Can Zhongnan Construction, with a price-to-earnings ratio of only 2 times, still be able to hold on?

Previously, Mr. Lichang wrote an article at the end of April, "Net profit has doubled in three years. Is Zhongnan Construction outrageously undervalued?" ”, the core point is that Zhongnan Construction, which has a price-to-earnings ratio of only 3 times the expected net profit in 2021, is worth the money in the medium to long term.

However, the sentiment of the secondary market is really difficult to predict. When Mr. Lichang wrote that article, the share price of Zhongnan Construction was still above 7 yuan. After a cash dividend of 0.56 yuan per share, the share price is now only 0.56 yuan. At about 5 yuan, there was a drop of almost 20% after the restoration of rights, and Mr. Lichang was also slapped in the face.

So far, based on the expected net profit in 2021, Zhongnan Construction’s price-to-earnings ratio is only 2.2 times. Based on the newly implemented 2020 cash dividend of 0.556 yuan per share, the dividend rate of Zhongnan Construction stocks exceeds 10%. This is extremely rare in the history of A-shares!

What happened to Zhongnan Construction’s stock? On the snowball, fans of Zhongnan Construction call it "Xiaonan". Is it really "little difficulty" now? Mr. Lichang thinks it is worth discussing.

1. Is the financial situation improving?

In early June, the overseas subsidiary of Zhongnan Construction issued a US$150 million senior unsecured fixed-rate bond with a coupon rate of 12%. But actually, Lichang Jun feels that this matter has a psychological impact on Zhongnan Construction, but has almost no real impact. After all, compared with Zhongnan Construction’s interest-bearing liabilities of approximately 80 billion at the end of 2020, the proportion of overseas US dollar debt The ratio is less than 6%, which has a negligible impact on the increase in the overall financing cost of Zhongnan Construction.

The data is the most intuitive. Mr. Lichang also takes you to look at it from several dimensions:

Capital cost: From the 2019 and 2020 annual reports previously released by Zhongnan Construction, The amount of interest-bearing debt at the end of the two years was 69.92 billion yuan and 79.9 billion yuan respectively, an increase of about 15% in 2020; while the total interest expense in 2020 was 6.9 billion yuan, an increase of only 5% compared with 6.587 billion yuan in 2018. About %, the growth rate is significantly lower than the growth rate of interest-bearing debt scale. This also means that in 2020, when the capital costs of real estate companies have increased significantly, the capital costs of Zhongnan Construction have actually dropped significantly.

Debt scale: This year, at the end of the first quarter, interest-bearing liabilities were 77.9 billion yuan, a decrease of 2.6% from the end of last year. The ratio to annual contracted sales remained at the lowest level in the industry, and the cash to short-term debt ratio also increased from 2020 to 2020. It increased significantly from 1.04 at the end of the year to 1.46. Both the absolute size of debt and the relative degree of leverage have improved significantly in the first quarter of this year.

Debt repayment guarantee: From a longer time span, of the 79.9 billion yuan in interest-bearing debt balance of Zhongnan Construction at the end of 2020, 23.37 billion yuan needs to be repaid in 2021, and 28.92 billion yuan needs to be repaid in 2022. billion, and 10.82 billion yuan needs to be repaid in 2023. As of the end of the first quarter of this year, Zhongnan Construction's book monetary fund balance was 28.578 billion yuan, which is enough to cover its debt repayment needs in 2021.

What's more, from 2018 to the first quarter of this year, Zhongnan Construction's net cash flow from operating activities has always maintained a net inflow. Among all real estate companies, it is also one of the few. Guarantee of Zhongnan Construction’s solvency.

In fact, Zhongnan Construction has given "reassurance" to investors more than once at the company level. The company has repeatedly replied on the Shenzhen Stock Exchange's interactive exchange: "The company insists on a development model that does not rely on interest-bearing liabilities. , although some higher-cost financing channels have been used, it has improved the company's overall capital utilization efficiency and accelerated the turnover level, making the company's total financing and overall interest expenses significantly lower than the levels of its peers, and also giving the company a high degree of debt repayment security and liquidity. The sexual risk is low."

Mr. Lichang cited so much data and information just to show that there is no problem with the financial situation of Zhongnan Construction, and it has improved significantly this year. What else is there? What to worry about?

2. Can profitability be stabilized?

Another recent worry about real estate companies is the decline in profitability. There are both discounted housing sales promoted by a certain university in the circle of friends, and the gross profit margin of Yuzhou Group listed in Hong Kong in the first quarter of this year. Collapse. But from the perspective of Zhongnan Construction, it still has clear individual characteristics, such as the two-wheel drive of real estate development + construction, such as the increase in the proportion of land reserves in first- and second-tier cities, and what Lichang Jun mentioned in his article before. Those who have been to Zhongnan Construction have a sound business philosophy of not blindly grabbing land at high prices and ensuring project profit targets.

This has become the driving force for Zhongnan Construction to "go against the current" in the context of declining profitability of real estate companies.

Let’s look at the data again. Zhongnan Construction’s comprehensive gross profit margins in 2019, 2020 and the first quarter of this year were 16.75%, 17.29% and 21.41% respectively. In the first quarter of this year, its profitability not only did not decline, but on the contrary A substantial increase; judging from the sub-data disclosed in the previous 2020 annual report, the real estate business settlement gross profit margin was 19.14%, a year-on-year increase of 1.21 percentage points. This was very rare that year and was significantly stronger than the industry as a whole.

For comparison, China Evergrande’s gross profit margins in 2019 and 2020 were 27.84% and 24.17% respectively, Country Garden’s were 26.06% and 21.8%, and Vanke’s were 36.25% and 29.25%, and in the first quarter of this year It fell further to 20.41%. In the process of rising and falling, Zhongnan Construction's gross profit margin has increased from less than half of Vanke's level in 2019 to surpassing Vanke in the first quarter of this year. It is not easy!

There are also recently released operating data for June. In the first six months, the cumulative contracted sales amount of Zhongnan Construction was 108.98 billion yuan, an increase of 33.9% over the same period last year, and the cumulative sales area was 7.901 million square meters, an increase of 33.9% over the same period last year. Over the same period, it increased by 29.7%. The increase in contracted sales amount was higher than the increase in sales area, and the corresponding unit price increased. During the same period, the growth rate of China Evergrande's contracted sales amount and sales area were 2.28% and 11.34% respectively, which shows the gap.

Not only that, in the first six months of this year, whether it is sales or sales area, Zhongnan Construction's growth rate is very dazzling in the industry. The value of newly launched resources in 2020 is more than 240 billion yuan, and the value of all salable resources in inventory at the beginning of the year is almost 300 billion yuan. The actual contracted sales amount exceeds 220 billion yuan, and the actual disposal rate of all resources during the year exceeds 73%; in 2021 , as long as the newly acquired value of salable resources of newly acquired projects can reach 270 billion yuan, plus the inventory of more than 80 billion yuan at the beginning of the year, all resource utilization rates only need to reach 70% during the year, and the contracted sales amount can be guaranteed to be more than 10% growth.

Judging from the above data, at least so far, we have not seen a slowdown in the business growth of Zhongnan Construction, and secondly, we have not seen any signs of declining profitability, and we are even "going against the flow." Yes, this is the greatest confidence for a company to operate. Therefore, when Zhongnan Construction responded to investors’ questions on the Shenzhen Stock Exchange’s interactive exchange, it also confidently stated: “The adjustment of the sales price of individual companies may have an impact on the products surrounding the company’s sales projects. There will be some impact, but the impact on the overall market will be limited.”

Judging from the above data and information, Lichang Jun still feels that Zhongnan Construction’s sales and profitability are completely fine, and the debt risk is also acceptable. The situation is under control and improving. From an individual company perspective, there is no big risk. But why do stock prices keep falling? Maybe this has a lot to do with the fact that the current real estate industry as a whole is not favored by capital. Didn’t you see that the REITs that were widely publicized and just listed for trading rose a lot on the day of listing, followed by the second day and the third I felt sluggish within three days.

In two or three days, we can’t say that their fundamentals have changed, right? I'm afraid it can only be interpreted in terms of "investor expectations". In the final analysis, as long as the company has no problems, the low market sentiment will not bring risks, but may instead be opportunities for the future.

For Zhongnan Construction, whose price-to-earnings ratio is only a little over 2 times, Lichang Jun feels that it can hold on a little longer!