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Edited Transcript of 1109.HK earnings conference call or presentation 26-Aug-20 10:59am GMT

Half Year 2020 China Resources Land Ltd Earnings Presentation

Wanchai Aug 26, 2020 (Thomson StreetEvents) -- Edited Transcript of China Resources Land Ltd earnings conference call or presentation Wednesday, August 26, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dawei Zhang

China Resources Land Limited - Vice Chairman

* Eva Lau

China Resources Land Limited - IR Manager

* Ji Xie

China Resources Land Limited - Senior VP & Executive Director

* Linkang Yu

China Resources Land Limited - SVP

* Xin Li

China Resources Land Limited - President & Executive Director

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Conference Call Participants

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* Griffin Chan

Citigroup Inc., Research Division - Director

* John Lam

UBS Investment Bank, Research Division - Research Analyst

* Lok Hang Li

JPMorgan Chase & Co, Research Division - Research Analyst

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Presentation

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Unidentified Company Representative, [1]

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Good afternoon, dear analysts and investors. So this is CRS Land (sic) [CR Land]. We are reporting you on the interim reports of 2020. So because of the pandemic, it's a pity that we cannot meet you face-to-face and report to you about our performance. Therefore, we are holding this virtual meeting. But we think that we can still have a very good communication.

Now first of all, let me introduce the management with us today. Mr. Li Xin, our President.

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Xin Li, China Resources Land Limited - President & Executive Director [2]

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Good afternoon.

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Unidentified Company Representative, [3]

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Vice President, Mr. Zhang Dawei; Senior Vice President, Mr. Xie Ji; Senior Vice President, Mr. Yu Linkang; CFO, Mr. (inaudible).

So at the meeting today, there will be 2 parts. First, the management will walk you through the business performance. After that, we will open the floor for questions. So you are most welcome to join us via online to raise your question. (Operator Instructions).

First of all, Mr. (inaudible), our CFO, will walk us through the business performance.

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Unidentified Company Representative, [4]

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So dear analysts and investors, good afternoon. I would like to take this opportunity and report to you about our interim results of 2020. In the first half, the overall environment has been very challenging. And there has been an increase in the returns to shareholders as well as the dividend by 3.2% up to by -- to 840 -- 84 -- CNY 404 million. And the interim dividend also grow by 16.4% to 0.15% (sic) [CNY 0.15]. You can see the net profit attributable to the shareholders, down by 3.5% to CNY 115 million. And because of the pandemic, the fair value of the investment property was down to about CNY 4.5 billion. And when the stabilization occurred after the pandemic, everything will be back to the normal.

We estimate that the accumulated sales was CNY 133.4 billion, up by 2.5% by the end of 7 -- by the end of July. Because of the pandemic, there has been a slight decrease in the settlements as well as the rental income. However, through our combined efforts as well as the implementation of a 2 plus X strategy, there had been a steady increase in the investment property as well as the net -- as well as the profit ratio.

At the end of the first half, the core net profit was 18.6% and up by 0.9%. And the net profit attributable to shareholders was 25.7%, still high in the industry. There has been a slight drop of sales for the investment property, down by 1.7% to CNY 36 billion because of the resumption, restoration of work, as well as the structural adjustment in some cities in terms of settlement. Therefore, in the Tier 1 cities, the unit price also dropped. Therefore, the settlement unit price was down to [12.28 -- CNY 9,000], and unit costs are down by CNY 8,372. In the first half, the investment property also down -- was also went down by 12.5% in terms of rental income. And the shopping malls, the income, down by 8.9%. And as for the office buildings, because of the sales promotion, the revenue went up by 5.8%.

Hotels were also impacted by the pandemic. The business revenue, down by 51%. So we have, for example, for the fair value changes in Shanghai, Hangzhou, Xiamen, Guilin, Chongqing and Shanghai Times Square. So you can see all these figures in the report. So we stick to our prudential policy and keep improving the utilization of cash. So therefore, you can see we actively repaid the CNY 10 billion perpetual debt earlier and these early redemption. We also actively managed the cash balance which was only down by 4.4% than the end of last year. Interest-bearing debt was 13.6 percentage higher. And now it is 45.9%, but still within the reasonable leverage area.

In the first half, our structure continued to improve. So the cash utilization is still low. As we said that we must maintain the adequate cash in hand in order to avoid the double high situation. Meanwhile, we can also improve the overall capital volume and improve the capital return over in the first half through our combined efforts in optimizing the debt structure as well as the early redemption of the perpetual debt. They will also issue the midterm note at a lower cost as RMB 4 billion.

Weighted average cost was only 2.77%, therefore bringing the overall financing cost down to 4.26%. The foreign currency exposure further down to 6.6%. So there are less risks in terms of refinancing. In the upcoming 3 years, our overseas over debt distribution was very low.

Now let's look at our business performance. In the first half, we realized the CNY 100 billion sales target because of the pandemic as well as the sales was lower -- was smaller than the first half. The contract sales was down by 6.7% to CNY 110.8 billion. By the end of July, the overall contract sales was down by 2.5%. In Tier 1 and Tier 2 cities, they contributed 80% of sales. Top 5 cities covers 4 cities in Tier 1 cities, and top 5 cities already contributed over RMB 5 billion in terms of sales. So we are providing hedging, providing support and a guarantee to our sustainable growth.

The shopping malls, as I said, because of the impact of a pandemic, as we said, during March, our results report, we are conferring the difficulties together with the tenants. And in the first half, the overall rental income was down by 7.5% to CNY 3.97 billion. And the rental situation was basically maintained level through online and off-line activities. The overall tenants increased by 15% by the end of last year to 1 -- to 12.6 million. And the gross margin further improved to 8.4%.

After the pandemic, things got stabilized, and the business also resumed very quickly. In major metro line, the retail volume increased by 26%, 14% and 29%. And the same-store growth also went up by 70%, 7% and 21%. Rental income also increased by 18%, 15% and 22%. The income at the same-store increased by 8%, 6% and 16%. And we are holding 42 shopping malls. So we hope that at the end of August, our business will return from a loss to profit. So for those better performers, in months of July -- ended May, June and July, in the 7, the luxury shopping malls, the increase was also 36%, 29% and 44%.

Now let's look at bank reserve. So through the adjustment of our structure pace and the deployment, we'll further improve the land bank structure. Now we added 4.95 million square meters in our land bank and which is adequate -- which is equivalent to the saleable resources of RMB 120 billion. So over 20 -- over 60% of the equity lines located in the top 3 city clusters, and meanwhile, we captured the opportunity in February and March and acquired more land during that time. In the second half, we continue acquiring more land in order to support future growth.

In the first half, through our advantages in developing and running the city complexes, we acquired [3] shopping malls, so which means GFA by 300,000 square meters. So 2 projects were acquired at the bottom price, while with the premium price of only 0.5%. The parent company further injected capital to us, and in July, we -- there are 4 injections in 4 projects. And at the end of the reporting period, our total development land reserve has been holding 60.46 million square meters. And in Tier 1, Tier 2 cities, the 70 -- 67% of the lands are located there.

And in terms of investment property, we are holding 10.62 million square meters, in which 46% are shopping malls. And they are in Tier 1 and Tier 2 cities mostly, which is over 80% in the Eastern China, South China and North China. By the end of June, we have entered into 62 cities, and we basically have completed the national deployment. And in 25 key cities, we have over 1 shopping malls.

In the reporting period, we continue with the city municipal operating system. In the first half, we've got one more project in Changsha. Now we are following Lanting projects, which is the 16.3 square meters, or the equity square meter is 800 million -- 8 million square meters.

Now let's look at the X business. The X business is a very important part in the 2 plus X strategy in the company. There are 3 parts: the synergy part, the light asset part as well as innovation and cultivation part. Synergy part mainly focuses on the municipal operating under construction as well as the building -- business building -- the building business. The second part is about light assets, including the light assets commercial running, property management and entertainment culture. And for the third one, it's about innovation, which includes the long-term renting, the senior caring business as well as the city -- mixed city projects. In the recent years, we have been developing this business in a sustainable manner, and thereby using -- by developing high-quality in our brand, we are able to win the very good reputation in the market.

In maybe today, during the last time, you have already heard about the -- our announcement for voluntary disclosure on the spinning and listing. And through our strategy, you can see our property management of CR Land as well the commercial operation services may be split and got listed. If they are completed, then we will be able to support our future growth better. And we will also guarantee that according to the listing rules, we will allocate the quota of sharing purchase to our holders first. If there's any further information, we will let you know.

Now let's look at the future, our future business sales growth and business performance. In the second half, saleable resources will have [CNY 412.2 billion] and 83% in Tier 1, Tier 2 cities, 73% are residential. Now 6% of the re-saleable (inaudible) will be launched, and they are of high quality. Construction and the simplification has been following the schedule, and we can guarantee the supply. In the second half, there will be CNY 250 million of new resources in Tier 3, Tier 4, 40% and [6%]. We have confidence that we can hit the target of CNY 262 billion of sales.

In the upcoming 3 years, we have the unsettled sales revenue, about CNY 230.4 billion, in which CNY 107 billion will be settled in the second half this year. Meanwhile, in the next 3 years, we will expect to have a 15% of our CAGR growth in our investment property. So in 2020, our investment property will contribute CNY 12 billion. And in 2025, we have about over 24% -- CNY 24 billion from '21 to '25. So from in 2025, we have about CNY 15 billion in the investment property.

In the shopping mall long-term plan from '21 to '22, we are going to open 12 more shopping malls. So this will lay a good foundation of our rental income in the future. Currently, we have got land to reserve in the future. We will have 120 shopping malls in which 92 will be held of ourselves. Light assets will be exported by 28, and we will continue deploying our strategy in the shopping mall business and to go deeper and go broader.

So in the power point, you can see more details in the appendix, and I won't elaborate too much. So this is the end of the interim report. Thank you very much.

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Questions and Answers

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Unidentified Company Representative, [1]

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Thank you very much, Mr. [Guo] for your very detailed presentation. Now I would like to open the floor for questions.

Last time, some analysts says that didn't have time enough for the questions. So at this time, we're going to leave more time for the investors for you to raise your questions.

Now I'd like to invite the first question. (Operator Instructions) The first question, please, [CICC's Eric].

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Unidentified Analyst, [2]

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Mr. Zhang, so can you hear me?

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Unidentified Company Representative, [3]

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Right. Clearly.

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Unidentified Analyst, [4]

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I have 2 questions for you. First of all, congratulations, a very solid and very stable business performance in the first half.

2 questions about growth. In March, in terms of growth, you didn't talk too much and everything -- very quantitative a very qualitive town. Now the pandemic is almost over, and the business is resuming. Can you please elaborate a little bit more about the growth? In the PowerPoint, there are 2 slides which talk about sales. For example in sales, I did the math. In the second half, luxury resources, and 36% sales will be able to -- for us to hit the annual sales target. So just want to know that if you look at the figures, there's a chance that you can sell more than your target, right? So this is about sales.

Another slide in the PowerPoint is from 2020 to 2022, your expectation. So the saleable resources, I did the math as well, about 32% of the saleable resources, also a growth. So does that mean that in 2021, 2022, net profit will grow dramatically? So these questions about growth.

The second question is about the spinning and delisting. We already read the announcement. In the slide, you said that it is property management plus the commercial operations. In my understanding, it is beyond the property management. So can you please explain a little bit what it is?

So I also noticed that in the presentation, you will provide the priority to the CR Land shareholders for the new listing. So because we don't know more details about it, just can you please elaborate a little bit more? Thank you.

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Unidentified Company Representative, [5]

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Thank you, [Eric]. Two questions. One is about our business performance as well as the growth expectation. The second one is about the spinning. Now let me take your second question first. About our business growth expectation. I would like to leave it to Mr. Xie, our Senior Vice President, to take it.

About spinning, spinning and delisting. I know that the capital market is concerned about it for CRS Land (sic) [CR Land] after the restructuring in 2008 until 2002, after 18 years of growth, CRS Land (sic) CR Land has grown itself from a pure developer to, in 2015, a comprehensive development -- real estate development -- developer, so with 2 wells of our strategy. So it has been about 10 years of a growth already until now. So along with the [Datong] project and the [Shenzhen 1] project, these 2 completed projects, we are a developer as well as operator of such properties, where you can see this is the value increase in every step of our business in the years.

So that's why when we consider about the spinning and delisting, we just want to release the whole potential of our business through listing, and the value is an accumulation of over 20 years of growth. We don't have any specific timetable for the listing. And we've got a [PN 15] application then already on the 15th of August. In addition to assess land releasing our value, this is only one of the goals.

This is -- another goal is that through delisting, we have been supported and trusted by investors. And we really value the interest of our shareholders, particularly those long-term shareholders. We hope to increase their value, so therefore, when we're spinning and delisting, when we go for IPO, we will guarantee the priority and the quota to our existing shareholders.

As for the specific information, perhaps you will have to wait a little bit. And please, we'll keep a close eyes on our further information.

Now Mr. Xie, my colleague, will take your first question.

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Ji Xie, China Resources Land Limited - Senior VP & Executive Director [6]

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Okay. Regarding the contract sales this year, so we estimate that we can maintain this [CNY 26.2 billion] figure. So this figure can be guaranteed because every month, we look at our sales, we look at our supply. We also look their trend as well as the changes in the market. This is a dynamic market. Therefore, we have to adjust and keep up with the market. So this goal can be guaranteed, as [Eric] asked. I feel that our sales, this [CNY 292 billion] perhaps we can oversell.

Yes, in the upcoming 4 months, we will launch the saleable resources and really depends on our pace. So we will launch this product one by one. And somehow, there will be a difference between one city to another. So for example, CNY 292 billion . On the one hand, this goal can be guaranteed. And on the other hand, it is quite a neutral expectation.

As for the contract sales, in different regions, the major contributors are Beijing, Shenzhen, Shanghai, Guangzhou, Hangzhou, Shenyang, Nanjing, Wuhan, Chengdu, Changsha, et cetera, basically the Tier 1 cities and the strong Tier 2 cities. So these are the major contributors.

As for the settlement amount, Mr. [Guo] will answer this part.

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Unidentified Company Representative, [7]

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Okay. So Slide 29 in the presentation. This is the settled level resource. So in 2020 -- you can see in 2021, 2022, there will be big increase. Because in some high energy cities, in the past, the settlement was down very early because of the margin. Because the settlement in terms of volume and settlement in terms of growth area, these 2 do not go together. And the gross margin was also going down. So in terms of our profit, it may not grow at the same proportion as the settled gross area do.

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Unidentified Company Representative, [8]

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Now should I take the second question. Jason from [JD].

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Griffin Chan, Citigroup Inc., Research Division - Director [9]

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I'm Griffin from Citibank. Two questions for you. The first one, so this year is the first year when we prepare another new 5-year plan. So for CRS Land (sic) [CR Land], you may adjust your strategy. So under this macro economy, so how can you guarantee yourselves and your performance? How to maintain your double-digit growth? This is the first question.

The second question is that in the reports, management said that in May, in May, June, July, the business was resuming in the second half. So under this internal circular economy, what will be the growth in the second half? Just now you mentioned about some investment properties, shopping malls, and that there will be more investments in this area. So also, you mentioned about the -- your financials. Actually, we did look at a very clear picture about these shopping malls as well as the available returns. Can you please re-elaborate a little bit more?

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Unidentified Company Representative, [10]

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Okay. Thank you, Griffin. (inaudible) you asked the 3 questions. The first one is about the 14th 5-year plan, what is our own plan. The second question is about our business performance. So based on the solid performance in May, June, July, what will be an annual expectation. And the third question is about the overall investment properties. What will be the growth picture? So you want our CFO to give you a clearer picture, right for your questions?

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Unidentified Company Representative, [11]

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Okay. So let me take your first question about the 14th 5-year plan first. For the business growth, Mr. Yu Linkang, our Senior Vice President, will take it.

The 14th 5-year plan, this management strategy, our -- we in CRS Land (sic) [CR Land] is also preparing our own plan, and this plan is not finalized yet. However, we do have conducted a lot of deliberation, a lot of discussion, and we can also share with you some of the highlights in our discussions.

First, from the macro picture, our economy, the whole industry, we think that the property market in China is a huge one still. It is now into a very big consumption market as well which is going through a transformation right now. There are 2 areas where you try to understand what is the consumption market. One is about the residential side. We launched new products. Consumers are requiring more houses or rooms or apartments. So this is for sure. Another area is about the upgrading of shopping malls. We have a very deep experience and affiliate on it, be it in Tier 1 city, Tier 2 cities and Tier 3 cities. So I said, there's a good shopping mall. You have good products, you have good services. Consumers will be very willing to go. And this is very obvious, and they would love to though. So I'm not exaggerating. I'm just describing.

So from the demand side, it is a very healthy market still. Chinese economy, you may have heard a lot about China's economy recently. Different discussions in a circular or international, what do you call it, the external and internal circular economy, so whatsoever. If you look at China's own economy, the domestic one, in the future, what is the potential? It is still a huge consumption market. And there is a huge amount of demand in the local market. So in the next 5 years, China's economy will still have very stable, prudent, orderly and steady growth.

And another one, another area is about the property market, about a [CNY 16 billion] of market size. So we think this [CNY 16 trillion] of a market size is already formed. So this is a huge market. So whether it will continue to grow, however, we may not think it will definitely happen. There may be opportunity that it will maintain growth without much drop. So this market will -- it is above CNY 10 billion -- above CNY 10 trillion. It is huge already. So it will maintain this size for a while. So under such circumstances, what we should think about is how to avoid -- how to survive and also how to compete in this fierce market. The market is huge. The competition is also fierce.

So basically, this is our understanding of the macro economy and the market. For CRS Land (sic) CR Land , when I answered the first question, I said that CRS Land (sic) CR Land from 2002, after the restructuring of the company, until in 2005, we launched the first MIXc city in Luohu, Shenzhen. It was the first transformation from a pure developer to a city complex developer and operator. So basically, it's what we call the 2-wheel strategy, so residential plus commercial. So we have been following this strategy for over 10 years. So the transformation succeeded. And today for CRS Land (sic) CR Land , the dividend has -- the -- our business growth is based on these effects of our transformation in 2005.

In 2018, so along with the completion of [Datong] project and the Shenzhen Bay project, CRS (sic) [CR] China further transformed itself from a comprehensive developer to a city complex investor, developer and operator. So it is about the municipal complexes it evolves and it manages, so it manages comprehensively. We have a development. We have a commercial property. We have leasing. We have education. We have senior caring. So our investments is about the municipal upgrading, so in property, in environment, in consumption, upgrading, so on and so forth.

We have set up -- we have built up our own core capability. So this is the second successful transformation in CRS Land (sic) CR Land . So 18 years of growth until now, we are looking at the future, the 14th 5-year plan. So that's why when we disclosed about it. When we look back and look into the future, we think that our success in the past is because we have had a good strategy. We have a right strategy. We implemented a strategy firmly. So that's why we have won recognition in the capital market. What changed our strategy quite a lot, we will firmly stick to our strategy of investing, maintaining our business position, strategic position in the municipal investment development and operations.

So as I said, that we are a city complex developer operator and investor. We have already built up our own core capabilities. So we have the capabilities to realize the further scale growth and operations of our properties. So if you look at our CAGR growth after 18 years, what is the story behind is that we have the core capabilities. We have a very good foundation. And in the future, how can we improve our capabilities even better? So this will be what we have to think about.

As for the city landmark investments and operations, such as city mix -- city MIXc world and so on and so forth. So these are the major city complexes. During the 13th 5-year plan, our business growth enjoyed a greater lot of benefits from this landmark projects.

So the next one is about the municipal upgrading and the renovation projects. So it also involves investments, developments and operations. We did the Datong project. It was a renovation project, the biggest one in China. So this is a brand-new city. It's the wholly new city. It just started a new chapter to us. For the renovation in total area, it's about 16 billion -- 16 million square meters already. And equity area is about 8 million square meters already. So we have been able to acquire those projects.

Through recently, our senior management visited different cities and provinces. When talking about renovation projects, when talking about our experience in such renovation projects, we have won high recognition from our partners and peers. A lot of governments send out delegations to Datong to Nanxiang, trying to understand what are our best practices and our experience. So in terms of renovation, I believe that there will be more growth opportunities for CRS Land (sic) CR Land .

The fourth capability in my opinion is a very unique one. That is the -- such as gymnasium, the stadium and expansion galleries and so forth. This is what a CRS (sic) CR can do to invest, to operate. So from the first -- the stadium for the [university] side, that was our first project. Now we have developed and operating 7 such big stadiums. So they are all of high-quality, built up very quickly, running very well.

So in the long term, so we have already formed our own capabilities of investing, developing and operating such major stadiums. In different provinces and the cities, local governments asked for us to do it for them, and there are more and more such opportunities. I believe that this capability can also provide more chances for us to acquire quality resources.

The next one is about IT business. It is based on the overall -- our operations. To build up a ecosystem, for example, long-term leasing, senior caring, industrial as well as education. So these are the supplementary or supporting functions so that we can improve our overall development and operations capabilities. It's based on the 13th 5-year plan, and looking to the 14th 5-year plan, we will focus ourselves on the 5 areas.

Number one, we will continue focusing on the 3 core business in city complex development operations to grow even better and improve the quality to a higher level. In terms of development, the complex development, shopping mall development as well as the stadium development and operations. So this is the first area we will focus on. The second one is that we will continue strengthening our capabilities, as I mentioned before. And number three is that we will go even deeper to the general business cycles or business clusters to go even deeper in our existing deployment. Next one is that, stay to the bottom line, our financial bottom line so that we can guarantee the secured operations as well as a strong healthy growth. Number five is the investment. We look for the balanced investment in returns and in growth so that we can guarantee that we can access the right resource.

So overall, these are -- there are some highlights regarding the 14th 5-year plan. So after September, the 14th 5-year plan will be amended and finalized. So I believe that we will follow these directions were to start a new chapter in the company.

So overall, during the 14th 5-year plan, the management has full confidence to manage the company well and to continue to be the best performer in the industry.

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Eva Lau, China Resources Land Limited - IR Manager [12]

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So Mr. Yu will take your question about the business growth.

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Linkang Yu, China Resources Land Limited - SVP [13]

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Okay. Good afternoon, investors. Remember that in March, we shared with you about our business growth and the business plan. I'm very happy today to share with you more information, particularly about the past few months. In March, when we talked about our forecast this year, it seems that we have already -- our performance is better than expected. You have already heard about the figures. From May, we already restored our business. For example, the sales -- the same-store sales. But basically in May, our performance was at the same level as last July. And in July this year, our overall business performance was similar to what it was in last July. So in July, the impact during the pandemic period has been catched up, and our performance is better than expected. So if there isn't any second wave or third wave, we have confidence that we can maintain such growth momentum from August to December.

Our confidence comes from 4 areas. So number one, the measures -- countermeasures during the pandemic period. We have accumulated very good operational system in the past 18 years. We have also prepared contingency plans, and all our employees are trained how to react, how to respond. Our tenants are also managed well. So over 70,000 people from the first day when the pandemic outbroke, there was no infection, there was no confirmed case. So this shows how well we have been managing our staff, our tenants. So this gives more confidence to our consumers and our partners. So this is about our team's capability.

The second one is that our medium- to high-end positioning of the company. During the countermeasures during the pandemic period, we have been able to strengthen our capability to respond to such pandemic situations. So in those luxury brands featured shopping malls, we own the most number of such luxury brands. Currently, we are working together over 90 international brands and running over 2,000 stores in our shopping malls. So these figures are the most that this COVID-19 situation brought actually an opportunity to us. A lot of buyers who would like to go buy in the overseas markets, now they are buying locally, as Mr. Wu said. The international brands, those high-end brands in the shopping malls, our sales increased much, much more than other shopping malls. In July, it was a 44% of our growth. So this also gives us not only growth in business, but more confidence. Of course, this increase was very high during the pandemic period, but it won't be gone after the pandemic. A lot of consumers that came to us, they knew about our services, they knew they were connected to our membership programs. I believe that most of the consumers will stay with us in our stores.

The third one is that we have been building up our own membership system. So among all the shopping malls in China, we are perhaps the first to set up such a membership system. Until now, we have over 10 million. So remember, we have 12.6 million members already. During the pandemic period, our member system did help us quite a lot. With the membership system, we were able to communicate to our consumers directly. According to the statistics, the consumption from such existing members increased quite a lot. So compared with the same period last year, there was a 10% of increase among the consumers, membership -- member consumers. So this is perhaps a very big advantage we have. Every year, we are expanding our membership system by allocating more in resources for maintenance of such a system, even though this pandemic has brought great impact. However, our leasing rate has not been impacted that much, maybe just 1 percentage point. So this is because for all these years, we have been treating our tenants as partners, but not pure landlord and tenant relationship. In the past 10 years, over 10 years, we have been setting up such a good relationship with our tenants. During the pandemic, we also did something to have them. For example, the rental concession to the tenants. So we are helping each other, and our relationship is even closer. We trust each other better. And our leasing rate has been maintained, which will be helpful for us to further improve our sales.

So based on what I said before, in the second half, we will have more confidence in delivering a better performance in our business growth. So when we communicated in March, we said that we would try our best to maintain the same level of business, but now we're expecting a single-digit growth. I hope that we can hit 5% of our growth in sales and in our business revenue. Through better management in the company, we hope to reduce our costs and improve efficiency accordingly. And in terms of gross margin, we can also maintain a high gross margin performance so that our profit can also keep improving. So these are the points I want to share with you. Thank you.

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Xin Li, China Resources Land Limited - President & Executive Director [14]

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Just now let me talk about the prospect. I was a little bit quick when I talked about the financials. Let me repeat. Currently, based on our calculation, in 2020, our office buildings and hotels and so forth, the rental revenue will be CNY 12.1 billion. I calculated that if it is a 15% of growth by 2025, we will have CNY 21.1 billion. If it is 20% of growth in 2021, the rental revenue will be CNY 30 billion. So why that? Because we hope that we can maintain 15% of a growth, but 20% is also possible so -- because we are opening more shopping malls. In the following 5 to 6 years, they will be ready to operate. So as for the office buildings, so there, our -- we have a lot of office buildings. For the hotels, we have over 20 new hotels to be launched. So in the future, the rental income we expect that there will be high growth of a growth for the shopping malls and office buildings. So the revenue growth will be conservatively speaking 15%. So by 2025, if it is 20% of a growth, and then that will be CNY 30 billion. And if the gross margin is 50%, and then we will have CNY 15 billion of a gross profit. So we are expecting about CNY 15 billion to CNY 20 billion of a gross margin. So this growth will be very stable. During the 14th 5-year plan, we can estimate in this way plus the same-store growth for the self-holding properties. We have very good expectation on this segment. It's very stable.

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Eva Lau, China Resources Land Limited - IR Manager [15]

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Next question is from [TBS, Carol].

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Unidentified Analyst, [16]

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I have two questions for you. The first one is about the land reserve. What are the channels of land acquisition? So in the public market in the first half, you spent about CNY 11 billion on land acquisition, about 30% of our total spending. What about the nonpublic market? So what will be the gross margin for those nonpublic market and land acquisition? I also noticed that you have 19 renovation projects ongoing. Many in Guangdong, 16 of them are in Guangdong Province. Mr. Li said because you are very successful in the municipal renovation projects in different cities, and now other government continue focusing on Guangdong because you've got advantages here. You've got experience here. Or are you going to expand your expertise to cover other provinces and the cities as well?

The second question is very simple one, is about the dividend payout -- dividend policy. Is your -- even though your core profit margin didn't grow, but -- didn't grow a lot, but your dividend policy, what will be the dividend policy this year?

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Xin Li, China Resources Land Limited - President & Executive Director [17]

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Thank you, [Carol]. So let me take your two questions. The first one is about land reserve. The -- first of all, investment. For a developer, investment is one of the core capabilities. So if you look at the ranking, perhaps it will be the most important one or the second most important one. So investment capability. It's true that from the very beginning until now, if you look at the industry, gross margin, the land price is going up. And the selling price versus land price, this ratio has been declining. So this declining trend comparing with 2, 3 years ago or even 4 years ago, this down going trend is basically will be normal. So this is very obvious in our adjustment. From an investment point of view, you have to diversify your channels, including the land acquisition. We go to the public market for land acquisition. In the targeted cities, (inaudible), it's based for our philosophy of a quick turnover. If it is in the mainstream market, we hope to participate in the project for land acquisition.

In terms of a diversified land acquisition channels, we do have our own advantages, including the renovation projects, including the stadium construction and operations. In the past, we were able to acquire land for those purposes very successful. And this capability will also be utilized in the future projects in new renovation projects. And we can also mobilize our resources to create such opportunities as for -- including the PUD, so the land acquisition will bring more unique opportunities for us to access the special resources.

In the first half, the gross margin for land acquisition is high -- was high. So overall gross margin, Mr. Yu already calculated, it is not the final figure yet. It's just a rough figure. Overall, our -- the land acquisition gross margin -- because this is a 0 premium price, of course, the price is much better than the -- than any of the auction plan -- than any of the auction market. In the first half, the total land acquisition number is CNY 38.8 billion. By the end of June, the equity land -- just a minute.

So Mr. Xie, can you talk about the land acquisition a little bit?

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Ji Xie, China Resources Land Limited - Senior VP & Executive Director [18]

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In the first half, the total land acquisition is CNY 58.9 billion, including the equity land acquisition. In the first half -- in the first quarter when the pandemic was very serious, we saw it has a very good window time, and we wanted to capture this good timing. So in Beijing, Shenyang, Suzhou as well as other cities, we saw good opportunities of a land acquisition and very good resources in Q2. So there was a warming up in some cities in the land market. Gross margin, net margin was down. At that time, we didn't simply follow the market, but just to be selective. So we stick to our principle of ROI orientation. Currently, in the first half, Q1 and Q2, the -- so including what Mr. Li Xin said, through diversified channels, from last half until the first half this year, we mobilized the different resources and diversified our channels of a land acquisition in Shenyang project. It is now undergoing.

Now let me share with you a little bit more about the land acquisition. So CNY 58.9 billion, #6 in the city -- in the industry, #9 by the equity land acquisition. Q1 was the best season, best timing for us. Because of the pandemic, we saw a very short period of time of a good timing window there. In Beijing, Suzhou and Shenyang and some core cities, we acquired a very good, high quality of land resources. They will be expected to turn into sales. In Q2 in some hot cities, the land price went up very quickly. And the land market was very hot. So during the second quarter, we didn't get involved a lot. But instead, we're sticking to our own ROI strategy. And we were very prudent in acquiring land resources in Q2. On the 20th of August, we have already acquired 40 projects. The contract sales -- contract price was CNY 73.2 billion with the total floor area, GFA, is 6.57 million square meters. And the average land cost was CNY 9,661 basically in Tier 1 and Tier 2 cities. So over 80% of such resources are in Tier 1 and the Tier 2 cities.

So this basically fits for our -- the 3 guiding lines. As we said in the beginning of the year, in Q3 and Q4, we believe that it will be possible that we see more windows and more opportunities of M&A. So based on what we have acquired in the first half, the overall gross margin will be higher. The land acquisition is about 40%.

So about dividend. So I believe that this is a common concern for our shareholders and investors. So each year, we talk about dividend policy. CRS Land has been returning to our shareholders very seriously. In the past 5 years, you can see, along with our business growth, CRS has been improving our dividend policy proved -- prudently each year, from 2014 until now, from 27% until last year, 35%. So we can see the CRS Land management has been taking the reward to our investors and shareholders very seriously. So this year, our business has been growing steadily and healthily. And the expectation of our business performance, we have confidence to deliver our targets. So therefore, we have decided to adjust our dividend policy as approved by the Board. This year, it will be 2 percentage points higher at 37% dividend -- as dividend policy to reward our shareholders, particularly those long-term shareholders. Thank you very much for your support.

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Eva Lau, China Resources Land Limited - IR Manager [19]

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Thank you very much, Mr. Li.Next question, Ryan from JPMorgan.

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Lok Hang Li, JPMorgan Chase & Co, Research Division - Research Analyst [20]

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Ryan from JPMorgan. Two questions. First one is about development projects -- property. In March, we looked at your strategy in the development property. So at that time, the fee efficiency is not very high. I just want to know what is the situation now. What measures are you taking to improve your performance in the existing cities? In the first half, even though the business performance also was not bad, it's satisfying. However, if you look at the top 10 developers and your sellable resources versus what you have sold, and they are quite similar. So from a KPI point of view, from a land acquisition point of view, your risk strategy, how -- what can you do to improve your market share in the existing cities?

Second one. Can you please share with us about your shopping malls, the retailing revenue? Among these retailing revenue, so how much is from the luxury brands? As Mr. Yu said, there are more brands at over 200 stores. What is the contribution from them? Because we have already felt that CRS Land has got a lot of luxury brands, but we don't know how much they contribute in the retailing volume, the sales volume or sales revenue. Just now, you also mentioned your profit expectation. At the beginning of the year, you talked about you said is the low 2 digit growth. And now for the rental, you're expecting 15% to 20% of a CAGR growth. For the development business, the management said that it will be 10% of a CAGR growth. So compound these 2 together, it means that there will be 6 -- 13% to 15% of a CAGR growth. So will this be a indicator in your 14th 5-year plan?

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Xin Li, China Resources Land Limited - President & Executive Director [21]

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Thank you. Your first question is about development property. The land acquisition strategy, I will take this part. Mr. Zhang Dawei, our Vice President, will add later. Second question about leasing business, Mr. Yu Linkang will take it.

For the development property, just as Ryan said, CRS Land, we are -- we have entered into 85 cities and several hundreds of our projects. It's true that the contribution from each project may not be that high. And so we don't have any outstanding cities among all of them. So we have already expected it to be so. And we have also realized that in our city development, it's just scattered, not deepened enough. Therefore, at the beginning of the year, we sort of -- yes, overall strategy to focus and strengthening, including the land acquisition. So actually, it covers two things. The first one is in order to promote deepening, it needs time. It is a process. We have realized this problem and we have to take -- we have to act right away. There is still time. Because after all, we have a very good city deployment base, which is very helpful for our future growth.

Secondly, in terms of investment and deployment, we have to focus on the core cities, in the high-energy cities in order to deploy our developments. So from the beginning of the year until now, if you look at our investment city now, you can see very clearly that we are shifting more and more to the core cities to the strategic cities no matter. Whether it is a development or -- property or investment property, we are moving more and more to the core cities. In the future in terms of our management structure, we will also adjust and reform our existing system so that we can optimize these cities so that we can boost the output from one single city, each one of the single city -- each one of the cities. So no matter how many resources you have, the market is so big and you still have limited resources. For the 14th 5-year plan, we will focus on the deepening and strengthening. So this shows we are product -- we are problem-oriented, results-oriented and process and deliverables-oriented.

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Dawei Zhang, China Resources Land Limited - Vice Chairman [22]

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So thank you very much. Let me add a little bit. So as I said, that we're adjusting our deployment and structure. We will focus more on the high-energy cities or the power cities, particularly the 3 city clusters in China, the core cities. You can see that from the beginning of the year until now, our land acquisition has been following this strategy. Secondly, from the cities themselves, there are 3 city clusters in China. And to some extent, we're also looking to the potential of each of these clusters. Meanwhile, we're also strengthening the capabilities in some selected core cities. The third one, in those, the core cities, we will make more efforts in development. Meanwhile, in terms of investment, we will also cast more importance to this and make more efforts in investment. We will deploy more shopping malls. For example, in some core cities, Tier 1 cities, we can deploy more the shopping malls. In some of the high-energy cities or the power cities, we will also allocate more resources. From project investment point of view, we will continue adjusting our own strategy and the deployments.

Okay. About leasing properties. Mr. Li, please?

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Xin Li, China Resources Land Limited - President & Executive Director [23]

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Ryan asked about the international brands and their sales. Actually, we didn't have -- we didn't calculate how much they contribute in the -- ourselves. But basically, around 40% I can assure you. So because we -- our -- in our positioning, we focus on those, the luxury brands, in the big cities. So they contributed in our 8 mixed cities, they contributed about 40% or above. In each of the mixed cities, so those brands also contribute about 40% of the sales revenue. So the significance is not only in its own sales, but also it will bring along the traffic in the shopping mall as well as the overall sales in the shopping mall. We have seen developers in Mainland China, they have commercial buildings, they have shopping malls, they are also operators. So no doubt, so in this market segment, we are the leader. So therefore, we will focus on 2 areas. So for those shopping malls, which you can see we have fulfilled our positioning, we will try to enrich such brand portfolio. And secondly, since we have new projects to be launched one by one in the future, we will continue cooperating with our partners. For the new shopping malls, we hope that we continue to be the leader in this market segment so that we can attract a more -- a greater number of such luxury brands. When I talk about growth, growth is also a very important consideration for us. We have confidence that after 2021, we can restore to the 2-digit growth in this market segment, 16 -- 15% of growth in sales revenue and sales volume. Thank you.

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Eva Lau, China Resources Land Limited - IR Manager [24]

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Even though we have prepared more time for Q&A, but time just flies. Now I would like to take the last question online. UBS, John Lam. John, please?

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John Lam, UBS Investment Bank, Research Division - Research Analyst [25]

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Two questions. The first one. In your commercial operations capability, I don't see any competitor in China for you. And so that's why you have a very good negotiating capability when you talk about cooperation with partners online, off-line. To talk about this, Tencent set up e-community retailing. So there will be -- maybe in the future, there will be more such cooperations. So I just want to know. The second one is about the shareholding. So including the IPO, will there be more cooperations? And the last question about the dividend. Management said that you're going to increase the dividend payout ratio by 2%. So it is because your rental income increased. If you can realize the CNY 30 million rental income in -- by 2025 with EBITDA of CNY 15 billion. So is it possible that your dividend payout ratio will also continue to grow?

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Xin Li, China Resources Land Limited - President & Executive Director [26]

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Thank you for your questions. About online, off-line. First, from the industrial trend point of view, the real estate technology or technology-empowered real estate, this is a trend. The shopping malls, if you look at the consumers, the post-'80s and post-'90s, very often we discuss about this phenomenon. So after the stores are closing after 9:00, 10:00 in the evening, at night, what activities do they do? Very often, you can see -- people see them that there was the hike of online sales at 11:00 or 12:00 midnight. So for us, for the commercial, so we have to think about the combination of online and off-line. So this is a strategic consideration, no concrete action yet. But for the 14th 5-year plan, we are expecting to take some actions in this regard. And so therefore, in terms of retail and cooperation, there can be some equity cooperation. But so far, there isn't any arrangement for that from a CRS Land point of view, be it a development project or the commercial project. During the 14th 5-year plan, the real estate technology, the improvement of management as well as the value improvement, definitely we will continue to think about it and prepare actions for it. So this is about your first question.

The second question is about dividend. So the confidence of why we are paying more. Actually, we didn't think it in this way, as you said. To calculate the 2 percentage point, where is it from? So to be honest, these 2 more percentage points is from our prudent and stable business performance so far as well of our confidence of our future business growth. So that's why we increased it from 35% to 37%. I believe that in the future, this will be our strategy. This will be our policy for our dividend payout. At different times, different stages of our business, we will consider review and consider the dividend policy in order to reward our shares -- land shareholders, particularly those long-term shareholders for their support and confidence.

And so since this is the last question, I just want to make one more comment. It's true that this year, the situation has been very, very special and nobody would -- nobody had expected such a pandemic at the beginning of the year and it's also true that the whole world was in shock. For the industry, it is in shock as well. So it has been a very hard time for all of us. If you look at the total sales in China, it's been going down and the retailing volume is also going down. So that's why I believe that everybody has been working very hard. And CRS Land is also working very hard. It's only that perhaps we are a little bit better than others. In the future, such uncertainties will continue to exist. And the pandemic is not fully over. There are still a lot of changes in the world economy. So in the future, the uncertainties will bring new pressure and challenges to our management. But I just want to ask all our analysts and investors to trust the CRS Land management. So we always prepare ourselves well to respond to the market. We hold the right mentality. And we hope that this year, we can reward our shareholders and those who trust us with better performance. Thank you.

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Eva Lau, China Resources Land Limited - IR Manager [27]

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Once again, thank you very much, management, for your very detailed and informative communications. As I know that there are other results announcements by other companies and our friends may be in a rush to others. So this is the end of our results announcement.

Once again, thank you very much for your time. We hope the pandemic can be over very soon so that we can sit facing face and talk to each other facing face. Thank you.