Sunac’s leverage dropped to the “yellow level”! Sun Hongbin: Without regulation, this industry will not work

It’s the annual report season for real estate companies again, and Sunac China has handed over this answer sheet:

Revenue in 2020 was 230.59 billion yuan, a year-on-year increase of 36.2%, and net profit was 35.64 billion yuan yuan, a year-on-year increase of 36.9%. By the end of 2020, Sunac had 132.6 billion yuan in cash, and its short-term debt dropped significantly by 34.9% from the middle of the same year. According to the "three red lines", Sunac went from red to yellow within half a year.

All the data reveal four words: rising against the trend.

In 2020, the global economy was deeply impacted by the epidemic, and the real estate industry also experienced roller coaster-like ups and downs. What did Sunac do right in the past year?

As the saying goes, choice is more important than effort. Selling a house well is not as good as buying land well.

Analysis of Sunac’s financial report shows that approximately 78% of Sunac’s land reserves are located in first- and second-tier cities, and 22% are located in strong third-tier cities. Among them, the largest positions are in strong second-tier cities such as Hangzhou, Chongqing, Wuhan, and Tianjin, accounting for 65%, far exceeding first-tier cities (13%) and strong third-tier cities (22%).

In the past two years, regulation in first-tier cities has become increasingly stringent, while third-tier cities are tepid. Only second-tier cities are booming, and Sunac, a major second-tier city, is at the center of the storm.

More importantly, Sunac’s average land cost is only about 4,270 yuan/square meter despite being heavily concentrated in first- and second-tier cities. This cost control ability is enviable.

With high-quality land and low-cost land prices, it would be strange for Sunac not to be a top student!

01

Profit increased while debt decreased, and the main business became more stable

Let me start with a digression. This year’s Spring Festival movie season is unprecedentedly popular. Have you seen it? Which ones?

In addition to the tear-jerking and tender "Li Huanying", the domestic fantasy film "Assassination of Novelists" also has a high reputation and has even been rated as one of the most successful domestic fantasy films in recent years. Starring popular actors such as Lei Jiayin, Da Mi Mi, Tong Liya, etc., it has a Douban score of 7.0, which is the third highest among Spring Festival movies.

But did you know that such a fantasy movie is also the work of developer Sunac? During this year's Spring Festival, the films "Assassination of Novelists" and "Bear Infested Wild Continent" in which Sunac Culture participated have grossed over 983 million and 575 million respectively.

Today's developers are no longer willing to deal only with steel and concrete. Just like the big brother Sunac, it has extensive involvement in six major industries including real estate, property services, culture and tourism, and culture, bringing constant surprises.

In 2020, Sunac recorded contracted sales of 575.3 billion yuan. Although it was a little short of the original small target of 600 billion yuan, it still ranked fourth in the industry. In addition, Sunac continues to maintain its leading advantage in core cities, and ranks first in sales volume in 12 key cities across the country, including Hangzhou, Chongqing, Wuhan, and Tianjin.

Amid the drastic changes in the industry, Sunac's ability to maintain its top ranking also shows its profound basic skills in its main business.

As the saying goes, the strong wind knows the strong grass. It is really rare for Sunac to achieve such good annual results. I took a look at the financial reports and discovered the secret to Sunac's progress.

Sunac’s additions last year were very good.

In 2020, Sunac went against the trend and made further progress in making money. For the whole year of 2020, Sunac recorded operating income of 230.59 billion yuan, a year-on-year increase of 36.2%; net profit attributable to the parent company was 35.64 billion yuan, a year-on-year increase of 36.9%; following 2019, it once again set a record high, with revenue reaching 200 billion+ , the net profit attributable to the parent company reached a new peak of 30 billion+.

Picture source: Sunac China

Sunac has firmly grasped the golden principle of "cash is king" that has become popular in recent years. By the end of 2020, Sunac had 132.6 billion yuan in cash on hand, with unrestricted cash exceeding short-term debt coverage and ample liquidity; short-term debt dropped significantly by 34.9% from the mid-term of the same year, and cash flow was more calm and secure.

In addition to making money+++, you should also reduce the burden on yourself. So Sunac also started subtracting.

In 2020, it took Sunac half a year to jump from the red line where all three red lines were stepped on to the yellow line where only one was stepped on: By the end of 2020, Sunac's net debt ratio dropped year-on-year 76 percentage points to 96%; the unrestricted cash short-term debt ratio increased to 1.08, and the asset-liability ratio after excluding advances from receipts dropped to 78%. According to the "three red lines" standard, Sunac has been lowered to the yellow level, and its debt repayment risk has been further reduced.

Wang Mengde, CEO of Sunac China, emphasized that the company’s debt indicators will continue to be optimized by 2023, and the last indicator will be completed ahead of schedule in 2022.

In addition, Sunac is also planning to actively plan for the future and lay out a longer-term main business map. As of the end of 2020, about 78% of Sunac's land reserves were located in first- and second-tier cities, and the average land cost was only about 4,270 yuan/square meter. In 2021, Sunac's annual salable value is expected to exceed 900 billion, of which more than 78% is located in first- and second-tier cities.

Picture source: Sunac China

This gives investors a sense of security. After all, the recent centralized land supply policy has alarmed the real estate industry, and the news of land auctions three times a year in key cities is alarming. But compared to most other partners, I believe Sunac has more confidence.

If you have food in your hands, don’t panic. Before the official gunfire of the local auction reform, Sunac had already occupied a good starting position in advance.

No wonder Shenwan Hongyuan (Hong Kong) gave Sunac high praise in the research report: "Sunac China persisted in deeply cultivating the first and second lines, adopted a counter-cyclical expansion strategy, and successfully expanded with leverage against the trend in 15-17 years. , and by taking advantage of the label advantage of M&A expansion, it has created strong advantages of thick high-quality land reserves and low land costs... It indicates that the subsequent sales and performance will improve in quality and quality. At the same time, with the concentrated release of performance, the net debt ratio is expected to drop significantly, driving down financing costs. , the icing on the cake ”

02

The variety and ambition of cross-border Sunac

During the Spring Festival this year, Sunac was the developer that surprised me the most. . Even if you are not in the sales office, you can still hear its name: "Let's go skiing at Sunac!"

Especially in the past two months, several friends have said they want to go skiing at Sunac. In addition to building houses, Sunac’s new skill of playing with culture and tourism is being seen by more and more people!

Not only word of mouth in daily life, Sunac's efforts can also be seen in the financial reports. Among the many product formats of Sunac Culture and Tourism, Sunac Ice and Snow has relied on the operational advantages of Four Seasons to complete the market early access. It is currently deployed in 18 cities across the country and has planned 18 ski resorts, of which 7 ski resorts have opened, with a total reception of 3.33 million. person times. Even Sunac has become the largest indoor ice and snow operator in China.

Sunac Harbin Ice and Snow World

Guangzhou Sunac Snow World

At the same time, Sunac integrated the super ice and snow IP that has been established for more than 20 years— Harbin Ice and Snow World is an ice and snow entertainment resort integrating indoor and outdoor areas.

The ice and snow IP that Sunac has bet on has promising prospects. As we all know, our country is preparing for the 2022 Beijing Winter Olympics, and has also been vigorously developing the ice and snow economy in recent years. I believe that the ice and snow vacation industry will become more and more popular. By then, Sunac's profitability may be greatly improved with its leading advantage.

Sunac revealed in its financial report that as of now, Sunac China’s cultural tourism projects have been implemented in 39 domestic cities. In 2020, Sunac China achieved revenue of 3.879 billion yuan from the construction and operation of cultural tourism cities, a year-on-year increase of 36.11%, accounting for 1.68% of the group's total revenue.

Wuxi Sunac Cultural Tourism City

In the last performance meeting, Sunac China Chairman Sun Hongbin said: “In Sunac’s view, the cultural tourism industry will rebound after the epidemic. This industry is a supply-side problem, and the demand is far from being met.”

Judging from everyone’s enthusiasm for watching movies and skiing during the Spring Festival this year, it is indeed true that the cake of my country’s cultural tourism industry is still very big. Creative Culture Tourism is expected to become a major revenue contributor to the group. CITIC Construction Investment predicted: "In the future, the cultural and tourism sector will become the main force in the company's diversified layout."

In addition, Sunac's "real estate +" territory achieved major expansion last year. In the second half of last year, the group will The innovative services were launched on the Hong Kong Stock Exchange and achieved outstanding results. By the end of 2020, the construction area under management of Sunac Services reached 135 million square meters, a year-on-year increase of 155.1%. The contracted construction area reached 264 million square meters, a year-on-year increase of 67.2%, which is at the upper reaches of the industry.

Sunac services are also becoming more and more profitable. In 2020, Sunac services revenue was 4.623 billion yuan, a year-on-year increase of 63.5%; net profit attributable to the parent company was 620 million yuan, a year-on-year increase of 130%. The company's overall gross profit margin was 27.6%, 2.1 percentage points year-on-year, and its gross profit margin level was at the forefront of the industry.

03

Sun Hongbin: Without regulation, this industry will not be able to work

During the 2020 financial performance meeting, Sun Hongbin frequently made famous quotes.

Regarding the regulation of the industry that everyone is most concerned about, Sun Hongbin said: "I support regulation. Without regulation, this industry will not be able to work. Without regulation, housing prices and land prices will skyrocket. Without regulation, For developers, land prices are rising faster than housing prices, and ordinary people cannot afford it. It is not good for anyone."

He further explained the reason: "Real estate accounts for the entire money. More than 30% of the financial system, if other industries use real estate as collateral, it will reach more than 50%. If this industry is not regulated, the impact on the financial system will be too great, and it will also affect the happiness of the people. The central government regulates the property market based on these two logics."

The simple vernacular is the same as Sun Hongbin's usual straightforward and straightforward style. Sun Hongbin also said with a smile: "After the three red lines, I don't have to worry about my debt ratio. Now the central bank is in charge."

When it comes to the new regulations on centralized land supply, Sun Hongbin is also very calm. He believes it would be a good thing to increase the supply of land and make it more transparent. Selling 20-30 pieces of land at a time will benefit large-scale enterprises, and they can apply for 20 pieces of land at a time.

In Sun Hongbin’s view, it is still early for the industry to develop. The industry is moving forward, the urbanization rate is still 20 points, and the market demand is very large. The new home sales market is expected to be 18 trillion yuan this year, and 20 trillion yuan in the long term is no problem.

Sun Hongbin also talked about his expectations for the group. He said that in the future, Sunac will rely on real estate as its core business to make money quickly, increase the amount of equity, and pursue high-quality and profitable growth. In addition, cultural tourism is also a very good business. Sunac must do a good job in cultural tourism, and the goal is to reach 100 million members in 2021.

Finally, Sun Hongbin contributed a famous quote, which I guess is also the best in this financial reporting season: "Now this industry is under a new logic, and excellent companies will usher in their own prosperity." "The good times of leading companies have just begun," he said, predicting that in two years we will see individual companies go through a storm, many companies will be liquidated, and market concentration will increase again. Leading companies will account for 30%-40%.

The wind knows the grass. In the uneasy 2020, Sunac's "real estate +" business has flourished, demonstrating its profound skills as a developer, and its surprising achievements and unlimited potential as more than just a developer. possible.