Country Garden Announces 2017 Results; Boasts China's Most Affordable Housing among the Country's Top Ten Property Developers

Despite an ongoing effort to reduce inventory in a market characterized by an excess of unsold units and further hobbled by a strong regulatory environment, in 2017, Country Garden's sales grew from a previous 300 billion yuan to 500 billion yuan. Key performance indicators including contracted sales, gross floor area, operating revenue, profit attributable to shareholders and cash balance grew significantly. A balanced portfolio, outstanding quality management, strong ability in project turnaround and cost control together contributed to the firm's industry leadership.  

Citigroup listed Country Garden as a top performer in its February report, saying that the outlook for Country Garden's main business is much better than market expectations. Country Garden's net asset value is expected to reach HK$20.54 per share for 2018. The stock price was up by more than 15 per cent over the last ten trading days, closing at HK$16.26 per share on March 20, maintaining its industry leadership among China's domestic real estate developers.

Balanced portfolio across China points to a rosy future

Financial results for 2017 show the company's project assets as having more than doubled, with a footprint in 220 cities as well as 768 districts and counties across China. Industry insiders believe that the company's well-distributed presence will help offset volatility in housing prices in any one city.

Country Garden president and executive director Mo Bin pointed out the bright market outlook yesterday when he said: "As of the end of 2017, the list of targeted cities, regions and counties that we plan to expand into remains long."

Given the mixed market response to a series of government policies that aim to cool down the general property market, Country Garden has continued to take advantage of its balanced portfolio to focus on third- and fourth-tier cities. Projects in cities that make up these two tiers contributed to 58 per cent of the company's sales in 2017, up 9 percentage points year on year, thanks to an accelerating rebound in these markets.

In line with the government's efforts to promote supply-side structural reform, Country Garden plans to provide high-quality housing in the downtown areas of third- and fourth-tier cities while avoiding oversupply of similar products. Last year, the company acquired 881 lots of land, with the floor area within these newly acquired lots in third- and fourth-tier cities representing 61 per cent of all such acquisitions, up 9 percentage points year on year. Turnaround in the property market in these less developed cities enhances the company's investment commitment.

Research institutions are optimistic about Country Garden's future performance in that it is aligned with government policies that support efforts to reduce inventory-to-sales ratios in third- and fourth-tier cities as well as to renovate run-down urban areas. Deutsche Bank said that due to the firm's clearly-defined position as to how to approach the market in cities within these two tiers as well as in first- and second-tier ones, Country Garden's sales can be expected to continue their rise. Morgan Stanley said in its recent report that given the increase in population, housing demand in third- and fourth-tier cities will outpace that in first- and second-tier cities and can be expected to remain strong over the long term. Country Garden's footprint in third- and fourth-tier cities will spur sales.

Country Garden maintains competitiveness through an emphasis on quality management and quality product

In addition to the balanced regional portfolio, Country Garden's ongoing attention to and continued enhancement of the quality of its management is also considered a key contributor to the excellent results. The real estate developer has, from the beginning, placed a strong emphasis on quality, converting this emphasis into a core competitive advantage, by standardizing and optimizing the designs that are the results of the efforts of its 4,000 designers. The developer has hundreds of advanced home models, offering accommodations that meet the diversified needs across the market.

During construction, Country Garden is guided by a principle that the firm describes as "a quality process that insures a quality living model," which is backed by a strict project quality management system, including a set of protocols that the firm has dubbed as the "10 red lines." The developer leverages advanced technologies including the Standard and Shareable Geospatial Foundation or SSGF industrialized construction system that addresses a series of common quality issues when building residential housing, including leaks, cracking and hollowing. According to the firm's own internal estimation, the application of SSGF can reduce the need for plastering materials by over 90 per cent, supporting efforts to reduce the use of energy and protect the environment.

Mr. Mo revealed yesterday, "Country Garden homebuyers are welcome to inspect the progress in the construction of their home once every month at a fixed time." SSGF also launched the first "construction site open visitation day," allowing prospective home purchasers to inspect the construction site, before proceeding to the sales department. Buyers can assure themselves of the status of construction and the outfitting of their individual accommodation at scheduled monthly intervals.

In 2017, Country Garden launched what it terms as "good homes" where the accommodation, the facility in which the accommodation is located as well as surrounding facilities, and the property manager, have been designed or selected with quality as the primary criterion, assuring the best experience for homeowners, while meeting the demand for a comfortable and healthy living environment. Country Garden now has a 30 percent market share in 70 of China's county-level cities, and, in some cities, as much as a 50 percent share, helping to improve the overall quality of life for the city's residents.

With a centralized and standardized operation and management model, Country Garden is able to integrate resources across upstream and downstream industrial chains, including design and planning, material supply, interior decoration, property management, education, business and transportation, successfully executing on a business model that combines fast-track development, robust sales and an excellent return on capital. The success of the model continues to assure the firm's strong level of competitiveness in the market. 

Country Garden boasts the most affordable housing among China's top 10 property developers, as a result of effective cost control and management measures

Last year, Country Garden entered the Fortune Global 500 list and became one of the constituents of the Hang Seng Index. In addition, Fitch raised its rating for the company to "investment grade." The significant improvement in the company's overall competitiveness is inseparable from its outstanding abilities at cost control and management. Country Garden's 2017 annual report shows that the developer had cash and bank deposits of approximately 148.4 billion yuan (approx. US$23.5 billion) on hand at the end of 2017, reaching the highest level since the listing of the company. The firm also had an undrawn credit line of 248.51 billion yuan (approx. US$39.3 billion). In 2017, Country Garden achieved net operating cash flow of 24.08 billion yuan (approx. US$3.8 billion), moving the indicator back to a positive number after turning negative in 2016. Weighted financing cost dropped 44 basis points to a historical low of 5.22%.

In terms of project costs, Country Garden controlled the cost of land acquisition by buying in bulk, resulting in a lower expenditure for a lot of comparable size. The firm reduced financing and sales expenses by selling homes at more affordable prices, vastly improving the inventory-to-sales ratio and accelerating the turnover rate. Integrated development enabled pipelined production across the entire industry chain, reducing the cost at each step in the process and extracting higher returns from both downstream and upstream industries. Central procurement and the ERP system reduced the cost of materials.

In terms of capital costs, Country Garden has been constantly optimizing its debt structure since listing, by, on the one hand, issuing new low-interest debt to replace high-interest ones in a move to decrease capital cost, and, on the other hand, resolving the mismatch between short- and long-term debt to reduce operational risk. The improved financial picture led to better ratings for the company, which, in turn, ensured Country Garden's ability to continually acquire financing at a lower cost.

In 2017, Country Garden issued US$700 million in senior notes with an annual interest of only 4.75%, which refinanced high-interest debt. In addition, the developer secured US$1.3 billion in four-year loans from a foreign consortium, with an annual interest equaling to only Hibor or Libor+3.05%, the firm's lowest capital cost ever. This also represented the second time that Country Garden has received funding from an overseas consortium since 2015.

With such cost control measures in place, despite the majority of the properties that Country Garden has developed being located in China's first- and second-tier cities, the company continued to provide the most affordable housing among the country's top 10 real estate developers, with an average contract price of 9,080 yuan (approx. US$1,434) per square meter, up 10% from a year earlier. The rate of increase in the sale price of its units remains lower than that of China Vanke, Evergrande and Sunac China. Country Garden is committed to building affordable homes and creating a better life for all.

SOURCE Country Garden Holdings