Earnings Call: H1 2021

Aug 26, 2021

Interim results announcement. This is the Shenzhen venue and I'm Annie. Welcome to this result presentation. Because of the COVID-nineteen impact, it's a pity we cannot meet you face to face, but we're having this result presentation through the webcast and phone teleconference. Before we start, let me introduce the management to you. First of all, Mr. Li Xin, President of the company Mr. Zhang Dawei, Vice Chairman and CEO Mr. Xue Ji, Chief Strategy Officer under Chief Human Resources Officer, Mr. Hu Bing Chi Mr. Guo Shijin, CFO and Mr. Yulin Kang, the President of Mixed Lifestyle. You may have noticed that we have a very strong management team here with us today. This fully shows the importance that the management has attached to this result presentation, hoping that they can have a thorough communications with all the investors. There will be 2 parts in the presentation. First of all, the management will walk you through the business performance and then there will be a Q and A session. Before we start, I would like to invite Mr. Li to say some words. Mr. Li, please? Okay. Dear investors and analysts, good afternoon. Thank you very much for joining us for this interim sales announcement. In the first half of twenty twenty one, we stick to the strategy of not speculating for the apartments. And at the end at the market end, at the land banned, the government issued a series of controlling measures that we with all these measures, this represent the higher requirements for all the developers. And in such a context, we stick to our strategic positioning of ourselves and gone through with our 3 plus one strategies. We also carried out file management and by applying technologies to empower ourselves in the innovation as well as the financial innovations and so forth. We focus on high quality of growth of our business. In the first half, we delivered very good results, realizing sales realizing our overall business revenue of RMB73.7 billion. And the attributable net net profit attributable to shareholders also rose by 15.4 percent to 13,100,000,000 we have 3 core business tracks. And in all these business tracks, we realized high quality of growth for each of them. In the first half, if you look at our performance, the equipment business realized the contracted sales of over RMB170 1,000,000,000. And We also realized 69% of our growth. For the fixed assets part, we realized the quality of the property management. The rental increased by 63%, reaching RMB8.3 billion. By reducing cost and improving our efficiency, gross margin rose by 70%, which is much better than expected. Our retailing sales. Retailing revenue also increased a greater lot. The gross margin rose to 79.6%. Light Asset Management Business sector also realized the growth. And we realized the revenue in our a mix of lifestyle and with 138% of our growth, while delivering strong growth in all the business. We'll also expand our municipal space operations service sector and further enhancing our strategic positioning of the mix of lifestyle. I hope that in the 14th 5 year plan, the mix of lifestyle will definitely be a strong driving force of our business growth. As for other businesses, we also realized the growth, particularly the long term leasing, the municipal space operations, so on and so forth. At the same time, we also expanded our business tracks, setting up the industrial parks to run the to operate our new businesses. We also when we have also gone into a smart manufacturing, smart city, life sciences on and so forth. We also acquired 550 1,000 square meters for these purposes. We also signed new contracts for this area for these areas. And we also carried out fine management and realized the progress and achieved a great progress. And we conducted fund investment while enhancing ourselves. We also replenished our land bank. Meanwhile, we also stick to our principle of investment with the reasonable returns. We focus on the high energy Tier II cities. We acquired 63 and 33 new projects through diversified source of land acquisition. We have high quality of land reserves in our land bank. The evaluation is about JPY 1,000,000,000,000 of all our land. This will enable a very good foundation for our continuous growth. In the upcoming years, we carried out fine management while we improve our sales and quality as well as cost reduction and efficiency improvement, we also delivered very good results. So we overcome all the difficulties and worked very hard. Meanwhile, we are also aware that there will be short term fluctuations ahead of us in the near future. The competition is also fierce in the market, which represent high pressure for us. Looking to the second half, we stick to our investment strategy. We stick to the prudent financial policies so that we can carry out fine operations and capture the opportunities in the market. The management has full confidence that we can deliver the annual result with high quality. And I would like to stop here. And now our CFO, Mr. Guo Xiu Qing, will share with you more details about our business performance in the first half of this year. Thank you. Dear analysts, dear investors, good afternoon. I would like to take this opportunity to share with you more details of our business performance in the first half. In the first half, we kept executing the high quality sustainable development strategy and the performance is better than exported. And the revenue increased by 63.8 percent, reaching RMB73.7 billion. The rental increased by 63.4 percent reaching 8.3%. Net profit attributable to shareholders rose to RMB13.1 billion, up by 15.4%. The core net profit also grow to KRW9.9 billion by 18.3 percent. And the interim and the dividend for the interim period rose by 23.8 1% to KRW0.208. And the contract sales also rose by 48.7%. And in the second if you look at our core business checks, the sales of development projects rose by 69.4%. And the operating fixed assets business also increased by 63.4%. Because of land price as well as price curbing policies from the government, our Development business had a gross margin down to 27.1%. A. And however, the for the investment properties, the gross margin rose by 2 percentage points to 69.8 percent and which is higher in this industry. And for the net profit attributable to the shareholders also increased and the fair value is 73%. For the office buildings, it's 19%. Our business structure is more stable and more optimized and financial resources are sufficient. And our cash and cash equivalent compared with end of last year rose by 6%, reaching JPY94,900,000,000. And the EBITDA coverage times has rose to 7.4 times. And As for the fixed asset, the operating fixed performance also increased quite a lot. And as I said that our for the shopping malls, it is RMB 6,600,000,000, a robust 65% and up by 3 percentage points. For the hotel, it went up by 111%. In the first half, there's still impact from the pandemic, and we will be able to cover all the interest expenses in the first half. And according to our guest, without major incidents in the future for the all the investment properties, we will deliver about JPY 18,000,000,000. So our we have a very stable operating revenue through our investment properties. And this will provide a very stable support for our continuous growth in the future. For the 73% as from the as well as for the fixed assets. And In the first half, our cash and the cash equivalent also increased by 6%, reaching JPY94.9 JPY 1,000,000,000 and debt increased by 17.8%. EBITDA increased coverage times is 7.4 times and standard core multi and fridge give us a very good ratings as well as the combined rating is AAA Trading. In the first half, the overall financing channels are tightened. We adjusted our own financing channels actively and the financing costs based on the low base at the end of last year rose down by 0.2 percentage point to 3.88%. Average debt level is debt duration is 4.8 years, and our debt structure was further optimized. This shows the strength in our fundraising. Now let's look at the business performance. So in the first half, the contracted sales rose by 48.7 a percentage to JPY 164,800,000,000 and the contracted target logged percentage was over 50% and the attributable signed contracted amount was JPY108.2 billion, up by 50%. Contracted the area increased by 52.4 percent and the editable a percentage also up to 66%. And as for the rentals, We have 48 shopping malls reaching RMB6.53 billion, up by 65%. And the growth rate for the same shop similar mall also was high as 6%. The rental rate is 1 was up by 1.3 percentage points to 96%. And the EBITDA for the shopping malls at the end of the year is expected to be up to 10.7%. So for the shopping malls, we have our competitive advantage and all the business tracks are moving forward steadily. In the first half, for the heavy luxury and the non luxury shopping malls rose by 87% 86%, respectively. And compared with the same time, it was up by 83% 84% in the same period in 2019. And because of the faster growth of the non luxury shopping malls, our market share increased a great a lot and back to the level before the pandemic. And for the shopping malls, we expanded to 48 new shopping malls and 38 ranked a top 3 in terms of the retailing volume and 20 of them were ranked in different cities. The number of members also rose by 19% to 17,500,000 and our rental increased steadily and we focus on the core cities and the core street sections in order to guarantee high quality of performance. The rental revenue for the office buildings was RMB940 1,000,000, up by 30 percent, the rental ratio increased by 2 percentage points. And because of particularly in the for the mix of life cycle, lifestyle got listed. Now putting aside the adjustment, Then for the office buildings, the total floor area will be about 1,300,000 square meters. And all of them are in Tier 1 and Tier 2 cities. 59% of such projects are in Tier 1 cities. Hotel business is also recovering in the first half. The operations revenue of our hotels was RMB740,000,000 gross margin, 7.1 percent rental ratio up to 5% and the average price was JPY 10.41 per night per room. And now we have 30 hotels and 13 of them are already open in different cities and regarded the leading hotels. As for the mix of lifestyle was listed, delayed, in the first half, the operational revenue was JPY 4,014,000,000, up by 28.1%. Net profit its shareholders was RMB806 1,000,000, up by 138%. As for the managed ARVR, rose by 28 point 7%. The primary property gross margin was 13.3%, and the value adding services added for the communities also went up up to 13.2%. We also set up synergies between different businesses to cope with the growth of their key business. In the first half, we realized the progress in different business sectors, we're adding RMB6.36 billion. A the municipal construction and operations contributed 94.8 percent of revenue. Now let's look at the land bank. We look at the 4 strategic regions and just taking you to the diversified channels to as well as the low premium, high return policies in the land acquisition. In the first half, we acquired 33 new pieces of land with a total area of 8,380,000 square meters. Equitable land area was 7,140,000 square meters with a total price of RMB 91,500,000,000 and in the 40% and 81% of the land in the high Energy Tier 1, Tier 2 cities. So for the municipal renovation, TOD, the group synergy hybrid reforms on and so forth supported our land acquisition. So we have 42 new renovation projects 17 of them are following up with the development total area of 25,000,000 square meters, actual an area of 6,000,000 square meters. In the 50% of them will be converted into our land reserve within 3 years. And within 5 years, 70 of them will be reserved or converted to land reserve with the total sellable resources of about rmb150 1,000,000,000. So in the first half, 2 projects are recognized. And in the second half, as one more project it will be recognized as the equity the key equity of us as it is in Guangzhou. Since 3 more projects will be confirmed soon. And 3 18 years of exploration and practice. And we have 85 projects together covering 34 cities, under it involves 90 railway stations railways as well as the real mileage about 3,000 kilometers. So now we for the TOD shopping malls, we have 23 of them, and they are located in Beijing, Shenzhen, Shanghai, Hangzhou, Nanxin. In the first half, we adding 9 new TOD projects with a total floor area of 4,240,000 square meters in Hangzhou, Nanjing, Sun and so both. So as for the synergy land acquisition, this is a very unique land acquisition model and this gives us a chance to give full play of the parent company from China Resources Group. And in 2018, we acquired 12 new projects with a total floor area up 2,910,000 square meters, attributable floor area 2,630,000 square meters. In the first half, we also worked together with the CR Bank and acquired a project of Zhuhai, China CR Land, the headquarters and in which we are following up with 10 new projects in which the now headquarters in Shenzhen is expected to supply land at the beginning of 2022. So now we have a project We have land acquisition in Wuhan, Chongqing, Zhengzhou, and so forth. And through the hybrid reform, we can also get more land. Currently, we have about 76 The acquisition projects are there in Tier 1 and Tier 2 cities. And as of the end of June, we have a sufficient land reserve, Xiangling Land Bank. This will be able to support our continuous growth in the higher quality manner in the future. For the development, land reserve is about 59,880,000 square meters and 68% of them in Tier 1, Tier 2 cities and the quality is very high, we continue to focus on the strategic cities and the land reserves is about 11,100,000 square meters. Shopping malls about 6% in Beijing, Shanghai, Shenzhen Guangzhou, Nanjing, And 79% of them in Tier 1, Tier 2 cities, specifically, we have fulfilled our national deployment. And now let's look at the prospects. The saleable resources. We have sufficient saleable resources to support our sales target for 2021. In the second half, we have JPY 35,400,000,000 of sellable resources, 86% of them in Tier 1 and Tier 2 cities, 69% of our residential and sellable resources about 40% for us to launch. Q4, Q3, Tier 4, we have scheduled, our launching plans. As of the end of June, we have signed the projects, but not settled at about RMB23.7 billion and RMB11.63 billion will be scheduled in this first half in the second half of this year. In the upcoming 3 years, we will be able to have more settlements to support our growth. Their shopping malls continues to expand. And at the end of this year, so we will be managing 54 shopping malls. And by 2025, it will be 100 a total area of 12,000,000 square meters. And at the end of 2025, we will be managing about 78% of the shopping malls in Tier 1, Tier 4 cities with 4 core city clusters about 5%. In 25 cities, we will realize that one city, multiple projects or multiple city, multiple projects. And we take ESG very seriously. And we for some years, we continuous improving our ESG management level as well as the data disclosure. And this year, we were included into the index as well as MSSI rating. In terms of environmental, we set up a working group to promote the dual carbon strategy. We look at the green construction, the energy management and so forth. In the first half, we promote the cost the energy consumption down as well as the green construction certification program. For every 100 business revenue, we reduced about 22.1 percent of energy consumption. In the first half, we undertake the 11th, the Hope Town in Yan'an and it is about 2 70 more and about 100 and 67 families, about 5863 people benefited from them, and we accumulated donations about RMB29.7 million. We also echo to sponsored major events in terms of planning, construction, operations and so forth. In terms of pandemic control in the first half, we provided services to about 600,000 people in vaccination. We also provided services to all of the protections and 0 infection happened. In terms of our governance, we set up our ESG structure. We set up an ESG committee, And it is we also prepared the first ESG management menu so that we provide the information, the definition and explanation as well as the consolidation of the ESG performance, the valuations and so on and so forth. At the same time, we also keep improving the diversification of our Board meeting. And the last part of the PPT is some appendix and for your reference and I wouldn't go into the details of this appendix. Thank you very much. Thank you very much, Mr. Guo, for your detailed performance presentation. Now, we're going to have the Q and A session. So please press 1 So So now let's invite the first question. Thank you. The first question is from CICC, Eric Chang. Thank you. Good afternoon, management. I'm Eric from CLCC. I have two questions for you. The first question is about the strategies and tactics. So from the mid to long term, Currently, the market situation is still going very fast with the market shuffling. So for For CR Land, you have your competitive advantages, such as diversified sources of land acquisition, the low funding fundraising cost and so forth. So these you do have a very strong competitive advantage in these areas. So my question is, How will you give full play to this strength and turn them into, for example, in the mid- to long run to support your continuous growth. So in the short term, from a tactical point of view, because that because of the policies and the changes in the market, a lot of them quick changes? As of what deployments and what plans do we have to cope with the new policies and the changes in the market? So this is the first question about strategy and tactics. The second question is about the market cap management on the share price. I understand that your share price is seriously under underwritten. So market CapEx is about RMB178 1,000,000,000. But to calculate conservatively, your investment property is already over RMB 180 1,000,000,000. So it's basically at the same level for market cap. They will buy they sell land market share. So 70% of your projects, they are in Tier 1, Tier 2 cities and your land reserves. So from the profit point of view, in your net profit, This year, maybe for the IP and the investment property, you have about JPY 5,300,000,000. If it is 20x PE, It is already exceeding JPY 100,000,000,000 valuation. That means that for the investment business and but now it is even below the 4x E therapy. So at this evaluation level, I just wonder how the management thinks about the secondary market. Now what how do you think that you will manage your market cap? A Thank you, Eric, for your questions. So very good questions. So let me try to answer them. True that recently actually for a pretty long period of time, the government's policy is the housing are for living, not for speculation. And this is the basic term of our macro policies. So we have the 3 red line policies, centralized land supply as well as the 2 percentage controls on the loans. So we just feel that we have to adapt to the new policies and keep renovating and deploying developing. This has already become the mainstream for mainstream channel for all the developers. For the based on the 13th 5 year plan and 12th 5 year plan and 13th 5 plan. We are also establishing our overall plan for the 14th 5 year plan. So during the 14th 5 year plan, we'll be stick to our strategic positioning of the municipal space operations provider as well as the 3 plus 1 basis model. A so for the development business and the light assets business as well as the commercial business and so forth. So we as well as our 1 Ecology business, so that we can set up synergies between different segments with auto purpose to set up our own economy being a municipal space operations provider. So this is our overall plan for the 14th 5 year plan with the very good foundations during the 12th and 13th 5 year plans. So our overall strategy for the 14th 5 year plan as well as our master plan is that at the end of the 14th 5 year plan, we will strive to double our our revenue. As for the in terms of our business size, we hope that we can maintain to be one of the top 10 developers. And in terms of the overall strength, we hope to continue to be 1. And with the listing of a mixed lifestyle. We are ranked number 1 of all the SOEs. And so this is our overall plan for the 485 fare plan. Under this, we have our detailed plans for our strategic core strategic measures. So for example, the strategic investment as the production operations and building the technical innovation, the financial innovations and so forth. And meanwhile, we also carry out the hybrid reform, the project M and A, a different measures. At the same time, we will focus on improving the supply chain ecology as well as the asset securitization, the management as well as making a young management. So Meanwhile, we also look at the motivation in the company as well as the organization optimization. About after about 20 years of growth, we kept innovating under growing in a high quality manner. And compared with other peers, we have it established our differentiated strategic competitive advantage. So number 1, So we have leading diversified business tracks in the industry. And for this, I think this is a very important characteristic we have. To put it in another way, we are not simply a developer. We are it's a people investment and operations service provider. We have 3 business tracks and 1 quality. Under from 4 dimensions in the 12th and 13th profit plan, while we grew our business, we realized very good results has laid very good foundation for our future growth. The second capability we have is that we have already about the competitive low cost and high quality construction capability and high capability of deliveries. So this is also very important. This will affect how long we can grow our business sustainably. And number 3, we have the low fundraising cost as well as the high fundraising capability. So this is the 3rd characteristics we have. So after 20 years of growth, we have established this differentiated competitive strength. Now we're in a new era and we have already got a very good foundation and very good and very good capabilities as well as the business segments, we hope that through our efforts in the 14th 5 year plan. During the 14th 5 year plan, we can realize high quality, stable growth in our development and sales. To grow our the operating fixed assets business as well as our light assets management services. Meanwhile, we can keep improving our ecology, the key factor business, so that in the 14th of 5 year plan, we can realize high quality of overall growth in all business segments. So this is my answer to your first question. Your second question is about share price. The under I don't underestimate our share undervalued of share price. So for the whole property industry, I think that the share prices are going down. A lot of share prices from a lot of developers are going down, I think it is the same with the CR and it is seriously undervalued and below our net assets. So perhaps this has a lot to do with the short term policy adjustments as well as the investors' confidence. So our valuation is now at a very low level. But our judgment is that real estate industry in the future, From a mid- to long term, it is still a very good industry, a very big industry. You can see the demands and the growth you can also see the growth. As Mr. Guo said, it has a higher visibility. A so from mid- to long term, we have confidence on this industry. I believe that the valuation will be recorrected. So as for Sierra Land, so in terms of the market cap management and the share price management, So what measures do we have? Personally, I think that we have very simple ideas about it and very pragmatic ideas as well. So that we must manage our business well, we must manage our operations well. And in this industry, at this time point, almost stick to the strategy and the long term strategy, manage our investment so that we can manage our production operations and keep improving our efficiency and keep improving our capabilities. And we must deliver good and stable growth in the mixed lifestyle so that for the CR Land, we can sustain our business and keep growing our business bigger and deliver a better performance than the overall market. From the market cap point of view as well as the value management for the leasing company, we do care the capital operations and how it is done. And a lot of companies, they are purchasing back and the management shareholding scheme increased their shareholding and so forth in order to push the value management. We also taken very seriously when it is necessary from increasing the long term value of our shares In terms of value management, we will take some measures. Thank you. Next question is from UBS, Thank you. Good afternoon, management. First of all, congratulations on your interim results, including your dividend. So a very good message to the capital market. I have two questions for you. The first one is that Can you please speak louder a little bit? I cannot hear very clearly. Okay. The first question is about the gross margin, Whether it is already pushed the bottom? And also, what are the non public channels? Under public channels, what is the net profit margin for the land acquisition? And what's the difference between them? 2nd question, Mr. Guo talked about the interest as well as the rental coverage is already about one time. So are we expecting the more dividend payout? Two questions will be taken by our CFO, Mr. Let me take your two questions. A for this industry, all the investors concerned about the gross margins. It's true that I I want to take your question from 3 perspectives. For the gross margin, whether it's already the lowest. So we're looking at our gross margin in the past 5 years and also looking to the future the 5 years in the future of the gross margin of development business. In 2018, for CR Land and for the whole industry, it was at the peak level. Under 2019, 2020 and 2021, the gross margin has been going down. And in 2021, 2022, We estimate that the 2016, 2017, 2018, the land acquisition, the cost was super high And then the margin will hit the bottom, whether it will rebound. And we will just wait and say, currently, the gross margin is about In your second, about the public channels and the non public channels, what is the net margin? So if it hits the bottom, In the past, we acquired land with higher price, and we have and the high cost has been absorbed. And this year, the gross margin will continue to dropped a little bit. For the new land acquisitions, you we can maintain 10% of our net margin. A bit lower than the gross margin will be something around 19% to 20%. So in our own judgment in the year, the gross margin will be in the L shape. It hits the bottom. And in the future, for some period of time, the gross margin will, including for the new land acquisitions as well as the existing land reserves, the gross margin will be something around 20%. Your second question is about dividend payout. Currently, our dividend payout is 37 percent. Currently, the dividend payout ratio is 37%. From this year on, if we take the JPY18 1,000,000,000 of rental gross revenue. It will be able to cover based on this 37% after the fundraising, it will be able to cover all the costs. In the future, in my report, I already said that currently 48 shopping malls are running. And at the end of the year, we will have 54 shopping malls. And in 2020, we have about 50 shopping malls during the 14 5 year plan. This is a high investment period. Our fundraising is low. The fundraising cost is low because of the 3 red line policies. Our fundraising cost as far as the fundraising size cannot be very big. So in order to sustain our development business, the dividend payout ratio will be maintained at a stable level. Question? Next question is from JP Morgan, Mr. Li, management, good afternoon. I'm Ron from JP I have a couple of questions for you. The first one, just a follow-up question about the gross margin. So back to March, As you said that perhaps some dividend this year will be about 25% of gross margin. And you said this in March And maybe next year, as Mr. Guo said, for the new projects, about 20% of margin, and it will hit about 20% next the year. But so one thing, I'm confused. So in the presentation, you talked about the channels, diversified channels of land acquisition. I just feel that if it is 20% of land acquisition, then it will be the same as the whole average. So you spent so many resources in acquiring the renovation projects. You also had a lot of TOD projects. So in this case, I just feel that you don't have any practical in terms of accounting, it is not meaningful. So if you look at the Nanjing TOD project, we did the calculation. So taking the upper price, So we could actually, could you realize 30% of gross margin? So my follow-up question is that looking at the gross margin, how should we look at it? This is the first question. The second question is that for the growth of profit, what is your opinion? What is your take? The 14th 5 year plan, your target is double. So then so they must maintain very high speed for sales increase, about 15%. And maybe you can overhead this target, but if the gross margin erodes their net profit, then how do you think about the profit growth. I just feel that for the 1209, it's growing very fast. As Mr. Li said, now it is a new a driving force of profit growth. So do you think that the net profit will also grow faster? Two small questions. In Hong Kong, you have a lot of high end projects. I just want to know that in Hong Kong, what is your launching plan? So Your first question and the third question will be I will take them. And the second question will be taken by Mr. Wo. So my understanding regarding the first question It's about the non public markets. For example, the M and A actually is the renovation projects. The Atlantic acquisition, the gross margin could be higher whether our margin overall will be improved. So actually, whether can we improve further improve our gross margin? Personally, I think So for the municipal renovation as well as the M and A projects, so actually, you can take reference for the auction land auction practice. Definitely, the gross margin will be is higher. But as for the project acquisition and municipal renovation, It takes a longer time to implement and there are some uncertainties in this process. We hope that from our strategic point of view, we hope that through a diversified land acquisition channels From the investment point of view, we can realize the higher gross margin for the investment for the development projects. So better land, the higher gross margin. So this is the direction that we are looking for. This is also our vision. So secondly, So I said it repeatedly about improvement of the system building as well as the high efficiency in production operations. So this is also very important measure for us to improve the gross margin. So we actually have been doing a very good job in this area. But comparing with the benchmark in the industry in terms of reducing the costs under fees. The selling fees sales fees and SG and A as far as the cost management of residential properties and the cost management of the city complexes, there's still a big room for us to improve. So I think so as Mr. Guo talked about the macro trend of our gross margin. And what I'm talking about now is about regarding your question, what we do internally, We do the investment well and then we'll enhance our control measures internally as well as efficiency improvement internally. So that as I said, in terms of our management, we don't have any extra skills. We are simple and we are pragmatic. So we hope that we do better job so that we can return the improve our returns to our shareholders. Your second question about the projects in Hong Kong. We are launching the projects in Hong Kong according to our schedule. So the Keita project will be launched next year. As for other projects in Hong Kong, they will they are undergoing according to our schedule. Our investments in Hong Kong And as all analysts know that the developments of those projects in Hong Kong, the cycle development cycle is longer. And basically, so it is still within it's within our schedule. The most important, the first project for KEDA. KEDA will be available for launch next year. Thank you, Mr. Guo. So a little bit about more about the gross margin. So Just now I talked about the gross margin for the whole industry. And now I want to add a little bit more. If you look at Sierra Land, you have to look at our gross margin overall. Let me share with you some data for their self holding properties, hotels, office buildings and they probably would excluding the long term rental, the gross margin is 6%, 9%. And this business size is getting bigger and bigger. And in June this year, we can realize KRW 18,000,000,000 of rental in the 14th 5 year plan with 20% of growth is no problem. So this is expectable. For the operations properties, So this morning, you maybe you listened to the results announcement of MiX Lifestyle. The overall gross margin is about 30%. So putting all these business segments together, so we're different from other developers. You can estimate that you can expected that our overall gross margin will be around 25%. So in the long run, it must be above 25%. Maybe for one particular year, it is a little bit below 25%. But in the long run, by average, it is will be above 75%. Our business revenue this is above JPY 200,000,000,000 and with 10% of growth each year and 25% of gross margin, then the gross margin will be about JPY 75,000,000,000 plus what Mr. Li said, say, in other business, we did some adjustments, for example, cost reduction, efficiency improvement, then the net profit will be even bigger. So looking If you want to look at the profitability and the profit making capability, you must look at all these big business segments together. So this is my additional opinion on the gross margin. You talked about the profit growth during the 14th and 5 year plan. During this 5 year plan, so be it the development project, the business segment or so at the end of the 5 year plan, there will be realized about a JPY 30,000,000,000 of rental revenue. So under the pandemic, It is very likely that, of course, the impact is still here, but if things is good and we can realize that this target, no problem with that. As for the development properties, So looking at the first half as well as the whole year performance, so we don't see any difficulties of hedging our target. So at the end of the 14th 5 year plan, the CAGR will be around 15%. And currently, we still have some resources, including the resource our reserves for sales as well as financial resources. In the market, there are some new changes in the future. There will definitely be new opportunities. So in the public market, we acquired land during the 14th 5 year plan. Our business revenue and our core net profit growth, It won't be easy, but definitely, there will be new opportunities in the market. So in 2021, So in the past few months, we have already seen some opportunities, including what is acting in my report, the M and As and the a very reform and diversified land acquisition. So currently, we feel that it's very likely that we can hit the target for the 14th 5 year plan. Thank you. Thank you, management. Next question, please. Next question is from Griffin Chan of Merrill Lynch. So Mr. Li, Mr. Guo, good afternoon. So I'm Stephen and I have 3 questions for you. The first question, Just now, Mr. Li said, it's about the motivation. Do you think that it is very important For the headquarters for different regions, you have So can you please talk share with him more about your plans? And for the options option plan, So how do you plan and how do it? So the second question about the social responsibility. Recently, People may have already heard a lot about getting rich together. For Sierra Land, when you feel your social responsibilities, how what is your take on the Getting Rich Together policy? What does it mean to Sea Island? This is the second question. The third question is about the municipal renovation. Recently, there's a new policy about the dismantling and construction policy for the municipal renovation? Do you think that the new policy will bring some impact to it? I will take your second and third question. And our Mr. Wuichi, our Chief Human Resources Officer, So about social responsibilities. Your question is about getting rich together. For this topic, I think there's nothing wrong with this policy. Talking about getting rich together, to put it in a simple way, So must I have a bigger middle class in the middle part with the medium to high level of income. So this is important for the policy for getting rich together. So with a bigger middle class, we can bring along the poor to get rich as well. China's economy in the long run, a bit dramatic. So we have the dual circulation policy under our economic growth from mid- to long term, expect to grow very fast. If you look at our GDP growth in the first half, it's over 10%. And definitely not problem with this 6% to 8% of GDP growth at the end of the year. Stable, healthy growth in the long run of Chinese economy, We'll definitely bring along the income level improvement for the citizens so that people can get rich together. I think So don't get mistaken about this getting rich together. So it's not right to think it differently. So this is what the government has built the whole society to let people more people be rich a and so that they can live a better life. So from this perspective, this is my understanding of getting rich together. I think for the real estate market, consumption, living and the improvement of living. These types of demands will definitely be bigger and more. And as for the consumption upgrading, we will also see more demands for that as well. A so this is my reply to your question on the getting rich together from the real estate and consumption market point of view. Your the third question is about the municipal renovation. Our key market for the city the municipal renovation is mainly from in Shenzhen, Guangzhou, Dongguan in South China, some key cities in South China. And currently, all our projects are undergoing normally without any influence from the market. And a lot of projects will have involvement from SOEs. So why we deal with the governments because the government believes the strength from the SOEs as well as the reputation, the fund the capital strength, so less of both. So the government is more confident on SLEs. As for the dismantling under construction practice, the government doesn't encourage a massive dismantling under construction because they worry that some projects may cannot be completed well. This doesn't mean they sell land at all. So next Mr. Wubishi will take your third question. So let me try to answer your third question. Just now Mr. Li emphasized repeatedly that the organizational change and patient change. This is the key driving forces for CR Land with the purpose of improving the organizational capability and making sure that we can realize our goals for the 14th 5 year plan. We have considered about the organizational structure the personnel structure as well as the remuneration structure or compensation structure, you talked about the regional, the headquarters and different affiliates of the relationships. So we will simplify the whole structure. And from the headquarters to the region big regions to the cities, we will set up 2 tier 5 headquarters so that we can keep improving additional capabilities, so the headquarters will build up the professional and expert based platform. For the big GL, they will set up a business performance platform to fulfill the business performance requirements. As well as the cities, the opportunity teams, they will deliver the results. So we will also look at our talent as well as the evaluation and the compensation system. So we will return the best performance and frees out those poor performance. From the headquarters to the lower level, we emphasize about the result on rate motivation mechanism. Dependent on your contribution. We explore the option plans as well as some specialized the bonus system to making sure that from short term, mid term to long term, we'll have the different motivation methods so that we can realize our business results. Thank you. A. A. Next question is from Merrill Lynch, Thank you, management. I have two questions for you. The first one about land acquisition. Recently, the central government issued a policy for the key developers. Every year, the money they spent on land acquisition must be within 40% is of the sales. So according to my calculation for Zealand, it's already over 6%, including IP. I just want to understand what are the percentage points, respectively. What will be a land acquisition policy? What will it change? And so how can you guarantee that you can hit the 14th 5 year plan goals? 2nd question about costs. So I said now that people concerned about the cost. I realize the cost rose very quickly. Of course, the sales also went up very quickly, so which is in line with each other. What about the cost increase over for the whole year? Available. Our Strategy Officer, Mr. Xiao will take your question. The second question will be taken by Mr. Huo. Your first question It's about the land policies, the eligible land acquisition cost from central government's policy within 40% of the eligible sales. So actually, this has been a reference for all the developers. Definitely, recently, from the central government point of view, this reference has been further become more and more specific. So as for the Sierra Land, some of this quarter is put into the IP part. So for Sierra Land, if we put aside the IP part and according to the central government's requirement, a clear way it is 40% for Xia Land as well in the past year. Sometimes, it's a little bit above 40%, sometimes below 40%. So since there is such a requirement for central government for Sea Alliance investment for our investment strategy, This doesn't influence much. As for the whole market, this policy If we implement this policy strictly, this may lead to the fact that some developers, If the equity the equitable the land acquisition cost is above 40%, then those developers, they will have less capital to acquire land. So I think the purpose for the central is for the central government to stabilize the land cost. A so therefore for Xia Land so from a land acquisition point of view, it is in our favor. A let me take your second question. It's about the cost and the fees. And for the This is a very good question. So just now Mr. Li already said that during the 14th 5 year plan, also considering about the gross margin and improving the core net profit. The SG and A increased by 39%. Management cost increased 39%, and the sales cost increased 27%. So for the contracts assignments for the contracted amount increased by about 40%. So the SG and A compared with the previous year dropped a little bit? And so there's another point. So we are different from we did some comparison with other developers. In terms of SG and A, we do have some room to further reduce it. In the future, for our business mix, for example, The shopping malls and the hotels and so forth, once it is open for business, particularly the hotels and labor intensive, residential properties also labor intensive. Every year you open a new property, you need to engage more people. So your management fee will also be more. So that's why you can see this is just increase. In the future, through the organizational change by benchmarking with the payers and learn from others. We will take the synergy cost reduction seriously. So in the second half, we hope that the SG and A can be managed better than the first half. So through the organizational change in the future, For example, at the end of last year and the first half of this year, we already started to change our organization, hoping to have a better efficiency. So next year and the year after next year, you can see that the our efficiency will be even higher. So that's why we also we take these 2 causing the fees very seriously. Thank you. Next question is from Daniel Wong of DBS. Good afternoon, management. I'm Daniel Wang from DBS Bank. Two questions for you. First question is about land acquisition. So for the green category of developers, you have 15% room, right? So compared paired with other companies in the first half. In terms of land increase, you have already used all your quota. So my question is, so in terms of debt increase, what is your take? In the second half, People usually think that there will be more opportunities for land acquisition in the second half. Do you think that you're going to issue more bond, more debt in order to acquire land. So my question is, will you maintain the same speed of land acquisition, are you going to increase more debt in the second half in order to acquire more land and have more sellable resources? This is the first question. The second question, just now you talked about M and A in the hybrid for Mercedes and so forth to help with the 14th, 5 a plan. So in the M and A market, there are more and more opportunities. So Do you think that so what is your strategy for MNAA? And would you consider some big developers in the industry acquiring some assets or assets packages? Because there are some rumors in the market saying that there will be some massive MLAs? Thank you, Daniel, for your questions. I will take part of your question less for the first question. Mr. Kuo will take the debt part and will take your second question as well. In the second half about the speed of land acquisition. I don't think it is appropriate to say it fast or slow? Because the land supply policy is different. It is changing now. A for Sea of Land as well as other developers, we are facing with new land supply policies. And there are challenges as well as the capability challenges for our capabilities as well. So this is the fact This is reality. So the premium rate maximum of 15%. Otherwise, we will have the lottery model over the bidding. So this is a new policy, and it will be in place just like normal practice. So in terms of land acquisition capability for CR Land, we must set up our own standard a bug and how to compete. This is something we will have to do now. Secondly, in the second half, talking about our investment, we will definitely put returns in the first in priority. So when we look at an opportunity, this involves which cities to go. It's not that we go to every city once there is land supply. If it fits for our strategic focus and then a goal will be considered a goal. If the return estimation is suitable for us, If it is at the right location, in the right city and for the right target customers, and then we will consider. So these are the things that we'll consider. These are the overall considerations for us. So this is the more dynamic. A so this is the second point. The third point is that financial prudence is always important. So if you look at our ratings, The BBB, this is the bottom line for us. For the CR, we have a 3 plus 1 business model. This is our positioning as well. So we will choose the right targets. In the second half, we will maintain our own investment strategy and pace of investment to choose the right target and go. About hybrid reform and MLA, true that there are a lot of opportunities. We have already conducted discussions with some of them. I believe that in the future, the major direction will be from the project based M and A. This will be the mainstream practice. The hybrid reform of SOE platforms. This is another mainstream direction. So in terms of M and A, we will not take too many risks. So for M and A, we will be keep prudent yet productive. Let me take your debt related question. In the balance sheet, you can see that so we have different constraints about the debt level. So according to Moody, if you look at the ratings, we have different ratings from different organizations. So for the 3 red line, we have to follow the 3 red line requirements. For the green category developers, you can only increase 15% of new debts. We have already issued about 12.5% of new debts already. So we don't have much room to increase more debts. And in addition, I want to say that in addition to that in order to sustain our development, for example, the renovation, the land acquisition, we need more resources. So we need to optimize our structure. Internally, we have to control the cash flow well, including, for example, the assets we're holding. And for the low efficiency stock, we have to deal with them a while. Thank you, management. Next question is from I have three questions for you. The first question, I just now talked a lot about diversified land acquisition channels. So I want to take this opportunity Why asking is that because you have been operating Tier 1, Tier 2 cities where there's a centralized land supply now. So On behalf of the capital market, I just want to ask you, so what is your take on the a 2.0 version of centralized land supply? How to control the land cost? Is it through the lottery only to control the land cost? Because perhaps there will be additional cost it through the centralized land supply? If it is through lottery for the developers, how can they maintain their competitive advantage? For the leading developers, they may not give full play to their competitive advantage. So what is your take on this? So under this centralized land supply policy, what strategies do you have if they want to control their real land the price for the leading developers. Do you think that there will be some influence to it? This is the first question. The second question about diversified land acquisition channels. So actually, we have already seen that for the SOEs, They do have advantage in getting land, but along with more and more competition in the public market, So do you think that the private companies will also try such the diversified land acquisition channels? We have felt that the SOEs have the advantage. Can you please elaborate a little bit more on that? In terms of diversified land channels, what is the entry level? So how To what extent do you feel that it is safe for you, you don't feel any challenge from the private companies? The third question about retailing. So while the pandemic is improving, the overall situation is improving, have you seen that any change of the retailing sector, for example, the heavy luxury sector. So do you think that it is improving? So why are We're recovering from the pandemic. Have you seen that the retailing growth is higher? Thank you for your questions. Land acquisition diversified land acquisition, I will say Mr. Zhang Wei will take these two questions about the retailing structure and the retailing under the pandemic. Mr. Yiling Kang will take this question. Your questions about land acquisition. If I do not answer your question, while you can follow-up your questions? My understanding is that we have the 2.0 version of our centralized the land supply for the purpose of controlling the land price and 15% of our premium, you may choose a lottery to get high quality of land. So for this so you must we must follow the 1 city, 1 policy scheme from the a scheme from the central government. For XER Land, we hope that we can follow this a practice. And from the product efficiency and the return perspectives, we can improve our overall capabilities and the return levels. We hope that from the 14th 5 year plan, the production operations, the improvement, we can keep improving our organizational capabilities for all teams. So along with the 2 controls and the three improvements. We can cope with this opportunity under challenge. Well, we think that it is more like an opportunity for us. 1st, they'll keep improving our overall performance and the efficiency and quality as well as returns. At the same time, control the risks and well. So talking about the improvement of efficiency. So for example, improve the launching efficiency, the delivery efficiency, a so that we can have a higher level of efficiency performance. In terms of quality improvement, So through high quality of our plans, we can keep improving the satisfaction from our customers, the delivery of satisfaction of all the customers' satisfaction as well as their products quality. So this is a strategic theme for us so that we can keep improving our product level. For Sierra Land, we have 30 projects. So those projects are the results of a diversified land acquisition. The those projects are also more marginal with higher profit margin. So they are the benchmark projects in the upcoming 2 years. So through these projects, we can reshape our products. And through reshaping of the products, we can settle, establish our own product lines and standardization, we will also research on the customers as well as the centralized purchase of engineering projects, so that we can keep improving the efficiency as well as the product competitiveness. Through these measures, we can raised, we can keep improving the quality, the returns and efficiency levels so that Sierra Land can be more competitive. So if this transfers acquire land, albeit at the high quality be at the lottery or not. So we hope that we can keep improving our own efficiencies. I hope I have answered your question. Let me take your question about the retailing part. From the outbreak of the pandemic last year. Everybody knows that in Mainland China, we are so far, we are the best in preventing the COVID-nineteen. From the second half last year, a in the retailing market, we already saw a recovery of the retailing market in this first half, along with better controls of the COVID-nineteen, the different business are showing very good recoveries and strong growth. Of course, so if you look at the different business segments, the entertainment sector is the one that has the highest level of growth. So of course, because of the control measures last year? We didn't have a lot of indeterminants and the cinemas were closed. A lot of indeterminants activities had to stop. So a lot of our businesses had to stop because of the pandemic, but now everything is recovered. And we we saw 25 2 50 percent of our growth in entertainment sector. But for other business sectors, including the comments and personal care and so forth, we saw high a growth as well. So just now you said you mentioned about the luxury brands, international brands. The growth compared with the same period last year is over 100 is 107% of growth. So this is overall growth as we said just now. For the heavy luxury shopping malls. We had 88% of our growth than the same period last that the non luxury shopping malls also 84% of our growth. So this is an overall recovery free in this business sector. So this is also a comprehensive growth for the retailing sector. You also mentioned that according to our observation in Hong Kong, as though the border restrictions is not are not lifted yet. And we noticed that in the news that the border restrictions will not be lifted until March next year. As we communicated to you before. So even though the pandemic has controlled very well in Mainland China, but internationally, international traveling there still a lot of difficulties? So the longer the borders are closed. I believe that the consumers' consumption behaviors as well as our membership system, this coverage as well as the services we provide to the consumers. So we believe that we will continue providing services to our members when the pandemic situation is better. Our overconsumption momentum will not be influenced that much. Thank you. A. Thank you, management. For the interest of time, I would like to invite the last question. Thank you. The last question is from Haitong, International MD. Good afternoon, management. I just have a small question for you. This year, you spent about JPY74 1,000,000,000 to JPY 4,000,000,000 in land acquisition. Andy, I'm sorry. Can you speak up a little bit? We cannot hear you very clearly. Can you hear me now? Okay. Better. I noticed that this year, you acquired more land, about JPY74 1,000,000,000 in acquiring new land. Last year, it was that the RMB 39,000,000,000 for land acquisition the whole year? So I just want to understand, so this such increase for land acquisition expenditure? What is the rationale? So our Chief Strategy Officer, Mr. Xie will take it. Thank you. So this figure in the first half, the attributable is about JPY74 1,000,000,000,000. We have our partners with the actual sale equitable land acquisition. If we put aside the partners, Our own expenditure is about RMB63 1,000,000,000. So this is number 1. Secondly, in the first half, we acquired more land. It's true. A so generally speaking, those are high quality of land. So for example, the 85% of them are for residential buildings. Therefore, residential percentage is very high, is the ideal one. For land acquisition, for the strategic shopping malls, we acquired in Zhengzhou, Changsha, Hangzhou, Wuzhou, Shenzhen, Shenzhen, Nanjing, so on and so forth. The 6 strategic shopping malls. And some of them are actually a result of a long term discussion and we bought it this year in the first half and a very good opportunity for us. So that's why we acquired those land pieces of land? And the third point is that we will also just now for the net profit of the sales properties is something between 11.4% to 11.5%. That's the net profit margin for the land we acquired in the first half. This is the net profit margin, which is also very good. So generally speaking, in the first half, we implemented our strategy of the result oriented investment strategy. We captured the opportunity from we look at our we also fulfilled the financial stability requirements when we acquired land. So for the first half, for all the land we acquired, generally speaking, they are very they have very good quality. And in the second half, along with the government's determination of stabilizing land cost, according to the 3 lines, 4 categories of the 2 centralization policies as well as the attributable the contract volume as well as the land acquisition expenditure requirements. We think that in the second half, the land acquisition may go low. And in the first half, we captured the very good opportunities and we enriched our land bank. And at the same time, in July June, July August, we controlled our pace of land acquisition progressively so that we could be more cautious in line acquisition, particularly in the following month, in the second half of this year, along with the price going down. So that we can keep an eye on the better opportunity in the market. So in the first half, we did a good job capturing the opportunity. Meanwhile, we were also watching very carefully for the second half. Thank you. Thank you, management. It's almost time and it's about 1.5 hours of interim result presentation. Thank you very much for all the questions from our investors. This is the end of the interim results announcement. If you have any further questions, please feel free to contact our IR team. Once again, thank you very much Thank you for your support to Sierra Land. I hope that you are satisfied with the company's performance and hope that you are also satisfied with the communication today. Thank you very much.