Summary of the meeting

Theme: Zhongliang Holdings Limited (02772) 2020 Anti-Road performance Conference

Time: September 28 to September 29, 2020

Speaker: the management of Zhongliang Holdings Limited (Executive Director and Co-President Chen, Chief Financial Officer and Vice President Liu, Vice President of Real Estate Group Wu, head of Financial statements Center Zhou, Deputy General Manager of Brand Department Kong)

Main content

Part I: performance review and prospect

Part II: question and answer session

Management of Zhongliang Holdings

[highlights Review and Prospect]

Under the guidance of the central macro policy, the cycle of the whole real estate industry is lengthening and the debt is shrinking. In 2019, Zhongliang put forward the strategy of upgrading the urban energy level, transferring the third line to the second line to the provincial capital city to the metropolitan area, and making steady progress, constantly looking for structural opportunities for investment in the process of differentiation. Some demand in second-tier cities has not been fully released due to previous restrictions on purchases, sales and loans. At present, demand and prices in second-tier cities are relatively stable, and supply and demand will also have a relatively steady development in the future. For example, Zhongliang's projects in Hangzhou are basically suspended, and the science and technology city project that is about to open is also expected to maintain a low winning rate. At present, demand in third-tier cities is stable and prices have risen. In terms of profits, the company strictly implements its own investment assessment standards, improves the project turnover and ensures that the gross profit margin is maintained at the level of 20% to 25%. In the future, the company will continue to open up investment channels, adhere to mergers and acquisitions, development and other diversified investment channels, and gradually change from extensive management to refined and substantive management. In addition, the company pays careful attention to the development of the situation, responds quickly to the national regulation and control policy on the industry, scientifically controls the company's leverage level, plans the company's cash flow in advance, enhances its risk prevention ability, and is committed to pursuing quality and steady development.

Question and answer session

Q1: has the company's assessment criteria been adjusted under the three red lines policy?

Every project company and every city organization has an assessment, and the assessment criteria are changing every year.

the assessment before 2018 is scale-oriented, because the quality and profit margins are relatively high at that time. After 2019, the company's performance appraisal program has been changing. In 2020, the company regards product quality as a very important assessment standard, because the company is now controlling project quality. The effective combination of development speed and quality is also the main development direction of the company in the future. at the same time, the company will also add payback rate and satisfaction to the assessment indicators in the next few years.

Q2: the company currently has a layout in the property business, will it artificially push up the profits of the property business through financial means?

The company itself operates as an amoeba, and accounting is fair and just, including some of the company's projects do not choose Zhongliang property, but choose external property. therefore, the company hopes to be in a competitive ecology and fair and just accounting mode in terms of property. Therefore, financially, it will not artificially whitewash the profits of the property business.

Q3:

under the influence of the new financing regulatory policy, the company's growth rate may decline in the future, and in the past two years, the company has been improving the urban energy level in layout, but at present, high-energy cities are subject to more regulatory constraints, and the profit margin may be lower than that of some third-tier, fourth-tier and fifth-tier cities that the company has ploughed before. So how do companies balance the decline in profit margins brought about by scale growth and higher urban energy levels?

At present, the whole real estate industry is facing the problem of falling gross profit margin, but the overall demand and sales in second-tier cities are relatively sound. Although the company is now moving to second-tier cities, it does not take land kings or high-priced plots in the second tier, screening out plots worth investing in through scientific standards. Through the combination of city energy levels and cycle judgment, the company ensures that the company's profit margin is maintained at a reasonable level.

Q4:

does the company have any specific debt reduction plans in accordance with the latest financing regulatory requirements in the next one to three years?

The financing policy of three red lines limits the scale of the company's debt growth. Zhongliang's main task in the next three years is to adjust the debt structure, because the company has been listed for a short time and lacks some traditional low-cost financing channels. in listing for more than a year, the company has begun to have some good changes, and the company will further increase the proportion of financing in the direct financing market in the future. At the same time, we will increase cooperation with banks, especially state-owned banks. After the structural adjustment, coupled with the inherent high turnover of Zhongliang, the new rules of financing supervision will not form a big restriction on the company.

Q5:

at present, many real estate enterprises have adopted the strategy of selling houses at reduced prices. what is the company's current sales situation and whether it can achieve this year's target?

The company achieved its overall sales target from January to August this year, especially after entering May, the company's sales are growing steadily, indicating that the market demand is still very robust and has a very large group of potential customers. At the same time, the company's sales unit price has reached 12000 yuan per square meter this year, which is much higher than that of last year. At present, the company is still very confident that it will achieve the sales target of more than 160 billion this year.

Q6: how is the company's sales growth this year and next?

With regard to the growth rate of financial performance, although this year is quite special, the company is under less pressure at present. As of September, the company has achieved 65% to 70% of its sales target this year, the target completion rate is in the upper-middle level in the industry, and the company expects to meet its sales target of 168 billion this year. Although the company has not set a sales target for next year, this year's stock should be within the control of the three red lines.

Q7: could you share the company's strategic planning in Guangdong, Hong Kong and Macao?

The company established the Guangdong-Hong Kong-Macao Development Group in July this year, which is an upgrade of the company's former Southern Regional Group. From the end of last year to the beginning of this year, the company spent a long time studying the market of Guangdong, Hong Kong and Macao, including the benchmarking of local enterprises. At the same time, the company has also recruited some local talents, such as better employees who have changed from the old to the old. The company hopes that in the future, by giving the Guangdong-Hong Kong-Macao Development Group greater authorization, a more open mechanism and more flexible assessment means, the Guangdong-Hong Kong-Macao Development Group can develop and cultivate in the Greater Bay area for a long time.

Q8: will the financial management or investment of the company change after the introduction of the three red lines?

In addition to the asset-liability ratio, the company's other indicators are basically within the red line, mainly excluding the pre-received asset-liability ratio. The current company index is about 80%, and the company plans to reduce it a little every year, gradually falling below 70% over a period of three years.

Q9: because the company is always the nature of high turnover, the amount of accounts received in advance is relatively large, so how should the company implement the plan to reduce the asset-liability ratio excluding advance receipts in the future?

The company will first adjust its equity structure. With the increase of the proportion of the company's second-tier cities and third-tier cities, the company's minority stake in the project cooperation will increase accordingly, which will help to reduce the asset-liability ratio. The second is about the structure of financing. Companies can get a little more low-interest channels through medium-and long-term loans, which can help adjust the financing structure and amount.

Q10:

Zhongliang has achieved high performance growth in recent years, one of the very successful factors is the amoeba model, can the company share the specific operation process of the amoeba model and how to balance the interests of employees, shareholders and management?

The core of the amoeba model is to boldly train talents, not only to cultivate their business ability, but also to implement the values of the company. The second point is the organization. The project companies are accounted for independently at the regional level and at the unit level. The company gives full rights to regional companies, while the company also has a clear assessment of the indicators of regional companies. The third point is the accounting mechanism. Companies that exceed their goals will be fully rewarded to encourage their morale to work.

Q11: does the company have a clear plan for its development in the next few years?

The company will mainly focus on three directions in the future. The first is the continuous improvement of the layout ability, because the layout ability will affect the quality and efficiency of the project. The second is the improvement of the company's product capacity, the company's current assessment to enhance the weight of product satisfaction. The third aspect is to improve the quality of operation, that is, to strengthen the ability of closure, that is, companies should control various costs, including construction costs, taxes and fees, and at the same time constantly improve their own efficiency.

Q12: will the three red lines affect the pace of land acquisition and sales?

公司目前存储的二线三线四线项目都是有效周转的，这个也反映在公司的销售层面。拿地方面，目前的土地市场是比较理性的，市场至少不会出现16年17年地王套牢至的现象。通常上半年土地市场会比下半年热闹，因为银行的资金放得会比较快。公司目前的拿地节奏以稳健为主，严守标准，积极把握周期性机会。