Performance summary: Core profit increased by nearly 30%, profit margin remained stable in the first half of the year, Kaisa Group achieved revenue of 3.1 billion yuan (YoY +35%), core net profit of 3.9 billion (YoY +29%), gross profit margin of 30.9% (YoY 2.9pct), and net profit margin of 10.2% (-0.4pct).
The revenue scale of Kaisa Group grew steadily in the first half of the year. Thanks to improved settlement and control efficiency for high-margin old reform projects, the company's profit margin level remained stable in the downward trend in industry profit margins. The net profit margin under the return profit margin was 10%, which is at a high level in the industry.
Sales scale: Sales increased by 50%, reaching the annual target close to 50%. In the first half of 2021, Kaisa Group achieved equity contract sales of 63.9 billion yuan (YoY +77%) and achieved 49% of the annual sales target of 130 billion dollars. The Greater Bay Area contributed mainly to the increase in sales scale, accounting for more than 50%.
Thanks to the continuous recovery of the real estate market in the Greater Bay Area and Yangtze River Delta after the epidemic, the increase in sales area significantly drove the increase in sales scale. In the first half of the year, the company's contract sales area was 3.81 million m2 (YoY +80%), and the average contract sales price was 16,777 yuan/m2, which is basically the same as the same period last year. The share of contract sales in the Yangtze River Delta region increased to 20% (YOY+12PCT).
Intensive land acquisition: Old reform has accelerated, and the speed of urban renewal and transformation has increased markedly. In terms of new projects, Kaizhaoye Group added a total of 15 new projects in the first half of the year, with a total equity floor area of 2.46 million square meters (YoY -12%). In terms of old reforms, the transformation of 3 Greater Bay Area urban renewal projects was successfully completed in the first half of the year, with a total saleable area of 1.13 million square meters, with an estimated sales value of 72.7 billion dollars (YoY +169%). The value of old transformation projects in the first half of the year already exceeded the level of the full year of last year. Urban renewal accounted for 33% of the new land reserves added in the first half of the year, an increase of 11 pct over the same period last year.
Promotion plan: Abundant soil reserves, good value can be promoted in the second half of the year
Thanks to a sound land expansion strategy and accelerated improvement in the conversion efficiency of old renovation projects, Kaisa Group's land storage scale continues to grow. In mid-2021, the company's land reserves totaled 31.14 million square meters (YoY +8%), and the estimated total land storage value is 73.47 billion (YoY +10%).
Good land reserves guarantee future sales development. The estimated sales value for the second half of the year is 127 billion dollars. 91% of these are in first-tier and second-tier cities. The Greater Bay Area and the Yangtze River Delta region account for 55% and 16% respectively. The annual sales target of 130 billion dollars has been achieved. Under the current promotion plan, the removal rate of more than 52% can be completed.
Financial performance: Debt optimization, all three red lines met the standards ahead of schedule, and the debt side was well managed. As of mid-2021, Kaisa Group had 48.7 billion dollars in book cash (YoY +20%). Among the three red line regulatory indicators, the net debt ratio was 93.7% (YOY-4.2PCT), the short-term cash debt ratio was 1.53 (YOY-0.03), and the balance ratio after excluding pre-receivables was 69.9% (YOY-0.4PCT).
As the scale of settlement increases and the amount of debt management and control is good, the company's debt structure is continuously optimized, and the three red line regulatory requirements are met early to enter the green range. The company completed an exchange offer and an unmodified Dutch auction in May 2021, bringing the maturity of 2024 bonds from $3.05 billion to $2.25 billion, and the risk of refinancing bottomed out.
Investment advice:
Affected by changes in the industry's centralized land supply policy, it has become more difficult for the industry as a whole to acquire land in the bidding market, and project profitability has been limited. With strong experience in old reform and management capabilities, Kaisa Group continues to accelerate the transformation efficiency of urban renewal projects in a policy-driven context. We expect the company to achieve revenue of $71.9 billion, $89.2 billion, and $106.5 billion from 2021 to 2023, up 29%, 24% and 19% year-on-year. Net profit attributable to the parent company was $6.4 billion, $7.8 billion and $9 billion, up 18%, 22% and 14% year-on-year. The current stock price corresponds to the 2021 performance PE valuation of 2.07 times, maintaining the “buy” rating.
Risk warning: Real estate regulation policy tightening exceeds expectations, dual centralized concession rules have changed, citation data is lagging behind or not in a timely manner