In the first half of the year, the macro environment and the real estate industry cycle continued to exert considerable pressure on real estate companies, and the capital market performance was also lackluster, with many real estate companies' valuations still fluctuating at the bottom.
However, looking at the domestic real estate sector, Futu's market performance has seen an overall decline of 18% this year. At the same time, according to data from Shenwan Industry, the median decline for companies in the entire residential development field this year has reached 25%. In contrast, Shangshi City Development has remained relatively stable in the capital market performance so far this year, withstanding market pressures.
It is evident that the company has demonstrated stronger resilience compared to the industry, and the answer to this may be found in the company's recent financial reports.
1. Property revaluation puts short-term performance under pressure, and the balance sheet is solidified to continuously strengthen risk resistance capabilities.
Although the revenue performance is strong from this financial report, there is pressure on the profit level.
However, the company had already issued a profit warning announcement on August 13, and the market had already anticipated this news.
In fact, looking at the specific data, it can be found that the company's performance pressure is closely related to the deep-seated adjustments in the industry on one hand, and on the other hand, it is also related to the company's delivery rhythm.
For example, the change in gross profit rate is mainly due to the lower gross profit rate of the commercial housing projects delivered during the period. However, considering the overall asset quality attributes of the company, it is believed that this will only be a short-term impact.
In addition, looking at the profit aspect, the revaluation of investment properties is the core factor affecting this performance. The financial report points out that in the first half of the year, Shangshi City Development recorded a net impairment of investment property revaluation of about HKD 210 million, mainly due to the decrease in the fair value of Shanghai World Trade Center and Chengkai International Building.This aspect is actually reflected in many Hong Kong-funded real estate companies this year. However, the losses caused by the decline in the valuation of investment properties only reflect "paper losses" and do not actually cause losses to the company. With the subsequent return of the value of the company's high-quality assets, the recovery of profits will only be a matter of time.
In fact, it is not difficult to see from other financial indicators that Shanghai Industrial City Development still maintains a stable business foundation.
In the first half of the year, thanks to the delivery of multiple projects, the sales volume increased compared to the same period last year, and the revenue of Shanghai Industrial City Development achieved rapid growth, with a revenue of 2.981 billion Hong Kong dollars during the period, a year-on-year increase of 65.8%.
At the same time, the company's continuous income also made a contribution, with income from rent, property management, and hotel business continuing to be 381 million Hong Kong dollars, 7.142 million Hong Kong dollars, and 138 million Hong Kong dollars, respectively.
In addition, in the first half of the year, the company achieved a contract sales amount of 2.284 billion yuan.
Faced with the industry's still pressured environment, the company's financial situation remains good and continues to strengthen its ability to resist risks.
From the regulatory focus on the "three red lines" indicators, the company's asset-liability ratio excluding advance receipts, net borrowing ratio, and cash-to-short-term debt ratio are 59%, 65%, and 1.07 times, respectively, maintaining the "green file" standard for the "three red lines" indicators, showing that the company's financial structure is healthy and safe.
At the same time, the company has ample cash on hand, holding bank balances and cash of 5.363 billion Hong Kong dollars as of the end of June. In addition, the company's current ratio is 1.3 times, demonstrating its good fund management ability and strong risk resistance.
2. Holding core high-quality assets, building the ability to go through the cycle
In recent years, facing the complex external market environment, Shanghai Industrial City Development has maintained stable operating capabilities and demonstrated the ability to go through market cycles, which is inseparable from the following aspects of assistance.Firstly, the company has long emphasized asset quality and maintains efficient operational efficiency.
On one hand, Shangshi Chengkai pays great attention to the quality and revenue potential of assets in project development. Through strict project screening and risk control, the company ensures that investment projects can bring stable returns. During the expansion process, the company always expands its high-quality land reserves at the right time according to its own development needs, not just focusing on scale.
On the other hand, through efficient operation and management, the company continuously optimizes the development process and improves the capital turnover rate, thus maintaining high flexibility and response speed in the fierce market competition.
Secondly, the company adheres to the deep cultivation strategy and demonstrates strong value mining capabilities in core cities.
Shangshi Chengkai's investment layout is mainly concentrated in Shanghai and the Yangtze River Delta, as well as the core first and second-tier cities that have been cultivated for a long time.
As of the first half of 2024, the company's land reserves include 28 projects distributed in 10 core cities including Shanghai, Beijing, Tianjin, Xi'an, Chongqing, Wuxi, Shenyang, Yantai, Shenzhen, and Wuhan, with a total planned saleable building area of about 34.06 million square meters, sufficient for development in the next 3 to 5 years.
The company's investment layout in core cities is based on accurate judgment of population growth and economic development trends. The company can capture key points in urban development and obtain land resources with superior geographical location and great appreciation potential. For example, in recent years, the company has continuously increased investment in Shanghai, actively laid out in areas such as Lingang to explore new market opportunities.
Financial reports show that as of the end of June this year, the company has a total of 9 projects under construction, with a total construction area of 1.933 million square meters. These projects include important development projects such as TODTOWN Tianhui in Shanghai, Shanghai Shangshi Tinghai, Shangshi Yunlu in Yantai, and Shangshi Yangshan in Tianjin. The total delivery area is 78,600 square meters, mainly including Shanghai Shangshi Yunduan, Yantai Shangshi Yunlu, Xi'an Nature World, and Shanghai Wan Yuan City.
This strategy of focusing on core cities and key areas enables the company to better grasp market demand, achieve optimal allocation of resources, and high-efficiency operation of projects. In this process, the company also demonstrates strong value mining capabilities, helping to improve performance.
Thirdly, Shangshi Chengkai insists on focusing on both the existing and incremental markets, and continues to explore new growth opportunities.The company actively participates in urban renewal and renovation projects, focusing on the transformation and upgrading of industrial land plots as well as the development of properties above subway stations. These initiatives not only respond to the needs of sustainable urban development but also open up more new business opportunities for the company.
At the same time, the company adheres to a development model that combines asset management with capital operations. Through refined asset management and flexible capital operations, the company optimizes its asset structure and improves asset efficiency, providing a solid financial guarantee for the company's stable operation and business innovation.
In terms of investment properties, as of the first half of this year, Shanghai Real Estate Development (Group) Co., Ltd. has built multiple commercial projects in seven key development cities, including Shanghai, Beijing, Tianjin, Chongqing, Shenyang, Xi'an, and Shenzhen, with a total investment property area of approximately 1.126 million square meters. The company's overall rental income increased by 1.5% year-on-year, reaching HKD 381 million, demonstrating the company's good performance in the commercial real estate sector.
In addition, the rental housing business is also one of the important layouts for Shanghai Real Estate Development (Group) Co., Ltd. The company's long-term rental housing project in Shanghai has become its core asset. Among them, the Shanghai Jingxiang project (Chengkai · Hui Community) opened in 2022, and the Shanghai Xin Community was completed last year with a rental rate of 97%. In addition, the Shanghai Chengkai Innovation Community is expected to be completed this year, which is expected to further contribute to the company's stable rental income.
It is not difficult to see that, on the basis of ensuring stable operation, Shanghai Real Estate Development (Group) Co., Ltd. is actively exploring new development models for real estate, continuously promoting the transformation and upgrading of assets, and innovating in business development. This also provides strong support for the company to maintain a leading position and achieve sustainable development in the constantly changing market environment.
3. Conclusion
How should we view the opportunities in the real estate market at present? A research report from Tianfeng Securities previously brought a unique perspective to the market, which believes that the entire industry currently coexists with the logic of "distress reversal" and "policy game."
This also means that the expectations for industry recovery and policy implementation will determine the subsequent market opportunities, which are expected to be good. In this process, high-quality state-owned enterprises will also gain more market attention with their healthy fundamentals and good risk resistance.
Focusing on Shanghai Real Estate Development (Group) Co., Ltd., the company has characteristics of high cash, high gross profit margin, low valuation, and stable dividend distribution. The current price-to-book ratio is only 0.13 times, and the dividend yield exceeds 8%.Additionally, it has been observed that this year, Shangshi City Development has been continuously carrying out share repurchase actions in the market, with a total of 12 repurchases within the year. This demonstrates the company's emphasis on shareholder returns and also sends a positive signal to the market.
Looking ahead, as Shangshi City Development continues to move forward steadily from a new starting point of high-quality development, there is reason to believe that the company will also realize its unique value and potential in the capital market.
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