fitch has previously pointed out that Poly Development's leverage ratio may remain above 45% in the medium term, as the decline in sales and receivables may affect Poly Development's cash inflows, thereby affecting its debt reduction process.
In addition, the short-term debt repayment pressure of Poly Development is also increasing. As of September 30, 2023, Poly Development's short-term borrowings were RMB5.247 billion, a significant increase of 313.41% year-on-year.
Investors' concerns are directly reflected in the stock price.
Since September 2023, Poly Development's share price has been declining. On October 30, 2023, the first trading day after the release of the third quarterly report, Poly Development's share price fell sharply by 3.03%, and the lowest point touched 10.70 yuan per share, which has hit a new low in two years.
However, this is not over, since then, Poly Development's share price has continued to fall, as of the close of trading on January 5, 2024, Poly Development reported 9.17 yuan per share, with a total market value of 109.769 billion yuan.
Poly Development had to launch the "disk protection" plan.
In December 2023, Poly Development released an A-share repurchase plan and a shareholding increase plan for the actual controller. The total amount of repurchase funds of Poly Development will not be less than 1 billion yuan (inclusive) but not more than 2 billion yuan (inclusive), and the repurchase price will not exceed 15.19 yuan per share. The company intends to repurchase the company's A shares with its own funds through centralized bidding transactions.
According to the actual controller's shareholding increase plan, Poly Group, the actual controller of Poly Development, plans to increase its holdings of the company's A shares through centralized bidding transactions in the next 12 months, with an increase of no less than 250 million yuan but not more than 500 million yuan, and the increase price does not exceed 15.19 yuan per share, and the source of funds is Poly Group's own or self-raised funds.
As of December 22, 2023, Poly Group, the actual controller, has cumulatively increased its holdings of 10,044,600 A shares of the company according to the shareholding increase plan, accounting for 0.08% of the total share capital, with a cumulative increase of RMB 100 million.
As of December 29, 2023, Poly Development has repurchased a total of 25,186,600 shares through centralized bidding transactions, accounting for 0.21% of the total share capital, with the highest price of 10.20 yuan/share and the lowest price of 9.84 yuan/share, and the total amount of funds paid is 252 million yuan.
Along with the share repurchase and the increase in holdings of the actual controller, Poly Development also issued an inquiry letter to directors, supervisors and senior executives, controlling shareholders, actual controllers, and shareholders holding more than 5% of the shares, asking whether there is a shareholding reduction plan in the next 3 months and 6 months.
Subsequently, the company received a "no reduction" reply from the above-mentioned parties, especially Taikang Life, the second largest shareholder holding more than 5% of the shares. The insurer said that it has no plans to reduce its stake in the company through centralized bidding transactions in the next three months or six months.
However, on January 5, the closing price of Poly Development still fell to 9.17 yuan per share, which was 6.8% lower than the lowest price of its newly announced repurchase transaction. In order to completely restore the confidence of investors, Poly Development has a long way to go.