Kezhu Real Estate: Which of the four central enterprises in the real estate industry has the upper hand?

Ke Ruixuan Real Estate Research released a research report stating that in recent years, the four major state-owned enterprises Poly Developments and Holdings Group (600048.SH), China Overseas Land (00688), CHINA RES LAND (01109), and China Merchants Shekou Industrial Zone Holdings (001979.SZ) have seen rapid development momentum. In the first half of 2024, the contract sales of these companies all exceeded 100 billion yuan. Poly Developments and Holdings Group continues to maintain its position as the top seller, leading ahead of the other real estate companies. China Overseas Land continues to be known for its profitability, China Resources is vigorously developing its second line of business, and China Merchants is continuing to leverage its industrial advantages. Currently, real estate companies that stick to their core business will inevitably face pressure on profit margins and inventory turnover in the short term, while expanding into second lines of business will also face investment risks due to market uncertainties. Even with relatively abundant funds, the four major state-owned enterprises are facing challenges in the current market environment. Investment levels have all significantly decreased, with Poly and China Overseas facing greater pressure to turnover inventory. In terms of land acquisition scale, as the real estate market declines, even the four major state-owned enterprises with certain social responsibilities have reduced their land acquisition scale for overall operational considerations. In the first half of 2024, Poly Developments and Holdings Group had the lowest land acquisition to sales floor area ratio, with only 0.12. In comparison, China Resources' land acquisition to sales floor area ratio reached 0.39, the highest among the four companies. Looking at their performance over the years, CHINA RES LAND's land acquisition to sales floor area ratio is relatively high compared to the other state-owned enterprises. The decrease in land acquisition directly resulted in a shrinkage in the overall land reserve size of the companies. As of the middle of 2024, the total land reserve floor area of the four major state-owned enterprises had decreased by over 8% compared to the beginning of the period, with China Merchants Shekou Industrial Zone Holdings seeing the largest decrease of over 10%. In terms of absolute quantity of land reserves, Poly Developments and Holdings Group ranked first with a size of 71.40 million square meters, followed by CHINA RES LAND with 56.99 million square meters. Given the background of declining sales, real estate companies are facing pressure to reduce inventory turnover, and the four major state-owned enterprises are no exception. Looking at the disclosed inventory situation of the four companies, the proportion of completed properties (A-shares: development products, H-shares: sales properties in progress) in inventory has been gradually increasing in recent years, with Poly and China Overseas both having over 20% of completed inventory, and China Overseas even reaching 30.17% (end of 2023 data), indicating relatively greater pressure on inventory turnover. China Overseas continues to maintain a high profitability level by sticking to its core business, while China Resources and China Merchants have successfully opened up second lines of business. Looking at the revenue and profit situation in the first half of 2024, Poly Developments and Holdings Group as the largest real estate company achieved a revenue of 139.249 billion yuan, the highest among all real estate companies, and the company's gross profit was also the highest at 22.308 billion yuan. However, in terms of net profit, China Overseas and China Resources have surpassed it. In terms of profit margin levels, China Overseas and China Resources have created a certain gap with the other two companies. China Overseas' core net profit margin reached 12.24%, while CHINA RES LAND achieved 13.57%, maintaining a leading level in the industry. However, looking closely at the revenue distribution of these two companies, it can be seen that China Overseas' real estate sales revenue accounted for 94.37%, while China Resources decreased to 74.72%. China Overseas maintains a high profit margin by sticking to real estate development, benefiting more from its cost control capabilities. The high profitability level of CHINA RES LAND is mainly due to the formation of the second line of business supporting the company's profits. In the first half of 2024, CHINA RES LAND achieved a core net profit of 10.7 billion yuan, with operating business core net profit of 5.5 billion yuan accounting for 51.4%, exceeding half for the first time. Compared to the gross profit margin of only 12.4% in real estate development, the increase in the proportion of operating business revenue significantly raised the company's profitability. In the first half of the year, China Resources opened 6 new shopping centers, achieving rental income of 9.5 billion yuan, a year-on-year growth of 9.7%; and retail sales of 91.6 billion yuan, a year-on-year growth of 21.9%, demonstrating rapid growth in various indicators and becoming an important driver of the company's development. Apart from CHINA RES LAND, China Merchants Shekou Industrial Zone Holdings' real estate sales revenue proportion also decreased to 77.82%, with the asset operation and urban services business as the second line of performance growth beginning to take shape. In terms of asset operations, in the first half of 2024, China Merchants Shekou Industrial Zone Holdings' total asset operation income under management was 3.6 billion yuan, a year-on-year increase of 15%, and EBITDA reached 1.895 billion yuan, a year-on-year increase of 14%. At the same time, the urban services part under the property management and light asset operation service platform - China Merchants Property Operation & Service achieved operating income of 7.839 billion yuan in the period, an increase of 12.34% over the previous year. The financials of the four major state-owned enterprises are relatively stable, with Poly Developments and Holdings Group being the wealthiest. In terms of financial indicators.In terms of financial condition, the four major central enterprises are relatively healthy, with all three red lines at green levels and considered safe. The total assets and cash holdings of Poly Developments and Holdings Group are the highest, reaching 1.39 trillion yuan and 146.4 billion yuan respectively. However, the non-restricted cash-to-short-term debt ratio of Poly Developments and Holdings Group is 1.22, the lowest among the four major central enterprises; the net debt ratio is 66.18%, and the post-deduction asset-liability ratio is 66.89%, the highest among the four major central enterprises. Due to the strong financing capability of central enterprises, the funding costs of the four companies are all below 3.5%, and they do not have significant problems in terms of funding.Overall, the four major central enterprises currently have their own strengths in operation. Poly Developments and Holdings Group and China Overseas Land & Investment Ltd. still focus on the real estate industry, with Poly winning on scale and China Overseas Land & Investment Ltd. insisting on profitability. Meanwhile, China Resources Group and China Merchants Group have taken a different approach and achieved certain results through secondary development. From the current situation, real estate companies that stick to their main business will inevitably face pressure on profit margins and inventory turnover in the short term. On the other hand, developing a second curve also involves investment risks due to market uncertainties. Even with relatively sufficient funds, the four central enterprises are facing certain challenges in the current market environment.