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Edited Transcript of 813.HK earnings conference call or presentation 27-Aug-19 10:59am GMT

Half Year 2019 Shimao Property Holdings Ltd Earnings Presentation (Chinese, English)

Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Shimao Property Holdings Ltd earnings conference call or presentation Tuesday, August 27, 2019 at 10:59:00am GMT

TEXT version of Transcript


Corporate Participants


* Fei Tang

Shimao Property Holdings Limited - VP & Executive Director

* Sai Tan Hui

Shimao Property Holdings Limited - Vice Chairman & President

* Shao Liang

Shimao Property Holdings Limited - Assistant President & Head of Marketing Management Center

* Tammy Tam

Shimao Property Holdings Limited - Corporate Finance & IR


Conference Call Participants


* Ken Yeung

Citigroup Inc, Research Division - Director




Tammy Tam, Shimao Property Holdings Limited - Corporate Finance & IR [1]


[Interpreted] Dear investors, welcome to the 2019 Shimao Property Holding Limited Result Announcement. And before we start, I'll announce -- introduce our Chairman. We have Mr. Hui Sai Tan, who is the Vice President; we have Ms. Tang Fei, our Executive; and Mr. Shao Liang, assistant to CEO; we have Mr. Yau Kwan Shan, our CFO.

In today's presentation, we have a few different parts. The first is the highlights, financials, business review and future outlook.

First of all, we have Ms. Tang. Thank you.


Fei Tang, Shimao Property Holdings Limited - VP & Executive Director [2]


[Interpreted] Good afternoon, everyone. We welcome our new friends and old friends. Even if the hotel is a bit quiet, but our conference room is still full of vitality and energy. I thank you for your continuous attention to Shimao.

And first of all, I will talk to you about our 2019 business as well as our financial highlights. So for first half of this year, with the government policy with the housings are for living rather than for opportunistic investment, we focus on our business, and we continue to look for stable growth. And I will now direct you to the material that you have and let's go over the PowerPoints together.

You all have our PowerPoints, right? Okay. We may continue.

Please turn to Page 4. For the first half of this year, we mainly have these following highlights for Shimao Property. First of all, in terms of the contracted sales, we have enjoyed outstanding growth, sustainable earnings growth. Second, we still have the industry-leading profitability and steady increase in dividend to reward shareholders. And thirdly, we have high-quality and sufficient land reserve in multiple channels and precise land investment.

Please turn to Page 5. First of all, in terms of our contracted sales, we continue to enjoy outstanding growth. For the first half of 2019, we have enjoyed RMB 100 billion contracted sales and year-on-year growth of 38.7%. And contracted sales ranked 12th gross and 11th attributable in 2019, and we have already completed 47.8% of the full year sales target. In terms of our contracted GFA, it reached 5.56 million square meters, year-on-year growth of 23.3%.

Page 6, we continue to enjoy a steady increase in revenue and gross profit. Since 2018 -- first half of 2018, since the growth of 18.8%, for this year, we have enjoyed a growth of 32.9% to RMB 56.56 billion. In the meantime, our gross profit in GPM have increased by 28.9% and GPM maintained steady at above 30% in first half of 2019.

In terms of our revenue and revenue for first half of this year is RMB 56.56 billion and accounts for 94.1%, which is the property sales; and non-property sales account for 5.9%. And our revenue mainly comes from first- and second-tier cities and the top 3 are Fuzhou, Beijing and Suzhou, accounting for 15.4%, 10% and 8.8%, respectively.

Now next page. First half of this year, core net profit continued to grow dramatically, and our operating profit continued to grow. And core net profit, RMB 7.58 billion, year-on-year growth 23.8%. Core profit attributable to shareholders RMB 5.31 billion, year-on-year growth 20.6%. Core net profit margin is 13.7%, year-on-year drop of 0.6%. Operating profit $14.18 billion, year-on-year growth of 18.8%. Profit attributable to shareholders, RMB 5 billion, year-on-year growth of 19.5%. Earnings per share, RMB 1.552, year-on-year growth of 22.5%.

Page 9. Shimao, we continue to thank our shareholders for their unwavering support. This year, we continued to give out dividend of HKD 0.60 per share and year-on-year growth of 20%, and we continue to issue good dividend for 3 years consecutively.

And Page 10. Replenish land reserves via multiple channels, sufficient saleable resources for a profitable future. First half of 2019, GFA of new land was 14.12 million square meters, saleable value from new land growth was approximately RMB 250 billion.

Second, GFA of new land from M&A was 9 million square meters translating to a saleable value of approximately RMB 180 billion. In first half of this year, the land market was quite heated. So we have used acquisitions to replenish our land at a lower cost. By end of June 2019, land reserve was 64.07 million square meters, translating to a saleable value exceeding RMB 1,050 billion.

Our group continued to enhance our land reserve in the policy regions of the government. And this year, we have obtained and focused on Greater Bay area. We have obtained land in Shenzhen, and we are also working in Hong Kong. For the first half of this year, we have also continued to have deeper development in Pearl-River Delta, in Yangtze River. In addition, we also have projects from Hangzhou and Nanjing. We actively complement and replenish good quality land reserves in Yangtze River Delta. In addition, we also focus on Beijing, Tianjin and Heibei, and we developed a presence in Zhangjiakou Huailai.

With respect to our other aspects, please take a look at Page 11. First half of 2019 contracted sales reached 41% of the annual target, RMB 12.2 billion. First half of this year, revenue grew by 5.5% year-on-year to RMB 12.82 billion. Profit attributable to Shanghai Shimao's shareholders increased by 9.8% year-on-year to RMB 1.59 billion.

And let's take a look at the financial highlights on Page 14. First half of this year, we have enhanced on our cash collection. We have seen good results. We also have ample capital reserves. Through our cash collection, management and various ways of looking into this and we have worked hard to realize good results and for first half of this year, cash collection reached RMB 81.3 billion with a year-on-year growth of 47.8%. This is up by 5% compared to same period last year and up by 3% compared to full year of 2018. By June, we have ample capital reserve, cash on hand of RMB 52.2 billion. We still have RMB 40 billion unutilized credit facility of banks and onshore financial institutions and exchanges for the solid development of the group in the future.

On Page 15, we have sound debt structure with strong short-term liquidity. By end of June, our total debt is RMB 109 billion, balance of borrowing 5.8%, 70% of the loan will expire in 2 years. And in the short term, we would not be affected by the RMB exchange rate changes. In the long term and midterm, we also have derivative tools. In the meantime, we also have various projects in Hong Kong. With the Hong Kong projects being launched and put into business, this will help us with the hedging and which can lower our exposure to foreign exchange risks.

In the meantime, we also have a very healthy borrowing structure. And our long-term borrowing, RMB 83 billion, accounting for 72%; short-term borrowing RMB 32 billion, accounting for 28% of total borrowings. By end of June, we have total cash ratio 1.6x. So we have good liquidity and strong short-term debt repayment capability.

Next page, we pay attention to extending our strategic cooperation with financial institutions. For first half of this year, we see tightening in the industry and we continue to see new policies, and we are very stable and we understand the policy very well. In the meantime, we work with financial institutions, continue to extend and expand our financial channels, and having a low-cost financing channel is one of our advantages.

In the meantime, we also have ample reserve in the market. And with our onshore subsidiaries, by end of May, we have been able to receive the rating of AAA and we were granted different loans. And so far, we have a total of RMB 40 billion unutilized credit facilities of banks and financial institutions and exchanges. Shimao's ABS, ABN unaffected by the tough financing environment. Since July, we have seen CBIRC's window guidance on trust institutions. But for us, we do not get involved and we were not affected by the window guidance. So our projects are well underway.

In terms of building our loan capability, our company continues to work with other banks having strategic cooperation. In addition, we also have very clear advantages in offshore financing. For first half of this year, we have USD 2 billion bond quota from NDRC and we issued at a coupon rate of 6.125% and 5.6%, which were considered relatively low. And through the blended funding cost, it has always been controlled at a low level. Our funding cost for first half of this year controlled at 5.6% against 5.8% in 2018, down by 0.2 percentage points.

And next page, our net gearing ratio compared with 2018, even it has increased slightly by 0.2%., it has reached 56.6%, but it has been well controlled, below 60%. And if you consider about the adjusted gearing ratio, it should be 50.9% and international and domestic agencies, they continue to hold the positive rating of the company.

Next page. For end of June this year, our total asset has reached RMB 415 billion, fixed asset RMB 62.41 billion. We also have the market value of major investment properties and hotels reached RMB 79.7 billion.

This is the financial highlights of the first half of this year. And now I pass the floor to Mr. Shao for the business review of the first half of this year as well as our operations.


Shao Liang, Shimao Property Holdings Limited - Assistant President & Head of Marketing Management Center [3]


[Interpreted] Thank you, everyone, and I'm going to talk to you about the next 2 parts, which is business review. First, in terms of land reserve, we have land reserve in 101 cities. We have increased 14 new cities and a total of 301 projects. By 30th of June 2019, we have 64 million square meters for land reserve. We have sufficient saleable resources in hot regions in the country valued over RMB 1,050 billion to meet the continuously growing demand in the future.

Next page, 21, Page 21. And for land acquisition in the first half of 2019, total land of -- land parcels 60. Total GFA 14.12 million square meters, average cost RMB 5,581 million square meters, and our newly acquired land are located in the first and second tier cities, proportions increased to 80% if strong third and fourth tier cities are included.

And on next page, you can see that we have very flexible and multiple channels for land acquisition, and proportion of M&A notably increased. We have followed the policies closely, not only that we focused on the different cities and we also have various other ways through cooperation and to lower the cost and to have good opportunities in terms of M&A from the land cost. It accounts for 60%. This is up by 37% compared to 2018. The proportion of GFA from M&A is 64%, up by 33% compared to last year.

In terms of land reserve, we cover the whole nation. We currently have 346 billion square meters under construction and this is more than enough to meet the demand of our current need. We also work with the countries closely and especially for those areas with good economic situation as well as a lot of demand from the enterprises. In Yangtze River Delta, Greater Bay Area, over RMB 200 billion. In Northern China, over RMB 150 billion.

And next page, please. Second half of 2019 for saleable resources, including the newly acquired land in 2015, we have about 22 million, and we believe that our sales should be able to reach RMB 400 billion. Based on conservative sell-through rate of 53%, it is very likely that we will reach our target of selling of beyond RMB 100 billion.

And I would also like to talk to you about some of our new products. The first one is Shimao Shenzhen, and this is in Longgang District in Shenzhen, and this is a mega product -- mega complex and the total GFA is 1.36 million square meters, total investment RMB 50 billion. We have top hotels, dimensional commercial, international schools. In terms of our business, we will introduce flagship shops of various international brand and to present this as a good window for showcasing to the world, and we are also building a complete commercial experience and to become a center for library, art galleries, activities and fashions. And we also hope that we can build the future way of living.

Next page. In terms of our property management business. So it has officially become a property business. And we continue to work and we also have acquired certain good quality companies. We work with other industries, for example, with SenseTime, with Unisound, et cetera. And we work with them to look for new experiences of the future way of living. We also focus on diversity and coexistence. For example, community elderly care, community education, et cetera. And we hope to become a comprehensive service provider to our Shimao users and to provide the high-quality services to our clients.

And next page, on future outlook. For first half of 2019, we have contracted sales RMB 100 billion, rose by nearly 40%, reaching 48% of full year target of RMB 210 billion. For the second half of this year, we'll continue to maintain the strong growth momentum. Contracted sales are expected to grow by more than 40% year-on-year. In the meantime, whilst we grow with such a high percentage rate, we are able to maintain a sell-through rate of 50% and residential products accounted for 68%. Inventories aged below 1 year accounted for 70% of saleable value as end of June 2019.

Next page. In terms of cash collection, first half of 2019, cash collection RMB 81 billion, representing year-on-year growth of 48%. Cash collection ratio 81%, up by 5% year-on-year. Cash collected from receivables increased by nearly 50% year-on-year. Cash collection from new sales was maintained at 45% and the collection efficiency continued to rise.

Next page, plan for second half of this year. With over RMB 400 billion of saleable resources for 2019, if we work on the basis of 37% of a sell-through rate, we would be able to reach our target. And in the second half of this year, we'll continue to improve our sell-through rate. If we improve it from 37% to 50% and if we can also continue to have a stable steady rise of our selling price, the group is confident of reaching a higher target.

In terms of our development in key cities, we have very good supply and demand in those first and second tier cities and strong third and fourth tier cities, we have around 80%. Saleable resources in core cities will exceed RMB 180 billion, accounting for 60% of total. Resources are focused on beneficial regions and supported by the government national strategic policies.

Finally, I would also like to tell our investors by today, August, at this time, our group for August, it has already reached over RMB 20 billion, and we believe that we still have a few days left in August, and we believe that the contracted sales for August should be over RMB 140 billion. And by Q3, our sales progress should reach about 80% of the whole year. And we believe that in 2019, our group will bring more surprises and more happiness for everyone. Thank you.


Sai Tan Hui, Shimao Property Holdings Limited - Vice Chairman & President [4]


[Interpreted] Dear investors, we have seen a lot of familiar faces here, and thank you for supporting us at such a late time. First, talk about the market. The market, first half of this year, is actually better than what we had imagined. And it had grew by 5.6%. I remember that I said that it might be falling by a few percentage points, but actually it grew. So it's hard to predict. And for March and April, we have seen a lot of land [kings] and there has been a lot of demand in the market. So there are some disadvantages here. And you might think that developers want the markets to be hot, but actually when March and April were heated, we had a lot of policies coming out in Suzhou. So in 1 month, they would have 3 to 4 policies. They need to have a lucky draw and housing price cannot go up, et cetera. So it's very strict, it's very tough.

And our current forecast for the whole year is the same as last year. So this year should be about RMB 15 trillion. It is possible that we might exceed it. And if we go to RMB 15 trillion, that would be a historical high. And looking at the Chinese market, I don't think that it can be less than RMB 13 trillion and nor can it exceed RMB 15 trillion. And last year, it sold about 1.7 billion square meters and about 2,000 flats. And the trajectory is that it will gradually come down to 1.6 billion, 1.5 billion, but the unit price will increase.

Top 20, for the first half of this year, they grew by 12% and we grew by 39%. Again, we are above the national industry average. And I believe in the next few years, we'll continue to be ahead of our peers. In Xi'an, in Chengdu, in Suzhou, they have very strict measures and we also have seen some relaxed rules, for example, in Shanghai, in Lingang, et cetera.

Looking at the central government, actually, this is already one city, one policy. And in the central government, they are tightening in every city. And in the newspapers, we have seen in People's Daily and they have said that property market have taken up too much resources and I do think that, that is true. And the government is promoting more loans to SMEs or to tech companies, et cetera. So we need to wait and see and how this could be resolved or solved.

And for the first half of this year, we have newly added saleable RMB 250 billion. And by today, it's already at RMB 300 billion. And actually, 60% to 70% comes from M&A. And our target is that for the RMB 250 billion, 1/3 of this could be supplied to the market this year. And we hope that we can have a sell-through rate of 50% and -- which is about RMB 40 billion. So this is our sales and adding another RMB 40 billion on top. And I think, at least, if we have a lot of land and we do not sell the apartments, people might ask, what are you doing? And for the whole year, a lot of people are very nervous and they're saying you have already bought so much for the whole year. We -- if we have half of our money invested in obtaining land that would also exceed RMB 100 billion. So we have already used 70%. And for the second half of this year, we will be slightly pickier and we will be looking for something with a better return, better profitability.

And Mr. Shao had mentioned this and he had mentioned that it had already exceeded RMB 170 billion and -- in traditional low season, and -- we did feel some of the coming down, but September is our biggest month and we hope that the sales can be over RMB 30 billion. And we may not be able to reach last year's level. Last year was RMB 176 billion, but we believe that the Q4 will exceed Q3. And a lot of acquisitions happen in Q1 and Q2. A lot of the sales will happen in Q4.

In terms of our cash collection, we have seen an increase of 48%. In first half of this year, we sold RMB 100 billion. And for the remaining of the second half, we are going to exceed RMB 300 billion. So based on our conservative results through a rate of 37%, we will exceed our sales target. And I believe that sell-through rate will not stay at 37%. So of course, we are going to surpass the sales target. And I can tell you more about this when the year finishes next March.

In terms of recognized sales, first half of this year, RMB 56.56 billion, up by 32.9%. Gross profit, RMB 17.02 billion, up by 28.9%. GPM, 30.1%. And some investors might think that this is slightly different, and we'll talk about the future's gross profit and core profit attributable to shareholders. We are predicting that the annual core profit attributable to shareholders will be above 25%. And some investors are asking this question, the 25% is before the equity is taken out and I think that above 25% to 30% and I think that it's very good. And our stock price hasn't moved much. So that means that it's even cheaper.

In terms of our dividend payout, it has increased by 20% to HKD 0.60 per share. Annual DPS up by 25% year-on-year. For the whole year, if our core profit goes up by 25% and our DPS also be up by 25% and when we got listed, our price is HKD 0.65 and we have held this. So today, you will have made HKD 8 per share in our share.

And if you look at our land reserves, we have a lot of land in Yangtze River Delta, Central, Western District and Greater Bay Area. And in terms of our land acquisition, actually 2/3 of our land acquisitions are in the top 1 -- top first and second tier of the cities and the remaining are from the strong third and the fourth tier cities. So 80% of our stock is located in good cities, quality cities. And you can see our price. In first half of 2018, it's RMB 16,000/ RMB 5,966. And in first half of this year, again, the ASP is RMB 18,000, and our land cost is RMB 5,581. So actually, our return is going up. And remember what I said, this year is about 31.5% and slightly lower would be 30.5%. And next year, I think that the gross profit margin might be 32%, it might drop slightly. And why? So this is related to national policy.

And as I said, in good first and second tier cities, we have about 80% of our resources and which means that we have about RMB 800 billion in those cities. And for those portion, actually a lot of it is affected by the price cap, and which is 30%, it's about RMB 200 billion actually. So for the RMB 200 billion, those will also be sold and Mr. Shao can sell this in 1 day. And now we're looking at whether we can add some car parks and add some renovation and -- to increase our profit. Shanghai, Suzhou, Nanjing, Hangzhou, those are the cities which are very strict and you cannot increase your price. Greater Bay area is slightly cheaper, slightly more flexible. So Guangdong people are very smart.

In Fuzhou, it's very strict. Xiamen is decreasing, the prices dropping in some of the third and fourth tier cities, they are also very strict. In Zhengzhou also very strict and I don't know how much they have grown. And you might think that Zhengzhou is small, but actually it's very big. In Chengdu, in Chongqing, a lot of tightening measures. And those are issues that a lot of developers face.

And for us, if it's 5%, 10%, we'll sell it. And we hope that next year, the year after will be better. In Q1, actually, we have seen some loosening and in some places, we can add 5% to 7%. And April and March, it got heated and the government said that the price cannot go up anymore. So when the market is too hot, it's not good for us either. So we have a price difference about 10% to 20%. And actually, I don't really want to sell those. And for the RMB 40 billion, we will sell about RMB 10 billion every year and then sell it for 4 years. And those would be sold very easily.

A lot of people have waited for a long time, and we hope that with the tightening measures maybe loosening, we can adjust our price slightly up. And if you are having a difference of 10% every year, then overall speaking that we're talking about billions and those would be your gross profit. But your net profit will not be this high because net profit, you still need to pay tax. So in terms of gross profit, we're sacrificing 1%. And actually, we wanted to make money in third and fourth tier cities and make more back from first and second tier cities. But now the situation is that what you have lost, you have lost, and the government is tightening the measures and they don't allow you to put up your price.

But I want to tell the investors, the third and fourth cities are not as bad as we had forecast. The price has dropped by 10% to 15%. However, the volume has dropped slightly. So -- but indeed, in some third to fourth tier cities, we do not make money anymore and first and second tier cities, basically they have had the price cut. And those are not excuses. Those are the real situations.

And for the second half of this year, we have seen 16% growth. And I'm not very happy. This is for the hotel business. But in Shanghai, we have 3 major hotels, which are under renovation. And if you have about RMB 400 million revenue without renovation, you would be able to enjoy a 30%. But in Shanghai, we have a great hotel which is underground and that is a great hotel, and the price in this hotel is on average double the price of the concession area. And so for other 5 star hotels, it would be about 1,000 to 2,000 and our price would be 3,000 to 4,000.

Second will be our commercial & entertainment. And I believe that a lot of our commercial & entertainment buildings will be put into use. Actually, we're slightly different. For other companies, they might have a large volume and I have seen the model based on their location. For example, next to a subway and if you can establish 1 -- for RMB 1 billion and you build RMB 50 billion, you have RMB 50 billion. But for Shimao, we are slightly different. We want to build something like IFC in Hong Kong. For example, in Shanghai, our renovated business only have 50,000 square meters. And at the moment, the largest ones are generally 100,000 square meters. And for us in Nanjing in 2020, we will have a commercial business with office buildings that would be RMB 800 million to RMB 900 million. And in Longgang, in Shenzhen that will be more than RMB 2 billion, but that will take about 8 to 9 years to develop.

In terms of properties management business, we have acquired a lot of property management companies. In the past, we acquired about 400 million to 500 million -- 40,000 to 50,000 square meters under management, but now it's over 400 million to 500 million square meters.

And next one for our living services, for example, with SenseTime, we have bought only a very small equity. And we also have New Frontier and they have just acquired United. United Family Healthcare is the best one in China and I believe that this will continue to grow. And we have only invested in USD 100 million and we will have a lot of cooperation with other companies in culture or education, but don't worry we're not going to spend hundreds of billions to make cars. But these are very meaningful because they are related to the aging population and this will help us to discuss with the government.

And now we go to the government and they usually give us a long face and they think that, "Oh, you're in the property management business," but I think I have paid a lot of tax, but perhaps in the future, we can look into elderly care and health care, I believe that for the next year, we have already celebrated our 30th anniversary. I think I'm very happy. We have seen good growth of development. We have -- for the past few years, we have seen good growth over 50%.

Second, our quality. Our quality, again top 3. In the past, we were not able to develop so fast. And you have seen that when other companies try to develop fast, they will suffer in quality. So Mr. Shao can really focus on selling apartments, and he doesn't have to worry about the planes.

In addition, for our property management business, we are going to list this business in 2021. We are working with investment banks at the moment and our contracted areas will move from 100 million to 300 million. So we are called Shimao Service. That means we are going to serve 10 million people. We hope that next year we can have about RMB 4 million to RMB 5 billion in growth. And by the time we list, it will be about RMB 8 billion. And this is how we do the math. And even if our cheapest properties are -- actually have a lot of good value. And I hope that you can work with our bankers and speak with them actively.

For Shanghai, we also hope that -- in terms of hotels, we hope that we can reach RMB 4 billion next year. And this year, we have RMB 2 billion. And our gross margin is above 30% and our EBITDA is about RMB 700 million. I have asked actually a good friend of my father and, of course, he is also my friend, but he's a lot older than me. He had acquired a hotel which had about 60 hotel chains. Last year, he had about RMB 700 million -- RMB 7 billion and he made about RMB 700 million. And I'm thinking, I have a lot smaller hotels, but my profit is the same as you and we hope that our profit comes first. And when Mr. Tan mentioned about our values, et cetera, but it's different in the balance sheet. If you go to Shanghai, and there is one called Hyatt on the Bund, and last year, their gross profit is 50% and we invested about RMB 1.6 billion. And when we bought, it was only RMB 4,000 per square meter. And after a decade, I asked them. So on our balance sheet, it's about less than RMB 1 billion, so RMB 2 billion EBITDA, and that means the business is above 20. And I think that for Bund, you have this great return, that's amazing.

In our PowerPoint, we also have a chart for your review. We also have a hotel called Mini Hotel. We have worked with Shandong and we have signed 80 hotels. And we hope next year we can sign 200 hotels. And we hope that in 2021 we can sign 300 hotels. And we also hope to launch business in 100 hotels. I have seen that. They have one hotel that's very beautiful in Zhangjiakou. It's built in the mountains. And this hotel is about 1,000. And if you go there, I can give you a discount, but this is not ours. We're just helping them to manage. But it's very beautiful.

In addition, for our commerce and office buildings, that's also part of our business. In terms of culture and elderly care and education, those are all areas that we want to get into. So this is our basic infrastructure.


Questions and Answers


Tammy Tam, Shimao Property Holdings Limited - Corporate Finance & IR [1]


[Interpreted] Thank you, Jason. We now move into the Q&A session. We welcome you to put forward your name and please let us know who you are, where you come from.


Unidentified Analyst, [2]


[Interpreted] I'm [Wong Weijing from Jointing], and I congratulate the company for your great achievement for the first half of this year. I have 2 simple questions. The first one is on scale and the profit and your balance of those 2. We have heard that after a few years of fast development and -- you are in a safe ranking in the top 10. And in addition, your finance is also relatively healthy. So looking forward, in the next 3 to 5 years, we want to see where would your strategic importance areas would be? Would you consider that you slow down your speed to have a better profitability? So this is my first question. And my second question, the management team have also talked about your stock price is relatively attractive. So after this, would the company buy back some more shares?


Sai Tan Hui, Shimao Property Holdings Limited - Vice Chairman & President [3]


[Interpreted] Well, actually, 2 questions. The first one is on sales and profit balance. And I think that in China, it's very hard to pursue high profit because even if you have a high profit, this will be broken up in the end anyway. And also even if I want this and they will not give it to me. And I have also seen a lot of the experts in China say that this is not realistic. When we buy land, you buy something that's cheap. You can make a lot of money, but they don't want you to make the money. And we have heard ridiculous stories. For example, developers in the auction, for example, I'm not telling you which one, they sold it for -- auctioned it for RMB 13,000. And for me, I will spit blood and there's no money to be made out of this. And I have heard that they're going to bring this out and sell it next year. But again, this is really unreasonable. And I think that in China it's unreasonable to pursue very high profit. And I think 30% is good.

I had a meal with an investor friend and he said that the property business is just the way it is, it's stable. Hong Kong is different. There is no nags. So Hong Kong property companies, they prefer to hold on the land, and which is why it's causing such a social unrest in Hong Kong. So I think that China is still good. Don't think about making so much money. And investor asked me a very strange question, and he asked me -- I saw one developer, the tax is very small. And I said how I do know? While the tax is very high in China, we all pay tax. And Mr. Tan told me a story about how much tax it is paid and I was shocked. But we need to pay tax. And I think that this is also why in China you can't make a lot of profit. The policy would not allow it and the tax will not allow it. And 30%, I think, is good.

But the volume, the large, the better. But again, you need to control your risk and cash collection of 50% accounting for 40% of your money used to buy land and because you also need to pay for tax and your cost and basically you might also have some negative cash flow. So you might be able to control your gearing ratio.

And how do they buy land a few years ago? They would literally buy RMB 50 billion worth of land and they buy buildings worth of RMB 10 billion, they also buy land worth of RMB 10 billion. But now a lot of them, they are discussing with us to cooperate more. I'd like to thank them.

And in terms of share price, it is at a low point. And recently, perhaps, we have a lot of international investors, and I have been speaking with some of the larger fund managers in China, and they say, "You are growing fast and you have low gearing ratio and how come your share price is so low?" And I also said, I don't know, well, why don’t you buy it. When you buy it, then it will go up. But of course, this is just joking. And I believe if I continue to deliver growth of 50% and 20% of profit, I don't think my stock price will fall.

This year, we have already spent a lot of money on land and to repurchase, and I think that it will not look good for our gearing ratio. And I think that you guys are all very smart. So a lot of investors are also very smart. I remember a few years ago our stock price did not move because we do not have growth speed. But now we are actually the fastest-growing company among the top 20 and we're actually top 2 now. And the #1 is facing a lot of problems.

Actually, we have worked with a lot of people. And I think that we need to sell. If I just buy land and I don't sell apartments, that would be trouble for me. So for third and fourth quarters, we will sell. And people used to think that we are strong in Yangtze River Delta. But actually in Fujian we're very big. In Fujian, last year, we sold about 50 billion and the whole Fujian province is 500 billion. In Fujian, boss told me that he wants to go into fifth and sixth city. And I told them, "Oh, no, that's not going to work." And this year in Greater Bay area, we have increased land of almost 100 billion in Taizhou, in Guangzhou and in Foshan and this is all in Guangzhou and I'm very bullish [in Wutai]. And I think that this is great and I think that over 100,000 and they were told -- I was told that this is going to be approved and I'm very excited about this. And I remember last year for 2 land in Hangzhou, they were at the bottom price and they said that you will get good price, but actually, they're still telling me that it cannot be approved for a good price. I don't think that the government is not doing -- backing its promise, but it's because the government is -- the central government is watching very closely. And we have acquired very large residential. And you can see that Shenzhen is a great city and we're very bullish on Shenzhen as of this point.


Ken Yeung, Citigroup Inc, Research Division - Director [4]


[Interpreted] I'm Ken from Citibank. I have 3 simple questions. The first one is on your purchasing of land. I would like to congratulate you that you have been able to obtain very cheap land. Earlier this year, we have seen great gross profit. And at the moment, you're more likely to exceed RMB 100 billion. So this M&A, is it possible that you have any other opportunities to purchase land of this quality at this price? Second question, I can see on Page 38 with your calculation for your land price and your ASP, I can see your gross profit is very good. And just now, you said it's only increasing slightly. So if you look at this, if the land cost is not rising and the ASP continued to rise, is it because what you have predicted is very conservative, only 1% increase? Thirdly, on Page 41, you have said specifically for 30th anniversary. Is there any special meaning? You have special dividend payout arrangement?


Sai Tan Hui, Shimao Property Holdings Limited - Vice Chairman & President [5]


[Interpreted] Thank you. Great questions. Actually for M&A, I have already mentioned for the first half of this year, we already have purchased RMB 78 billion and this is pre-equity and pre-equity for the whole year would be RMB 100 billion. And this is with the cash collection. And I can tell you that it can be slightly more, but it depends on the market. So roughly speaking, we already used RMB 70 billion. And for the second half of the year, we only have 30%.

And if you ask me, do we have any of such opportunities, I can tell you that even more because in China the property market is a market with very high gearing ratio. So in certain areas, for example, Beijing, Shanghai, Nanjing, Hangzhou, Suzhou, they are under a lot of pressure. But in third and fourth tier cities, if there's not much pressure and they can loosen them, they cannot be under a tight watch. And a lot of developers, they have borrowed a lot of money and this is why we can have so much M&A. And this is because there's no premium and there's no pricing power with these people that we acquire the business because they need to pay back billions of RMB next month. They cannot bargain with us. You cannot say that top 100, the top 20 is safe, but you're wrong. Now the banks, they are looking at your cash flow, looking at your balance sheet. For the first half of the year, we have actually acquired top 20 firms. And in the past 2 months, we also have strategic cooperations with top 10 companies and they may not be small property companies. The small companies are the majority, but we also work with big companies as well.

And so I think that there are more opportunities, and we will have higher requirement. And first half of the year, maybe net profit 10% to 11% we will obtain and net profit for second half of the year maybe we're looking at 12% to 15% because now uncertainties are increasing. The financing environment is quite bad. And of course, we are in a good position. We have gone in early and we have also issued billions, over USD 1 billion debt. And some of the banks have been calling me. "when are you issuing bond? When are you issuing bond?" I used to find that quite annoying. But actually, thanks to them, I was able to issue some more U.S. dollar bond. And in July, we have 4.3% of syndicated loan, again very good. And now with the current environment, the bad environment, I think that to have syndicated loan, it would be very difficult.

In Hong Kong, I believe that some of their assets are actually coming down. And this is the Hong Kong situation. And I think that financing, we have grasped good opportunities and for land and housing price and it means that they cannot book -- perhaps they can only book in 1 year or 2. But I remember some people have said that, "Oh, you said this, but now you can't deliver." But I think that we need to consider all areas. For example, force majeure some unreasonable policies, these are all things that we need to consider. But if I can predict all this, I would not be sitting here, I can work as a fortune teller.

And the 30th anniversary is of nothing special significance. Perhaps, we will have some celebration and I can invite you. But now maybe you won't be able to attend our celebrations. This is quite a pity. Actually, this is a great time for us to celebrate 70th anniversary of China's establishment. But due to the bad external environment, it will affect our mood, but in Hong Kong, we have 3 projects. One is a hotel in Tung Chung, it's very cheap. And I remember the land is RMB 3,000 per square feet. And in Q3 next year, we will launch it. And actually, in Q2, we were planning, but I think we are going to slow down. But long-term speaking, and I think Hong Kong is good. And I believe that our country is still loving the child. And right now, this child is not behaving and more beneficial policies have been given to the child next door in Shenzhen.

But in Hong Kong, actually we have 2 more projects and investors always ask Shimao has something that's not great. You have a lot of debt. Yes, perhaps we issue a lot of debt, but for debt and syndicated loans, we have 57% and 57%, yes, indeed, highest and the industry average is 40%, but our 3 projects in Hong Kong, 2 residential actually you can sell for HKD 50 billion and our equity one is HKD 10 billion. And what we collect would be Hong Kong dollars. And for our hotel it's also Hong Kong dollars. So I have 60% that I can hedge. And we -- I only have about 40%, 40% of 57%, which is 20-something percent. And do you think that I have a lot of foreign currency and a lot of these 3 projects. If you account these, then we are actually the lowest foreign exchange risk. And we are going to sell end of next year. And thank God, we're not selling at the moment. Again, this is a good thing. The bad thing has become a good thing.


Unidentified Analyst, [6]


[Interpreted] I'm [Tsu Yung from 5-8] Securities. I have 3 questions. First, I want to ask your financing plan, financing structure for second half of this year. Second, for those on books, what is the level? And thirdly, I want to ask, you have mentioned about the company's equity and what is your guarantee and what is your off-balance sheet ratio?


Sai Tan Hui, Shimao Property Holdings Limited - Vice Chairman & President [7]


[Interpreted] Well, for financing, and I think we can talk about this after the meeting, we have a colleague sitting here. And for financing, actually, it's quite random and some of which is loanings from projects, and you can speak to our finance person and he is more up-to-date about this. And I have another event to attend maybe we hurry up and have about 1 to 2 questions. A lot of these people, I know them very well.


Unidentified Analyst, [8]


[Interpreted] Well, I can see, Jason, today, I'm very happy when I see you. Overall speaking, your overall sales is very fast. A lot of the things will come out in the future. This actually reminds me of 2013 and 2014. It was a similar period for Shimao at that time. First, your big cycle grew very fast. In '14 and '16, we had some problems. Now looking back, for Shimao compared to the past, what is different now for your growth? In terms of growth, do you have a better growth, more stable growth? At that time, we have also been through some pain, right? So Jason, I wonder if you could share with us -- share with the investors how come you're talking about 25% growth and we have RMB 1 trillion to sell, et cetera. And what is your view on this and especially on risk?

You know you have learned quite a lot from the past and what are the risks?


Sai Tan Hui, Shimao Property Holdings Limited - Vice Chairman & President [9]


[Interpreted] Well, I think that this is a great question. Yes, indeed, in 2012 and 2013 after 50% of growth, we stopped for 2 to 3 years. And again, we entered top 10. Perhaps, it's dangerous to go into top 10. Just joking. Well, I remember a lot of investors saying that it's hard for a property company to realize RMB 100 billion, but now a lot of them are and perhaps possibly over 40 property companies this year. At that time, I think that our scale, our team were not ready. But now I'm very happy with my team and with a lot of our regional managers, regional CEOs, they have incentives. We also have a reward pool, and we are incubating a lot of vice presidents.

And in the past, in terms of our quality and satisfaction of our customers, we were midrange. And perhaps, industry average was 60 and we were 60 something. And I spent 3 years actually working hard on this, going to Shaolin Institute to practice. And now our quality and our satisfaction of customers were top 3. And for national policy, again your houses are there for people to live in. So to live in, you need to have good quality. You cannot have leaking issues, et cetera. So again, quality is very important. And we also have very good land reserve in this year. We have worked with our partners and we're also seeing good quality of land reserve, a lot of which is allocated and distributed in Greater Bay Area. And a lot of people ask me how much more land will you buy. For first half of this year, we have already obtained 70%; in this year, over 80% in top 20, top 50 and top 100. And in Q3, we also work with top 10 companies. So through all of this, we have also spent our money.

So I have a bottom line, which is the 50% of cash collection. [Mr. Tan] is always telling me, you should stop, you should stop, you cannot buy it, but he also encourages me to buy. He's a great CFO. So I think that this is a good balance. The counterparty is also short of money. And sometimes when they hear this, they will have a long face, but that's tough. And I'm giving him RMB 2 billion -- RMB 3 billion, et cetera. So again, very important thing is to control your risk.

Last 2 questions, okay? Last 2 questions. Very sorry.


Unidentified Analyst, [10]


[Interpreted] I'm from JPMorgan. And Jason, you talked about your core profit, 20%, 25% this year and your sales grew by 50%. And do you think that the 25%, can you predict that this will last to 2021? Second question, for saleable resources and it's very clear this year. I want to ask about next year. I can see that this year, you have been quite aggressive in terms of land acquisition. Next year, you have about RMB 500 billion to RMB 550 billion saleable resources. So next year, to go to RMB 3,030 billion is not a problem. And am I too positive or too pessimistic?


Sai Tan Hui, Shimao Property Holdings Limited - Vice Chairman & President [11]


[Interpreted] Well, this is a great question. If our sales this year is growing so fast and I think that this year compared to 2025, that's not a problem. For 2021, can we last that to that? Well, I mean this really depends on the next few months. Will Trump have another fit where he will go crazy again? You never know. And I think that 2019, 2020 should be stable and 2021, I can't look that far into it. And for the second half of this year, if it's similar to at the moment and I think that we'll probably have about 20% to 25% growth rate. I'm quite confident. And next year saleable resources should be a lot more than this year. We did acquire quite a bit and I think over RMB 500 billion. But again, that depends on your sell-through rate. If it's 60%, then that would be RMB 300 billion. So this would depend on Mr. Shao and how can he improve the sell-through rate. And again, this is your supply issue. Are you going to supply more in first and second tier city or you're going to supply more in the third and fourth tier cities? And I think that next year, I don't think there will be a lot of changes and things should roughly be what you have mentioned.

And thank you again for your attention, and this is the end of today's result announcement. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]