We attended sales briefing of Zhongliang for its sales activities in Jan. Sales activities were adversely affected by Chinese New Year and coronavirus outbreak. We believe other developers also face similar problems. So this is a typical case to show how developers face the current situation.
- Weak sales in Jan, even in Feb. We have recently attended conference call of Zhongliang for its Jan sales briefing. Contracted sales amount and area were RMB7.4bn and 0.73mn sq m in Jan 2020 respectively, compared with RMB10bn contracted sales in the same period of a year ago. The weaker-than-expected sales were attributed by the CNY and coronavirus. Actually, sales activities almost stopped from 20 Jan. Based on the government instruction, sales centers in 50 mainland cities were closed. Although there are about 30 sales centers opening and Zhongliang will adopt new on-line sales channel in Feb, the Company expects sales pace will not recover in Feb.
- RM260bn saleable resources in 2020, of which <3% in Hubei. The Company maintains its plan to launch RMB260bn properties for sales in 2020, of which less than 3% are located in Hubei. Based on 70% sell-through rate, sales target in 2020 is RMB180bn, compared with contracted sales of RMB153bn in 2019. The Company may introduce some promotions (such as price cut) to attract the buyers once coronavirus outbreak is eased. Furthermore, it believes this kind of promotion will only last for short period of time because China government may introduce some measures to stimulate housing demand, such as rate cut and lifting restriction of purchase. However, these stimulus policies may be waited until outbreak issue is almost solved.
- Prudent cash management. At end-2019, cash on hand and total debt amounted to RMB26bn and RMB38bn, respectively. Net gearing ratio stood around 70% in the same period. In Jan 2020, Zhongliang acquired nine land parcels with total GFA of 0.91mn sq m. So total attributable unpaid land premium was RMB10bn by Jan 2020. The Company believed “Cash is King” and would like to maintain RMB15-20bn cash on hand anytime. In the coming future, cash inflow will be affected by sluggish sales. As a result, Zhongliang would reduce land purchase and slow down construction works to reduce cash outflow. Slowing down construction may result in completion delay that will affect revenue recognition in 2020.
