Jianfa International, a growing real estate company

In June, the sales performance of real estate companies was relatively good, especially for those ranking at the top.

In June, the sales amount of the top 100 real estate companies increased by 33% compared to May, with a year-on-year decline narrowing to 22% (a cumulative 42% decline from January to May). Among them, the sales of the Top 10 real estate companies in June decreased by 4% year-on-year, to some extent better than market expectations. Looking ahead, the base figures for July and August are lower, and the year-on-year decline may further converge. According to our previous article "Qiu Dongrong significantly increased his holdings of Poly Development in the first quarter," the current real estate market is in a bottoming phase and can be seen as a bottoming-out stage. If the real estate market at this position still cannot stabilize, more policies will be introduced to support it. However, it is unlikely to be very aggressive policies, most likely they will be released moderately. Although overall house prices are still falling, real estate companies do not necessarily need property prices to rise, as long as they can stabilize and create a relatively stable trading market, it is sufficient. Currently, the circulation of houses is more important than house prices. Of course, this is based on the premise that house prices do not fluctuate significantly. Especially for second-hand houses traded based on price, the performance is more obvious. Currently, the real estate sector is more focused on policy games. If the data stabilizes and improves, the sector will shift from policy games to value games. It is advisable to start paying attention to some real estate companies with good qualifications and low risks. I. Counter-Cyclical Dark Horse Jianfa International is one of the few real estate companies that have maintained revenue and profit growth in recent years. Jianfa International's core business is real estate development, accounting for 96.8% of its business income, with real estate projects covering important cities in various provinces in mainland China. It also includes light asset businesses such as commercial operation and management services (agency construction), property management, and commercial asset management, namely its subsidiaries Jianfa Jianfa Hecheng and Jianfa Property. To achieve such performance in a turbulent real estate market, there must be a strong backing. Jianfa International is a holding subsidiary of Xiamen Jianfa Group, the largest state-owned enterprise in Fujian Province Jianfa Group has been the top enterprise group in Fujian Province for many years, with the actual controller being the Xiamen State-owned Assets Supervision and Administration Commission, which is the backing behind Jianfa International. Since 2017, Jianfa International's revenue and net profit attributable to the parent company have both been growing. The company has maintained a green rating on the "three red lines" since 2021, with interest-bearing debts mainly coming from loans from major shareholders (existing loan interest rate of 4.53%) and bank loans (existing loan interest rate of 3.0%). There are no off-balance sheet liabilities or pre-financing liabilities. The average interest rate on existing interest-bearing debts of the company has been continuously decreasing since 2020, showing a clear financing advantage. In addition to its strong background, its own operations are also good. Especially in recent years, with the real estate market in a downturn, not to mention private enterprises, even central state-owned enterprises have faced certain pressures, and their performance has basically been adjusted. However, Jianfa International's performance has been steady and proactive, entering the ranks of blue chips as a dark horse. In 2023, Jianfa International's operating income was 134.4 billion yuan, a year-on-year increase of +35%; net profit attributable to the parent company was 5.03 billion yuan, a year-on-year increase of +2%; gross profit margin was 11.1%, a year-on-year decrease of -4.2 percentage points, influenced by the decline in housing prices. At the same time, in 2023, all the indicators of the company's "three red lines" remained "green", with the asset-liability ratio decreasing by 1.6 percentage points to 61.6% after deducting advances, the net debt-to-equity ratio decreasing by 19 percentage points to 33.6%, the cash-to-short-term debt ratio reaching 4.7 times, the average cost of existing financing decreasing by 58 basis points year-on-year to 3.75%, and the core indicators being optimized once again. In the past two years, whether in sales or land acquisition, Jianfa International has appeared more active in the market downturn. In 2023, Jianfa's sales amount was 188.9 billion yuan, a year-on-year increase of +12%, entering the industry's TOP8 in terms of sales scale, advancing 2 positions from 2022, and has firmly secured a position in the top 10 in the industry. In the first half of this year, it ranked 7th. The sales amount in first and second-tier cities accounted for 85% of the total, with 46 out of over 70 cities entered ranking in the local top 10 in sales. Among them, in 17 cities including Xiamen, Fuzhou, and Wuxi, the company ranked first in local sales, while in cities like Hangzhou, Suzhou, and Quanzhou, it ranked second to fifth in local sales. The company's product strength is widely recognized in the industry, with several star projects performing excellently In 2023, the company acquired 78 pieces of land in 30 cities, with a total land price of 116.9 billion yuan, a year-on-year increase of +42%, and a land acquisition intensity of 62%, which is at a relatively high level in the industry; the equity land acquisition amount was 85.2 billion yuan, ranking fourth. From January to June 2024, Jianfa Real Estate's land acquisition amount was 27.9 billion yuan, ranking first in the industry. By the end of 2023, the company owned a total of 311 projects, with a total land reserve of 15.52 million square meters, inventory value of 266.8 billion yuan, 84% of which are located in first and second-tier cities, with new land reserves accounting for 70% after 2022. The total salable area of new land reserves is 8.54 million square meters, with a new salable value of approximately 218 billion yuan. The company focuses on the three core city clusters of East China, Southeast, and West Coast, with the top 10 cities in land acquisition accounting for 76% of the total land acquisition amount.Second, healthier players who can sell The issue in the market is not affordability but rather perceived value. On one hand, people think that housing prices may continue to fall, and on the other hand, the overall quality of houses is not attractive enough. Houses should primarily return to their residential attributes, aside from a small portion for investment purposes, most people have a desire for better living conditions. When the rental yield is close to the mortgage rate, the argument for buying a house instead of renting will arise, leading more people to lean towards buying. Currently, the market demand is shifting from "having a place to live" to "living in a good house", and from "meeting residential needs" to "meeting the needs of high-quality living", with customers having higher requirements for living space, community environment, and supporting services. Improving housing demand has become an important factor in residents' property purchases. Housing products that meet market demand will be willing to increase their psychological price. From the supply side, the industry is accelerating reshuffling and integration, with increasing differentiation among real estate companies. Companies with strong comprehensive capabilities such as product strength, service strength, operational capabilities, and financing capabilities will gradually highlight their competitive advantages. However, there are not many companies capable of creating higher quality houses. Jianfa International acquired 78 new projects last year, obtaining multiple high-quality projects in Hangzhou, Shanghai, Xiamen, Beijing, Suzhou, etc. Among them, projects such as Hangzhou Yunqi Zhi Jiang, Ningbo Puyun, and Changting Yangxi, acquired within the year, achieved land acquisition and clearance within the same year. Projects that are successful in a sluggish market indicate Jianfa's ability to create good houses and have a certain market reputation. Jianfa focuses on first and second-tier cities with a solid brand foundation, as well as cities in Fujian province with relatively balanced supply and demand. The projects mainly feature new Chinese style, releasing multiple new products such as "Shengshi Tangfeng", "Fengya Songyun", and "Shiyi Dongfang" throughout the year. Among them, 20 new product style innovations were developed, 14 innovative display areas were established, 8 functional enhancements were developed, and 92 new patents were applied for during the year.** Overall, in 2023, Jianfa's sales project delivery rate reached 71%, with total sales receipts of approximately 184.3 billion yuan and a fund recycling rate of 98%, maintaining high-quality sales receipts. Having the ability to acquire land is beneficial for future development, but currently, the ability to sell is more important. Thanks to its proactive land acquisition strategy and good delivery performance, Jianfa has sufficient sold but unfinished resources. In 2023, the company's sold but unfinished resources amounted to 208.7 billion yuan, a year-on-year increase of 6%, significantly higher than operating income. Additionally, as of the end of 2023, the total salable area of the group's land reserves is approximately 15.52 million square meters, with around 70% of land reserves from projects acquired after 2022, a land reserve equity ratio of about 76%, and a total of 311 projects domestically with overall good asset quality. In terms of market delivery, projects acquired after 2022 have shown higher delivery efficiency. Some real estate companies with abundant land reserves before 2022 may not have efficient sales conversion, while companies focusing on core cities and controlling total/sales within about 1-1.5 years have better sales delivery and less pressure. Looking at inventory turnover, Jianfa's turnover has been improving over the past two years, placing it at the forefront of the industry. In conclusion, Jianfa International's fundamentals are still good. Although sales declined in the first half of this year, possibly ending the trend of continuous growth, its ranking is still on the rise, making it a dark horse in the real estate sector. However, a major issue the company faces is significant equity dilution. Apart from choosing stock dividends, Jianfa International has issued additional shares multiple times, with substantial amounts. Furthermore, multiple large-scale equity incentives have significantly expanded the share capital. The company launched three rounds of restricted stock incentives from 2021 to 2023, planning to grant a total of no more than 185.3 million shares, accounting for 9.8% of the total share capital as of the end of 2023 By the end of 2016, Jianfa International had a total share capital of 428 million shares, which increased to 1.177 billion shares by early 2020, and is expected to reach 1.896 billion shares by the end of 2023. Perhaps there is a consideration to increase the number of outstanding shares, but from an EPS perspective, Jianfa's growth does not look good in terms of profit. In the future, it may be worthwhile to pay more attention to the company's attitude towards equity