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It is August now, and it is time for real estate companies to hand in their "midterm exams".

According to data from the China Index Academy, in the first half of 2024, the total sales of the top 100 real estate companies was 2,083.47 billion yuan, a year-on-year decrease of 41.6%. In the relatively sluggish atmosphere of the real estate market, some companies are struggling to protect themselves, while others have already achieved overtaking.

Among them, one of the most successful real estate companies in "overtaking" is Poly Development.

As early as when Song Guangju was the chairman of Poly Development, he had called for "returning to the top three", but he failed to do so until his retirement. Liu Ping, who succeeded Song Guangju, is more ambitious and has proposed a new goal of "entering the top three and striving for the first place" in 2022.

After Evergrande and Country Garden suffered setbacks, Poly Development finally achieved this goal and became the "No. 1 in the industry" as it wished. However, this is not the end, as a new round of competition has begun.

1

Net profit fell below 10 billion, Taikang Group frequently reduced its holdings

On the evening of August 19, Poly Development released its financial report for the first half of 2024.

During the reporting period, the company achieved a contract amount of 173.336 billion yuan, a year-on-year decrease of 26.81%, and a contract area of ​​9.5425 million square meters. The sales amount remained the first in the industry.

Although it maintains the position of "sales champion", Poly Development's operating data is not ideal.In the first half of 2024, its revenue was 139.249 billion yuan, a year-on-year increase of 1.66%; its net profit attributable to shareholders was 7.420 billion yuan, a year-on-year decrease of 39.29%.

Figure/Poly Development Financial Report

This is the first time that Poly Development's interim net profit attributable to shareholders has declined since 2013, and the first time in the past five years that its interim net profit attributable to shareholders has fallen below the 10 billion mark.

But if we look at the industry, Poly Development's performance is not the fault of just one company. According to incomplete statistics from Wind data from Jiemian News, as of August 22, a total of 72 real estate companies issued performance warnings, of which 43 were in the red and 18 were expected to see a decline in profits.

Regarding the decline in profits, Poly Development's management stated at the 2024 first half performance briefing that due to the downward market, the company's gross profit margin in the first half of the year decreased year-on-year. At the same time, affected by the decline in the carried-for equity ratio, the year-on-year decline in net profit attributable to shareholders was slightly greater than the decline in net profit.

Among them, the decline in gross profit margin is probably related to the company's destocking measures.

In the 2024 first half financial report, Poly Development mentioned that in the face of a rapid market downturn, the company actively adjusted its sales strategy, actively increased its efforts to push products, and strengthened comprehensive sales measures.

In other words, the company has to "trade price for volume", which is bound to erode the company's profits.

Wind data shows that in the 10 years from 2014 to 2023, Poly Development's mid-term sales gross profit margin has always remained above 20%, and in 2021 and before, this figure even remained above 30%.

By the first half of 2024, Poly Development's gross profit margin fell below 20% for the first time, to 16.02%. This was mainly due to the fact that the gross profit margin in the second quarter was as low as 14.57%, which led to a decline in the overall gross profit margin in the first half of 2024.

Photo/ Wind

With the strategy of "trading price for volume", Poly Development's average daily subscription during the three major holidays (Q2, Qingming Festival, Labor Day, and Dragon Boat Festival) in the second quarter of this year was nearly 2 billion yuan, a year-on-year increase of 23%. The total sales amount in the second quarter was 110.4 billion yuan, a quarter-on-quarter increase of 75%.

You should know that in the first quarter of 2024, Poly Development only achieved a contract amount of 62.984 billion yuan, a year-on-year drop of 44.81%.

If Poly Development had not given up more profit margins in the second quarter, it would have remained an unknown whether it could have maintained its position as the "sales champion".

Figure/Poly Development Financial Report

In comparison, Poly Development's operating data in the first quarter was better: revenue of 49.748 billion yuan, a year-on-year increase of 24.51%; net profit of 3.983 billion yuan, a year-on-year increase of 0.44%. Although the net profit attributable to the parent company fell by 18.28% year-on-year, it was also weaker than the decline in the interim financial report.

On one hand, there is profit, and on the other hand, there is scale. In the downturn of the industry, you can't have both. Judging from the current performance, Poly Development has chosen scale.

Taikang Group, which is a shareholder of Poly Development, chose to reduce its holdings. From July to September 2023, Taikang Life Insurance reduced its holdings of Poly Development by 81.7697 million shares, cashing in 1.18 billion yuan.

On June 27, 2024, Taikang Life Insurance continued to reduce its holdings by 41.6994 million shares; from July 1 to August 1, Taikang Group reduced its holdings by a total of 129 million shares. After this equity transfer, Taikang Group held 4.9999% of Poly Development's equity, which was less than 5%.

Figure/ Announcement of Poly Development (Picture flipped left and right to display)

When insurance funds choose to leave, it may also indicate that the risks of real estate companies have not been completely cleared. Even the "big brother" Poly Developments could not stop the insurance funds from leaving.

2

Being the top player is like walking on thin ice

Poly Development seems to have a strong obsession with maintaining its position in the industry.

Once upon a time, "Zhaobao Wanjin" was well-known and was the leader in the real estate industry. But gradually, Evergrande and Country Garden came from behind, and Poly Development fell out of the top three.

"Returning to the top three" has become a "heartache" for Poly Development. As early as the shareholders' meeting in December 2017, Song Guangju, then chairman of Poly Development, made it clear that the company wanted to return to the top three in the industry, but she did not achieve her wish until she stepped down as chairman in 2021.

Liu Ping, who succeeded Song Guangju, is more ambitious and shouted the slogan of "entering the top three and striving for the first place" in 2022.After 2023, this slogan will no longer be empty talk.

According to CRIC data, in January 2023, Poly Development became the TOP1 in the full-caliber sales ranking, only slightly behind Country Garden in the equity sales amount list with a slight gap of 50 million yuan.

Figure/ Screenshot of CRIC list

Judging from the cumulative sales from July 2024, Poly Development has topped the CRIC list in terms of full-caliber, operation, and equity sales rankings, ranking top 1 in the industry.

Poly Development has reached this position not because it has become so powerful, but mainly because of the comparison with its peers. In the long run, Poly Development's sales have shown an overall downward trend.

An announcement disclosed by Poly Development shows that from July 2021 to July 2024, its contract amounts were 327.34 billion yuan, 243.22 billion yuan, 267.823 billion yuan and 198.654 billion yuan, respectively.

This also means that Poly Development cannot sit back and relax in its top 1 position, but instead faces great sales pressure.

In fact, after "outlasting" Evergrande and Country Garden, more competitors have emerged and a new competitive landscape has already begun.

In the China Index Academy's real estate companies' sales performance ranking for the first half of 2024, the industry's top five are Poly Developments, China Overseas, Vanke, Greenland China, and China Resources Land. Behind each company is a state-owned enterprise or a central enterprise.

In the first half of 2024, the sales of these five companies all recorded negative growth, but apart from Vanke, which was caught in the whirlpool of public opinion, Poly Development was the company with the largest decline, down 26.81% year-on-year.

Especially compared with China Overseas, which ranks second, Poly Development's decline is about 9 percentage points higher than that of China Overseas.

In July 2024, the sales of China Overseas and Greentown have returned to positive year-on-year growth, with double-digit growth. During the same period, the decline in sales of China Resources Land and Vanke was significantly narrowed compared with the first half of the year, while Poly Development became the real estate company with the largest decline.

It is particularly noteworthy that "Jiemian News·Entrepreneurship Frontline" noticed that in the equity sales ranking list for the first half of 2024 disclosed by China Index Academy, China Overseas surpassed Poly Development's 135.2 billion yuan with 139.4 billion yuan, which is about 4 billion yuan higher than Poly Development.

In the equity sales ranking list before July 2024, Poly Development regained the first place.

The changes back and forth also indirectly show that the competition between Poly Development and China Overseas has become fierce. Poly Development is not sitting firmly in the first position, but is walking on thin ice in this position and dare not relax for a moment.

3

Frequent fundraising for shrinking and expanding reserves, and projects have been repeatedly complained about

While maintaining its scale, Poly Development failed to maintain its collection rate.

In the first half of 2024, Poly Development realized a cash collection amount of 146.6 billion yuan, with a sales collection rate of 84.6%. In the first half of 2023, its sales collection rate was as high as 96%.

Not only that, its net operating cash flow turned negative.

The financial report shows that in the first half of 2024, Poly Development's net operating cash flow was -17.148 billion yuan, a year-on-year decrease of 339.97%. In this regard, Poly Development explained that it was because "the land payment for the expansion project in the previous year increased year-on-year."

The 2023 financial report shows that Poly Development expanded a total of 103 projects that year, with equity land prices of 135.9 billion yuan. Some of the land was acquired at a high premium, and the average floor price of new projects reached 15,187 yuan per square meter. Now the company can only "pay the price" for its past aggressive behavior.

Having tasted the "bitterness", Poly Development has significantly slowed down its pace of land acquisition. In the first half of 2024, the company added 12 new projects with a total land price of 12.6 billion yuan, a year-on-year decrease of 70.7% and 82.2% respectively.

Figure/ 2024 first half financial report

Figure/ 2023 first half financial report

Although the scale of reserve expansion has been reduced, Poly Development has not stopped fundraising. At the same time as the release of its first half 2024 financial report, Poly Development announced a plan for a fixed increase, planning to raise no more than 9.5 billion yuan.

At the same time, Poly Development announced that the company issued 2.5 billion yuan of short-term financing bonds on August 16 with an interest rate of 2.02%.

Photo/Poly Development Announcement

According to the financial report, in the first half of 2024, Poly Development's net increase in interest-bearing liabilities was 19.3 billion yuan. As of the end of the reporting period, the company's total interest-bearing liabilities reached 373.5 billion yuan.

Figure/Poly Development Financial Report

In order to better adapt to the market, Poly Development is adjusting its development pace, but the quality of the projects it delivers has been repeatedly complained about.

At the 2024 first half performance briefing held by Poly Development, an investor asked that the company's newly built properties and Yuetianhui in Shanghai had significant problems, including but not limited to failure to strictly implement the design drawings, serious reduction in standards and specifications, as well as cutting corners and other bad practices.

In this regard, Poly Development did not clarify whether the above-mentioned problems exist, but stated that the company strictly carries out development and construction in accordance with the contract agreement and internal management standards, and will ensure quality delivery.

This is not an isolated case. In July 2024, some Poly owners complained on the Sichuan Wenzheng official website that Poly Central Plaza operated in violation of regulations, delivered houses with shoddy products and in violation of regulations.

In response to this, the Chenghua District Housing Construction and Transportation Bureau replied that the developer has announced the specific rectification plan and rectification time limit to the owners regarding the housing quality issues reported by the owners, and the rectification work is currently being promoted.

In September 2023, the People's Daily Online leadership message board showed that some owners of Poly in Nanchang complained that the exterior wall paint of Poly Tianhui was peeling and bubbling. The Nanchang Municipal Housing and Urban-Rural Development Bureau clearly stated in its reply that it was found on site that the flatness of the joints of the exterior walls of some buildings was deviated and the surface of the exterior wall paint was uneven, which was more obvious under sunlight.

Image/Photo Network, based on VRF protocol

In the view of IPG China chief economist Bai Wenxi, the quality problems in Poly Development's projects are not caused by a single reason, but are due to a variety of factors including financial pressure, low profit margins, high turnover model, poor management, technology and materials.

"For example, when the market is down, sales are sluggish and cash collection falls short of expectations, developers may reduce their investment in projects due to financial pressure, which may affect the quality of the building," said Bai Wenxi.

Since the second half of 2021, the real estate market has undergone tremendous changes, and the trust of real estate companies is at risk. Therefore, the capital market, consumers, and investors are increasingly sensitive to the reputation of real estate companies. How Poly Development can win recognition from the outside world with its quality may be the key issue that the company should consider next.