We hosted a post-results NDR for CR Mixc Lifestyle. Below are the key questions from investors, and answers from Company management:
- What is CR Mixc’s strategy for third-party expansion? The Company plans to focus on three major property types: 1) residential and commercial properties; 2) public projects by leveraging CR Land’s history as a public service provider (infrastructure, public facilities, venues); 3) industrial parks & high-tech parks by coordinating with other CR subsidiaries or bidding/M&A. The Company considers its core strength to be the capacity to operate multi-type property complex.
- How will gross margin for commercial operations improve? CR Mixc targets 60%+ gross margin for mall/office building operations in 2021. The Company plans to achieve economy of scale through increasing the capacity of existing personnel, and letting them work on multiple projects at once. Apart from new projects, CR Mixc can improve margins through existing projects which have seen 15%+ rental growth.
- How does retail sales growth improve commercial operations revenue? Given rental income = retail sales*rent/sales ratio and the ratio is mostly constant, retail sales growth should roughly equal rental growth. Therefore, CR Mixc’s 2021 target of 33% sales growth represents >30% rental growth. Furthermore, tenants’ EBITDA margin increases given largely constant costs, allowing EBITDA to grow even faster. Finally, as CR Mixc takes fixed rate commissions from rental (5%) and EBITDA (10%), operations revenue growth will likely exceed 33% should CR Mixc reach its sales target.
- What is the growth trajectory for malls, and how to maintain long-term growth? CR Mixc’s malls enter a stable phase after three years in operation, where sales/rental income grows by 15-20% per year. To maintain long-term growth, the Company does the following: 1) annual elimination of tenants based on sales ranking, with worst-performing 20% swapped out after contract ends; 2) hardware adjustments based on project and consumer preference; 3) adjustments to tenant structure based on operating statistics.
- Do luxury brands have bargaining power over mall operators, and enjoy a rental discount? The luxury section has a lower rent/sales ratio than lower-tier items of the same type, but makes a major contribution to operations revenue given its much larger sales income. In CR Mixc’s luxury malls, top-end brands contribute to ~45% sales revenue and 40%+ of operations income.
How does CR Mixc compete in the upper-middle tier mall space? Compared to the luxury Mixc series, the upper-middle tier Mixone series faces more competition, and in general, Mixc performs better than Mixone in sales per unit area. The Company considers Mixone as a regional (spanning tier one to strong tier three cities) but still high quality project (with upscale brand offerings). Among 62 of Mixc’s projects (incl. 30+ Mixones), 40+ ranks top 3 regionally in terms of sales. The Company employs a ranking-oriented, sales-oriented strategy to improve its mall offerings and maintain competitiveness.
