The original report is sensitive to the opinion index, tracing back to the source, and interpreting the deep context of real estate. Be committed to the line and reveal the overall development law of the industry.
Abstract: The affordable housing project brought about by the old reform will be a part of diluting the high gross profit. How to balance project profits and increase reserves, SIUC is still continuing to make its own answers.
Opinion Index In the past period, real estate companies have successively released the performance of last year. Among them, only a few have a positive net profit attributable to the parent company, and many real estate companies have suffered serious losses, even with losses of more than 10 billion. In such a market environment, it is not easy for real estate companies to maintain sales and profit growth.
According to the results announcement of SIUC, its revenue in 2023 will be about HK$7,953.6 million, a year-on-year decrease of 27.8%, gross profit will be about HK$3,325 million, a year-on-year increase of 11.9%, and profit attributable to owners of the company will be about HK$495 million, a year-on-year increase of 21.6%.
On the whole, there is a certain distance between the total performance of SIIC and other head or tens of billions of real estate companies, but under 10 billion, it is one of the few companies whose profits can increase year-on-year.
It is worth mentioning that its gross profit margin was 41.8%, an increase of 14.9 percentage points compared with 26.9% in 2022, and the operation has achieved a significant improvement.
Focus on sales, gross profit margin is higher than peers
In 2023, the sales area of commercial housing nationwide will be 111735 million square meters, a decrease of 8.5% from the previous year, of which the sales area of residential buildings will decrease by 8.2%. The sales of commercial buildings 116622 billion yuan, down by 6.5%, of which the sales of residential buildings decreased by 6.0%. The cumulative sales scale of the top 100 real estate companies decreased by 16.5% year-on-year, and the pressure on the industry is still there.
In 2023, the contracted sales amount of commercial housing and affordable housing in SIUC increased by 4% year-on-year to RMB8,228.6 million, and the total contracted sales area was 270,000 square meters, with the total average selling price increasing by 94.4% to approximately RMB30,500 per square metre. The increase in the average price of SIUC was mainly due to the large proportion of commercial housing sold during the year, with the contracted sales amount from commercial housing amounting to RMB8.06 billion, up 71.1% year-on-year. The contracted sales area was 25.7 square metres, up by 3.6% year-on-year. In 2023, the sales of commercial housing will account for 97.95%, and about 60% in the same period in 2022. Therefore, if the sales ratio of affordable housing rises in a given year, it will affect the gross profit margin carried forward as a whole. Judging from the level of gross profit margin this year, the value has returned to around the pre-pandemic average. However, the carryover of affordable housing sales in 2022 may reduce the subsequent gross profit level.
During the period of bottoming out in the real estate industry, the gross profit margin of the industry declined as a whole, and the gross profit margin of SIUC still maintained an advantage of 10-20% higher than the average gross profit margin of the industry. During the period from 2019 to 2023, its average gross profit margin exceeded 25%, and the average gross profit margin of the industry during this period was about 22%. The opinion index believes that the high gross profit of the listed city development is highly correlated with the business layout. First- and second-tier cities have good price resilience and have more profit margins than other third- and fourth-tier cities. From the perspective of the projects that will be sold in 2023, Xi'an Nature, Tianjin SIIC Yangshan, Shanghai SIIC Wanghai and Shanghai SIIC Cloud are the more important projects, accounting for about 29.9%, 22.5%, 16% and 14.6% of the total annual contracted sales, respectively. As you can see, these projects are mainly located in first- and second-tier cities. Projects in Shanghai and Xi'an, on the other hand, account for more than 60% of sales, and these two cities have performed well in the real estate market in the past year or two. In 2023, the sales area of commercial housing in Shanghai will be 18.0803 million square meters, a decrease of 2.4% (6.1 percentage points narrower than that of the whole country). Among them, the residential sales area was 14,540,200 square meters, a decrease of 6.9% (the decline was 1.3 percentage points narrower than that of the whole country). The decline in sales was lower than that of the whole country, but real estate development investment increased by 18.2% compared to the same period in 2022. In 2023, the transaction area and transaction value of new houses in Xi'an will both increase. A total of 98,729 second-hand houses were sold online, an increase of 65.7% year-on-year, and the market transaction reached a historical high. From the perspective of the price index, the price of new homes in Xi'an has risen month-on-month for 11 consecutive months and year-on-year for 12 months. For the full year of 2023, new homes rose 2.3% year-on-year.
Focus on the mid-to-high-end, investment contraction
It is reported that SIIC is positioned as a core urban industry-city integration development provider, based in Shanghai, radiating to first- and second-tier cities such as Beijing-Tianjin-Hebei, Pearl River Delta and Xi'an, mainly including high-end residences, office buildings, shopping malls, star-rated hotels, apartments and other formats. According to the opinion index, from 2019 to 2023, the average sales price of commercial housing in Shangcheng will be 32,000 yuan per square meter, and the average price of affordable housing will be 15,000 yuan per square meter. The average gross profit of commercial housing sales is about 40.5%, and that of affordable housing is 19%, and the multiple relationship is also the same. In addition to the increase in the proportion of commercial housing, the premium level of the project itself is also an important factor. Most of SIUC's projects are aimed at mid-to-high-end people, who still maintain relatively strong purchasing power in the downward cycle, and the products provided by SIUC are close to market trends, and there is positive feedback on sales volume.
Judging from the main sales projects of SIIC last year, there are several characteristics: first of all, the product space utilization rate is high, the project floor area ratio is low, and the three-bedroom product is basically the main force. Secondly, the hardcover rate of the project is high, and the proportion of large-scale projects is not low. The average price of some projects is higher than that of surrounding projects. For example, the Xi'an Nature Project is located in the core area of Xi'an Huangba Ecological Zone, entrenched at the confluence of the two rivers of Huangba and Ba, and is a chief ecological market in Northwest China covering an area of about 2 million square meters in terms of area. Among them, Jiangyue in nature is a luxury house product of tens of millions. In March 2023, there will be a total of 22 sets of stacked buildings, with an average price of about 37,100 yuan/square meter, and the average price of 2 buildings is 40,800 yuan/square meter, with a total price of more than 10 million yuan, between 11.24-15.57 million. SIIC Qiyuan also improves its products for high-end. It can be seen from the 2023 Xi'an residential sales price sub-index that the price increase of more than 144 square meters is the largest, and the improvement demand is further released. In 2023, the second-hand housing price index in Xi'an will mainly "exchange price for volume", and the second-hand housing price index will decrease by 0.6% on average, of which 90-square-meter units will decrease by 0.8% and 90-144 square meters units will decrease by 0.5%. SIIC's natural development project is in line with the market demand in Xi'an. Sales is an important channel for real estate companies to transfuse, but the market is down, and shrinking sales have been the current characteristics of the market. According to the observation of the opinion index, SIUC has grasped its own development rhythm by reducing land investment. As of 31 December 2023, SIUC's land bank consisted of 28 projects in 10 key cities in the Mainland, including Shanghai, Beijing, Tianjin, Xi'an, Chongqing, Wuxi, Shenyang, Yantai, Shenzhen and Wuhan, most of which are mid-to-high-end residential and commercial properties completed or under construction, with a planned gross floor area of approximately 3.482 million square meters for sale in the future, which is sufficient for development in the next 3 to 5 years.
In 2023, SIUC's annual report did not disclose its land acquisition in the market, which is more low-key than in previous years. Since 2020, SIUC has participated in many urban renovation and land auctions, and has won the Shanghai Guilin Road Aerospace Project and Shanghai Xinhong Street Commercial Land for 4.628 billion yuan and 429 million yuan. In addition, nearly 5.5 billion yuan was spent to purchase three land plots in Xi'an, Tianjin and Wuhan. In 2021, SIIC successfully won the bid for the Qiyuan plot in Xi'an, Shaanxi Province with 1.525 billion yuan. In the second batch of centralized land transfers in Shanghai, it has obtained two residential lands, which are located in Qingpu District and Lingang New Area of the Free Trade Zone, with a total cost of about 2.83 billion yuan. In 2022, it successfully won the bid for the use rights of 6 plots of land in the Lingang New Area of the Shanghai Pilot Natural Trade Zone, with a winning bid price of RMB 3.89 billion, covering an area of 11.95 square meters, which is residential and commercial land. At its peak, in 2011, it had more than 17 million square meters of land reserves, and by 2023, the saleable planned construction area has dropped to 3.482 million square meters. The narrowing of the pace of SIIC's opening may give the market the inspiration that the project is not more but fine. However, the consensus of real estate companies is highly consistent, that is, when focusing on the core land plots of core cities, how to obtain good land plots in areas with increased competition is also a difficult problem for SIIC. In the near future, Shanghai plans to launch 30 new urban village renovation projects from 2023 to 2025, 10 per year, covering an area of no less than 4 million square meters. As a local state-owned enterprise in Shanghai, relying on its parent company, SIIC Holdings, SIIC has a strong localization advantage. However, the affordable housing project brought about by the old reform will be a part of diluting the high gross profit. How to balance project profits and increase reserves, SIUC is still continuing to make its own answers.