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Our reporters Chen Ting and Zhao Yi report from Shenzhen

As the acquisition of existing real estate stocks accelerates, China Resources Land Development (600325.SH) recently won a 10 billion yuan order.

The announcement shows that Huafa Group plans to carry out existing commercial housing and supporting parking space trading business with Zhuhai Huafa Group Co., Ltd. (Huafa Group's controlling shareholder, hereinafter referred to as "Huafa Group") or its subsidiaries, with a total transaction amount not exceeding 12 billion yuan. The transaction methods include but are not limited to direct sale of commercial housing and sale of real estate project company equity.

On August 13, relevant staff from the secretariat of the board of directors of China Resources Land Development told a reporter from China Business News that the above-mentioned existing houses to be traded were preliminarily agreed to be ready-to-move-in houses, and the exact number of houses covered by the transaction could not be provided at present. The transaction price will be determined through evaluation and negotiation between the two parties. Whether the existing houses after the transaction will be entrusted to China Resources Land Development will also need to be determined depending on the specific circumstances.

It is worth noting that Huafa Group had previously transferred its existing real estate by transferring 100% of the equity of its subsidiary. The transferee was Zhuhai Anju Group Co., Ltd. (hereinafter referred to as "Zhuhai Anju"), which is also controlled by Huafa Group. The transaction price was approximately RMB 266 million, involving 79 residential properties.

The annual report shows that sales and disposal are the focus of Huafa Group's work this year, and the company is fully promoting the revitalization of its existing assets. In the above two related transactions, Huafa Group said that these measures will help revitalize the company's existing assets and speed up capital turnover. As of March 31, 2024, Huafa Group's inventory is about 279.334 billion yuan. Wind data shows that the company's inventory turnover days are as high as 4205.61 days.

Controlling shareholder takes action

The scale of existing housing transactions between China Resources Land and its related parties is expanding.

According to the announcement, in order to actively respond to the work deployment of "accelerating the establishment of a housing system that promotes both renting and purchasing, and accelerating the construction of a new model of real estate development", to help Zhuhai City accelerate the establishment of a housing system that promotes both renting and purchasing, and to improve the "market + guarantee" housing supply system, while revitalizing the company's existing assets, further promoting sales, and stabilizing cash flow, China Resources Land plans to carry out existing commercial housing trading business with China Resources Land.

Specifically, the acquiring entity is Huafa Group or its subsidiaries, and the transaction target is the existing commercial housing held by Huafa Group and its subsidiaries. The two parties to the transaction will determine the final transaction price through an asset appraisal report and sign a formal contract.

In order to complete the relevant work efficiently and orderly, the board of directors of Huafa Group intends to request the company's shareholders' meeting to authorize the company's management team to specifically decide and handle the above-mentioned existing commodity housing transaction business with Huafa Group within the aforementioned amount of 12 billion yuan, including but not limited to the setting, signing and specific execution of contract terms, confirmation of the contracting party, and determination of the specific transaction price according to the pricing method authorized by the shareholders' meeting. The authorization is valid from the date of approval by the company's shareholders' meeting to the date of the 2024 annual shareholders' meeting. According to Huafa Group, the company's fourth extraordinary shareholders' meeting in 2024 will be held on August 26, when the above-mentioned related-party transaction proposal will be reviewed.

The announcement shows that Huafa Group is mainly engaged in real estate development and operation. It has currently laid out three major industrial sectors: technology, cities, and finance. Its actual controller is the Zhuhai State-owned Assets Supervision and Administration Commission (holding 93.51% of the shares), and the Guangdong Provincial Department of Finance holds 6.49% of its shares.

As of December 31, 2023, Huafa Group's net assets were approximately RMB 175.248 billion, its revenue for 2023 was approximately RMB 175.687 billion, and its net profit was approximately RMB 5.245 billion. In the first quarter of this year, Huafa Group's revenue was approximately RMB 36.037 billion, and its net profit was approximately RMB 1.379 billion. As of March 31, 2024, the company's total assets were approximately RMB 752.834 billion, its total liabilities were approximately RMB 577.081 billion, and its net assets were approximately RMB 175.753 billion.

According to the WeChat public account of Zhuhai State-owned Assets Supervision and Administration Commission, on August 1, Huafa Group held a 2024 semi-annual business promotion meeting. Huafa Group achieved revenue of 86.945 billion yuan and total profit of 4.617 billion yuan in the first half of the year. The company's urban industrial sector promoted about 150 projects under construction in the first half of the year. In the second half of the year's business plan, Huafa Group mentioned that it would actively build a policy-based, professional, and large-scale housing platform, and Zhuhai Anju, which it controls, is a unified platform for the acquisition, rental and sale of existing housing in Zhuhai.

It is worth noting that on August 8, Huafa Group, Zhuhai Anju and China Construction Bank Guangdong Branch (hereinafter referred to as "CCB Guangdong Branch") signed a strategic cooperation agreement in Zhuhai. According to the agreement, CCB Guangdong Branch will provide Zhuhai Anju with a total bank comprehensive credit support of no more than 20 billion yuan, and the three parties will carry out in-depth cooperation in housing projects and other aspects. It is understood that Zhuhai Anju will raise 20,000 houses in the next one to two years through market-oriented acquisition of existing housing and "old for new" and other methods. The raised housing sources will be used for allocation, allocation of affordable housing or market-oriented rental housing according to relevant policies to improve Zhuhai's housing security system. At present, Zhuhai Anju has accumulated more than 16,000 units of various types of affordable housing, with a total construction area of ​​more than 1.2 million square meters.

In fact, before announcing its plan to continue the existing commercial housing transaction business with Huafa Group, Huafa Group had already had related transactions with Zhuhai Anju.

On July 31, Huafa Group issued an announcement that in order to actively respond to the country's policy on purchasing existing housing for use as affordable housing, its wholly-owned subsidiary Zhuhai Huafa Asset Management Co., Ltd. intends to transfer the existing real estate under the name of Huaben Company to Zhuhai Anju by transferring 100% of the equity of its wholly-owned subsidiary Zhuhai Huaben Investment Co., Ltd. (hereinafter referred to as "Huaben Company").

The announcement shows that Huaben Company was established in June 2023 and mainly carries out the acquisition of old-for-new housing sources. The target has established 75 wholly-owned subsidiaries and acquired a total of 79 residential properties. As of July 25, 2024, Huaben Company's net assets were approximately 265 million yuan. After evaluation, its market value was approximately 266 million yuan, and the above transaction was finally completed at this price. As of June 30, 2024 (unaudited), Zhuhai Anju had total assets of approximately 2.85 billion yuan, total liabilities of approximately 2.564 billion yuan, net assets of 286 million yuan, revenue of 16.2925 million yuan in the first half of this year, and net profit of -41.5218 million yuan.

It takes 11 years to consume the inventory

Behind the continuous actions of the controlling shareholder of China Resources Land, "destocking" has become one of the focuses of recent real estate policies.

On August 10, the People's Bank of China issued a document stating: "Support the destocking of existing commercial housing." It further pointed out that companies purchase existing housing in batches to form group purchasing power, and the purchase price discount will further enhance the investment return of the housing rental industry and the willingness of companies to participate; the acquired commercial housing can be used for the distribution or leasing of affordable housing, which will meet the demand for affordable housing while accelerating the revitalization of existing stocks and market destocking.

It is worth mentioning that before Huafa Group, Shenzhen Anju Group Co., Ltd., a state-owned enterprise under Shenzhen Municipality, issued the "Notice on Solicitation for the Acquisition of Commercial Housing for Use as Affordable Housing", intending to carry out the work of acquiring commercial housing for use as affordable housing within Shenzhen.

China Index Academy pointed out that "state-owned enterprises purchasing unsold new houses" is the government's main measure currently promoted and has the most direct effect on destocking. For real estate companies, "destocking" is their main goal at the moment.

According to statistics from CRIC Research Center, in July, the top 100 real estate developers achieved sales of 279.07 billion yuan, a month-on-month decrease of 36.4% and a year-on-year decrease of 19.7%. From January to July, the top 100 real estate developers had a total sales of 2130.9 billion yuan, a year-on-year decrease of 37.5%, with the decline narrowing by 2 percentage points. Data provided by China Index Academy showed that from January to July, there were 6 real estate developers with total sales exceeding 100 billion yuan, 4 fewer than the same period last year, and 51 real estate developers with sales of 10 billion yuan, 34 fewer than the same period last year.

Huafa Group disclosed that in the first half of the year, the company remained in the first tier of China's real estate sales rankings. According to the CRIC list data, Huafa Group ranked tenth with a trading amount of 44.35 billion yuan and ranked eleventh with a full-caliber sales of 45.2 billion yuan. According to statistics from the CRIC Research Center, in July, Huafa Group's sales amount was 8.41 billion yuan, a year-on-year increase of 9.2% and a month-on-month decrease of 10%. From January to July, Huafa Group's sales amount was 53.61 billion yuan, a year-on-year decrease of 36.7%.

According to Wind data, as of the end of the first quarter of this year, Huafa Group's inventory turnover days exceeded 4,200 days. That is to say, at the current sales speed, it will take about 11 years to consume all its inventory.

The financial report shows that Huafa Group's main business is real estate development and operation. Its main development products are residential houses, garages and shops. Its main business focuses on core urban clusters such as the Guangdong-Hong Kong-Macao Greater Bay Area, the Yangtze River Delta region, the Beijing-Tianjin-Hebei coordinated development region, and the Yangtze River Economic Belt. Among them, Zhuhai is the company's strategic base, and first-tier cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Zhuhai, Hangzhou, Chengdu, Suzhou, Xi'an, Nanjing, Changsha and key second-tier cities are the company's strategic development cities.

In 2023, Huafa Group's revenue will be about 72.145 billion yuan, a year-on-year increase of 19.35%, of which real estate development and sales revenue will be about 68.35 billion yuan, but the gross profit margin will drop by 2.27 percentage points year-on-year to 17.98%. During the reporting period, the company's revenue increased but profit did not increase, with net profit attributable to the parent company falling by 29.58% year-on-year to about 1.838 billion yuan, and non-net profit falling by 63.81% year-on-year to about 875 million yuan.

In the past year, Huafa Group suffered a large asset impairment, and its inventory depreciation loss was about 1.595 billion yuan, an increase of about 800 million yuan from the same period in 2022. As of the end of 2023, the book value of Huafa Group's inventory was about 275.032 billion yuan, an increase of about 13% year-on-year, accounting for about 60.89% of total assets, and about 1.907 billion yuan of inventory impairment provision was reported. The financial report shows that Huafa Group's inventory is divided into development costs (unfinished) and development products (completed but not sold). The book values ​​of the two at the end of the period were approximately 213.361 billion yuan and 61.453 billion yuan, respectively. During the reporting period, 455 million yuan and 1.138 billion yuan of impairment provisions were made, respectively.

As of the end of 2023, China Resources Land has a land reserve with a gross floor area of ​​4.3399 million square meters and an area under construction of 11.8908 million square meters.

In the first quarter of this year, Huafa Group's revenue was approximately 7 billion yuan, a year-on-year decrease of 41.46%, and its net profit was approximately 349 million yuan, a year-on-year decrease of 35.34%. Its non-net profit decreased by 39.41% year-on-year to approximately 338 million yuan, and its net cash flow generated from operating activities decreased by 94.74% year-on-year.