Earnings Call: H2 2020

Mar 30, 2021

This is the 2020 Annual Results Announcement by China Resources Land Limited. Thank you for taking your time out of your busy schedule to participate. First of all, allow me to introduce to you members of the management today. They are sending their regards from Sunshan. We have Mr. Li Xin, the President. Good afternoon. VP and COO, Mr. Xiaanda Wei, Executive Director and Chief Strategy Officer, Mr. Sheyi Mr. Bo Shu Qing, CFO. So there are 2 parts to our presentation. We'll hear the management to talk about the performance of the year, followed by Q and A session. I would like to remind you that you can raise questions. And if you are calling in through a telephone line, you can press star 1 and wait for further instructions. For those online investors, please input your questions in the chat box. We'll profile our responses altogether at the end. Mr. Guo will present the whole year performance. Mr. Guo, please. Tianan fastest and analysts. Good afternoon. I am going to take you through the performance of the Onland in 2020. In 2020, we achieved solid results and enhanced shareholder return amid very challenging environment. If you look at all the indicators, we are way beyond expectation level of revenue, JPY 179,600,000,000 rental income, JPY 12,800,000,000 up 40.5 percent attributable net profit JPY 29,800,000,000 core net profit, RMB24.1 billion, EPS RMB4.18 and EPS up by 26.5 percent to Hong Kong dollar 1.48. 2020, we saw growth in terms of key businesses. Shareholders' return dividend payout ratio also increased. DPO revenue increased by 23.5 percent. IP rental income up 4.5 percent. Core net profit up 11.6%. Dividend payout ratio increased to 37%. EPS increased 26.5% year on year. If you take aside the inventory depreciation factor, the GP margin 30.8%. Because of such pressure, our company has adopted a number of measures to enhance efficiency, lower our cost and enhanced overall quality. So we're talking about 2,600,000,000 impact on our core profit. Showing affected the bookable profit level. Because of the effectiveness in our various policies and measures, this. We're able to lower the levels of various cost factors and also fees to ensure double digit growth for shareholders' return. Full year dividend ratio increased to 37%, earnings per share, JPY1.48 or JPY1.48. And we have realized DP revenue, JPY 157,100,000,000 up by 23.5 percent. Booked GFA increased 30.5%. Booking ASP, RMB 15,063. The 3. Tier 1 city revenue contribution decreased by 7 percentage points, 35% revenue contribution from top 5 cities. We saw a strong rebound in shopping mall business, driving up our annual rental income. IP revenue up 4.5 percent to rmb 12,790,000,000, with shopping malls being our core assets, accounted for 73% of fair value and 79% of rental income, up by 3 percentage points. Rental from shopping malls reached rmb10.09 billion, up 7.9%. If we exclude rental concession impact, rental growth could have been 16.2%. Rental income dividend interest ratio reached 0.84. Within 2 years, CRL is going to be the one developer whose interest and dividend can be fully covered by our rental income, demonstrating strong resilience of our business and asset ratio. So beginning from the year 2000. We have seen very good growth of our rental income level. By 2022, we'll be able to become this strong leader in the market. So we are going to really standout in the market among our peers. We are going to have very strong support for our business development in the future. We have a strong balance sheet, green zone on the 3 red lines policy and also sufficient financial resources. By the end of the year, cash and cash equivalents up by 38.3 percent to RMB 89,500,000,000. Total debt up by 22.6 percent, well, net interest bearing debt to equity ratio stayed low at 29.5%. As a green zone company under the 3 red lines policy, there's still ample room to further improve our performance. During the year, Sten and Paul's Moody's fish rating maintained at the previous credit ratings. We further optimized our debt structure in 2020 and funding costs reached new low. Sector low funding costs at 4.08%, 0.37 percentage point lower, the lowest in the company's history in the past 5 years. Now let's look at our business review. First of all, contracted sales. GFA and ASP driven contracted sales growth leading annual target and maintained top 10. Our contractor sales went up 18% to RMB 285,000,000,000. Attributable contracted sales went up 14% to RMB 186,000,000,000. Seven Cities contracted sales over RMB 10,000,000,000 contribution from Tier 1 and Tier 2 cities accounted for 85%. Ted ASP exceeded 20,000 per square meter, up 9.8%. Shopping mall performance going above expectation with higher efficiency in yield. Rental income 45 core shopping malls exceeded RMB 10,000,000,000 for the first time, an increase of 7.2% year on year. Occupancy rate remained high at 94.7%, retail sales up by 14.3% JPY 3,800,000,000 gross profit margin maintained stable at 72%. EBITDA yield improved to 8.8% with higher floor efficiency. Rent to income and retail sales rebound strongly since the second half, thanks to supreme locations and operations. Rental income and retail sales from shopping mall increased by 26% and 34% year on year and recorded same store rental and sales growth of 15% 19%, respectively, in the second half. Retail sales from Luxury shopping malls accounted for 46% of the total and increased by 52% year on year in the second half. The growth momentum continued in the 1st 2 months in 2021, with average increase in rental income and retail sales ceding 41% 63%, respectively. Again, the retail sales from Luxury Shopping malls increased by 78% year on year in the second half. Our rental and retail level for February this year is based on the same level of growth compared to same period in 2019, it is because of the pandemic, so it is for reference only. The Big Motion Shopping Mall Business, we have comprehensive strength ranking 1 among for our 19 shopping malls out of 4536 out of 45 shopping malls, they ranked 1 and top 3 in retail sales in their respective cities. We have leading position in scale with a total of more than 100 malls in operation plus pipeline with total GFA over 11,000,000 square meters. We have 3 differentiated product lines, MixmixWell and MixStone. Leading position in mid to high end mall operation with biggest number of luxury shopping more than luxury brand stores in China. We're operating cooperating with more than 5,000 brands or more than 80 luxury brands close to 15,000,000 VIP members and the member consumption increased 8.2 percentage points to 53.7%. Our rental income from malls with different maturity recorded steady growth even after the pandemic and rental concession impacts. And then we have improved efficiency and profitability, increased rental income and occupancy rates for offices. Rental from office business increased 15.5 percent to RMB 1,600,000,000. Occupancy rate increased by 6 percentage points to 82%. Gross margin remained high at 72%. This is very difficult to achieve against the pandemic, and this is also closely related to the office strategies of our company. We focus on core cities, locations, ensuring high quality and performance. By the end of the year, we have 22 offices in operation with GFA approximately 1,300,000 square meters, 100% in Tier 1 and Tier 2 this. For hotel business, after the pandemic hit, we currently have more than 30 hotels, 13 of which are on operation. Each hotel and operation stands leading position in their respective cities. In 2020, rental income from hotel business reached JPY 1,090,000,000 with a gross profit margin of 8.4%. Other than our hotels under operation and management, which cover 30 odd, already have 13 hotels in operation. We have strong growth and our CRMIX lifestyle delivered satisfactory results in the 1st year of listing exceeding market expectation. They went listing successfully and being the year's 3rd largest IPO on the Hong Kong Stock Exchange. After listing, PE ratio is leading in and market cap exceeded JPY 100,000,000,000 after 1 month of listing. It was included as a constituent stock of Hang Seng Composite Index any constituent stock of Hang Seng Shanghai Hong Kong Stock Connect Greater Bay Area Composite Index. In 2020, revenue increased 16% to JPY 6,780,000,000. Core net profit increased 148 percent to JPY 800,000,000. Gross profit increased 94% to JPY 1,830,000,000. Proportion of area under management for the group and third parties increased to 23.7%. We synergized with key businesses for future growth and land acquisition fostered new growth drivers. Turnover in the year was JPY 15,360,000,000 excluding business within the group, with urban construction and creation business revenue accounting for 97%. The next 5 years, Ecosystem Elementary Business will join as 3 key business to build a comprehensive capabilities of urban investment development operation for the group to support the growth of our main business and to develop with self sufficiency while contributing the brand influence of the company. We also have sufficient total land bank with optimized structure support the company's sustainable growth. 58,200,000 Square Meter DPU Land Bank by the end of the year. The proportion of land bank in Tier 1 cities increased by 3 percentage points to 11% year on year and better quality. During the year. The newly added land bank GFA reached 14,920,000 square meter and the newly added attributable land bank GFA was 11,480,000 square meter with the GFA attributable ratio at 77%. The land bank GFA of investment properties reached 9,880,000 square meter with shopping malls accounting for 59%. We focus on strategic cities. Shopping mall business focused on 30 core cities, including Beijing, Shanghai Shenzhen, Guangzhou, Hanjin, Chengdu and others. JFA. And high tier cities accounted for 77%. By the end of the year, the IP business had exposure in 60 cities basically completed our nationwide core city expansion. Now let's look at the 14 5 year plan outlook. We will focus on developing the comprehensive capacity of urban investment development and operation with 3 +1 integrated business model. The 3 refer to our development property business, investment property business and asset light business. And one represents our ecosystem. For the development segment, we cover residents and public area, and they are main contributor to our revenue. Our target is to be top 10 developer in contracted sales. For investment side, we cover shopping mall offices and hotels. They are main contributor to revenue and cash flow. We want to be number 1 in comprehensive strength of shopping mall. Our shopping mall capability is already number 1. For asset light business, we are talking about China Resources Mixed Lifestyle Services Limited, and we want to be the most influential and number one brand name. We will synergize with our key businesses for future growth, and we will synergize with key businesses for land acquisition and cultivate new growth, Paul. Our ecosystem includes urban development operation, leasing apartment, industrial senior housing, cinema, theater, education, etcetera. During the 5 year, we will reshape CRL and sustain high quality growth. We expect to double the attributable contract sales and rent to income by the end of 2025. So this is the initial target. At the moment, we have JPY 12,800,000,000. The whole year target is JPY 25,600,000,000. So by 20 25. We believe that the rental income will reach 30,000,000 yen 30,000,000,000 yen or even higher. We have abundant and high quality sellable resources supporting full year targets. Sellable resources is RMB 505,000,000,000, 81% is from Tier 1 and Tier 2 cities, 69% from residential product, 62% from new launches. We have abundant saleable resources supporting our sales target in the year 2021. We also have high visibility for sustainable growth. Rmb 272,800,000,000 yen already unbooked. Contracted sales by the end of the year, rmb 157,600,000,000 yen to be booked in 2021. Bookable area remain high for the next 3 years, ensuring steady growth of the company. During the 5 year period or by the end of 2025, number of shopping malls will be doubled, focusing on key cities for penetration. Number of shopping malls in operation should be over 100 by the end of 2025 with a total GFA of 11,000,000 square meters, 77% more in Tier 1 and Tier 2 cities over 50% in the 4 city clusters and complete penetration in 20 cities. Towards the end of the 5 year, number of office buildings operation will be doubled with focus in core cities. There will be more than 40 office buildings in operation with total GFA offered 2,900,000 square meters, close to 100% in prime areas of Tier 1 in 2 cities, covering 70% in 4 city clusters. Now let's look at corporate responsibility. We have long term commitment to shareholders. Share price has significantly outperformed the HSI over the past decade. DPS growth driven by stable EPS growth and increasing dividend payout ratio. 2020 was an unusual year, so we have conquered challenges and fight against the pandemic. We have taken initiatives to protect operations of 600 1,000 clients during the pandemic and offered 940,000,000 rental concession benefiting 13,000 odd tenants nationwide. We fully utilize the Internet, big data intelligence technology and other means to launch CLL sales office, which have programmed developed new function of our mix app a launch of digital sales and distribution intelligence to quickly resume work and production. So if you look at our ESG indicators, it improved. And electricity consumption and comprehensive energy consumption decreased by 1%, while total green building certified area increased by 24%. We sustained GRESB rating at 4 star level. And we've maintained very good performance and rating for other indicators. Finally, you can refer to some major data and appendix for your easy reference. I won't cover those details. This is the end of my presentation. Thank you. Thank you, Mr. Guo. Now we are going to enter the Q and A session. Please tell us who you represent and your name because of time constraints. Please do not ask more than 2 questions. Let's bring in the first question. We have Eric. I'm Eric from Chongqing. First of all, congratulations for very outstanding performance. I have two questions. Mr. Kuo talked about 5 year plan targets. So I can see sales and asset level also doubled. So it seems synergized, but what is the logic behind it? It may not be totally consistent. If you look at sales, based on our business model every year, we are keeping the leverage ratio with our further expansion. We have 50% to 55% of the cash returned to the business to acquire land. So we're talking about very healthy and reasonable level of growth. But rental income, 15%. So it seems that the rental target is lower. So logically speaking, the rental enhancement should also include factors like inflation. So it should be even higher. If you look at annualized growth, it is standing already at 20% last year, and that is after rental concession. So it's been affected by the pandemic. So if your target is only 15%, but your growth is to have the size doubled. What is the logic behind this? Can you please provide some further guidance? 2nd question, concerning land acquisition. How are you going to protect gross profit margin last year in terms of land acquisition compared to the previous year. You were more focused and deeply rooted for these cities that you want to acquire land from. They have fierce competition. So how can you more effectively protect your GP margin? And what about the profit margin in the future? Can you provide some guidance? Okay. Thank you. For the first question, I will ask Mr. Kuo to respond. And the second question, I will take it. And Mr. Hsieh will supplement. All right. Concerning the 5 year plan, yen 12,800,000,000 is the target. So rental level has to be doubled. Actually, last year, we already mentioned It should be more than doubled because if you calculate the CAGR level, it's between 20% to 30%. So initial assessment is that we can reach 30,000,000,000 yen and the growth level is more than 20%. If there are even more positive developments, we may even exceed that level. So at the moment, For shopping malls, we may see 30% growth. So that is growth in terms of volume, and that's been growing for many years. In terms of volume growth, we will continue to expand by 50 shopping malls in the next 5 years. So to be conservative, the CAGR growth is more than 20%. If we do well, we can go up to 30%. For offices and hotels, we are also talking about the same growth momentum. Volume will be doubled. For offices and hotels, the growth momentum will not be as high or as quick as the shopping malls. So combining all three, we are talking about 20% to 30% range of growth. By 2025, at least, we should have JPY 30,000,000,000 rental income. This level of cash flow is more than JPY 20,000,000,000. Rental income will cover the EBITDA and also interest rate and dividend. So in terms of our cash flow, there is a security in terms of its growth. I will talk about our plan and future acquisition of resources and how that relates to interest rate level. Under macro control measures, more developers investing in Tier 1, Tier 2 and core cities. So we understand this direction. The JP margin for 2 tier cities, It is going to be reducing over time. If you look at CR Land, in terms of resource acquisition, we have core strategies to do the preparation beginning from 2020 in terms of land acquisition. We have been insisting on our core strategies. We'll continue to adjust our structure. That is during the 12 5 year plan in terms of resource acquisition. Those were the arrangements we made. We were focused on our deepening strategies. And also we focused on 4 strategic areas: Guangdong area, including Macau and Hong Kong, Anzio River Delta, major city clusters so as to make strategic investment arrangements. Secondly, in terms of land acquisition, it was more diversified in terms of our channels. Last year, we got substantial breakthroughs and progress. For example, urban renewal, we have done some speeding up. Last year, recovered Changan project, Shenzhen project and also another project in Sichuan and a new hotel return such renewed resources to sellable GFA, achieving very positive GP margin. So similar projects in the future, we have also done some preparation work. So if you look at our land bank, we are talking about 210,000,000,000 yen in the next 5 years. We can convert another 150,000,000,000 yen to 200,000,000,000 yen. GP margin for such projects will be higher in general. For the group to obtain land, beginning from last year, we have been promoting group level synergy. So in this regard. We have also achieved some breakthroughs. For example, in Shenyang last year, we have this thermal plant And the saleable level, more than RMB 60,000,000,000. And then Xuhua project in Shenzhen for Baoyuan area. It is also the city center. Net profit, 12% to 15%. And there are other business units that have been modularized. Thirdly, using our redevelopment and reoperation model and capability. We obtained further resources. We got Chengdu, Donganhu project and also in Chengdu, we have Shilinxiao project and Xi'an, Xixiao project. All these were obtained for redevelopment purposes. They have been well coordinated at the group level. Total value, JPY 7,000,000,000 JPY margin also on the higher side. At the same time last year, we achieved breakthroughs in terms of M and A in Fukuhouta. We setup. City Center Residential Project, GB margin almost 40% or even higher. And we will continue to follow marketization. We'll continue to look into development of complexes. We'll focus on our competitive edge. So we have obtained 7 projects. The return of OIS on the higher side. So it is about acquisition in a diversified manner. In terms of GP margin enhancement, I believe CR Land will continue to follow our long term strategy, which is to build our core competency in terms of core competency, we are focusing on 3 areas. We very capable in terms of coordinating among different projects in different cities. We have done such large scale coordination for urban renewal covering 8 to 9 projects. In South China regions, we cover the greatest volume. So we are well aligned with new development needs for different cities, and we have been grasping different opportunities. This is CR Land's unique capability. Secondly, in terms of industry competition, CLN Land has been relying on our development an experience in the past decade. We have low cost and high quality, and we also have high level of turnaround capability. We obtained land and within 10 months, We are able to deliver the property within 30 months. So the turnaround speed is very high. Our development capability is also outstanding. We also deliver high quality products. So I think we are doing quite well. Thirdly, low capital cost. So in our future development, residential segment, GP margin can be enhanced. Our capability to obtain new assets is also very high, and they will the major drivers for our future business. Thank you. Thank you. Let's invite our next question. Griffin from Citibank. Good afternoon. I'm Griffin Chen from Citibank. According to Mr. Li's response, For city operation, you have gone to Jiangsu and Hainan. In the future, are you confident that you can copy and paste the model in Sanxin. What should we that because other enterprises are competing with you. And from Eric's questions, concerning growth in your profit. Most investors are concerned about development, profit ratio because of the situation in the overall industry, it may be lower. Do you have confidence that you can maintain double digit growth we'll even go beyond that. Fillable already sold GFA but not yet booked. Is there room for further improvement in the future? And worth the support for JPA Margin. Thank you for your question. I will take the first question. And then I'll ask Mr. Guo to take the second question. Turning to city operation. Actually recently, I have visited various cities. See our land after developing for 2 decades, we have already successfully turned ourselves from traditional property developer into development plus operation in 2,005. The first Shenzhen mix was commissioned. It was residential plus investment model. After a number of years of development in 2015, 2016, in Shenzhen Dash Home and construction of another Shenzhen property, we obtained commercial success. We became a comprehensive developer, and we also make investments and operate different cities. So this is regional coordination. We have high level of capability of construction and operation of our properties. In Shenzhen Bay, we obtained success and we have accumulated useful experience. And afterwards, in Chengdu, Xi'an, accumulated further success. So you can say that we have done quite a number of iconic and representative projects receiving a lot of recognition from the local governments. In Shenzhen Dashong project plus Shenzhen Bay project, together with urban renewal work, all three factors combined creating the standard Nanshan model, model city investment and development model. This model in the past 13th 5 year plan together with various local governments, we have done a lot of communication and exchanges, realizing what they demand will be what we can provide. So CR Land is capable and we are the market leader in terms of coordination. We have accumulated a lot of experience and capability. We have high level of cooperation with local governments. That we do regional coordination and planning. This is our outstanding core competency. We'll continue to insist on City Investment Development and Operations. Other than Shenzhen, we will focus on other core cities and regions. We will propel forward sparing no effort. There are different types of cities. Some projects covering large scale superstructure complexes. Some will focus on the cities themselves. And then for the rest, we can also do some regional development, and we can also do a lot of redevelopment work and urban renewal work. We cover key cities. We can also remodel or do some urban facelift. I trust that in the future, CR Land is going to continue to rely on this major channel for our future business development. Our future profit performance will receive a lot of contribution from the site. So the second question. During the 14th 5 year plan, so we're going to do some reading, rationalization, focus on quality growth. Allocating to sales. And during this 5 year plan, we are going to maintain low double digit growth in terms of our competency level. There should be no problem. We have talked about the 3 +1 business model. Perhaps I can explain more. I won't cover the same details. We have shopping mall, hotels and offices. We're talking about 20% growth. It should be well achievable unless there is some serious FX events. And then light assets, CRMIX, it will also be a very important growth driver towards the end of the 5 year. The contribution coming from CRMEX will be quite substantial. Another part, For example, we have certain leasing during this 5 year, basically, there will be good return. For example, for the development side, annual contracts. We'll continue to grow. We'll continue to do restructuring, including newly added land acquisition in 2020. So the profit level will be quite positive. For 2021, we have seen some low profit margin for land acquired back in 2016, 2017 2018. So from 2022 and beyond, the pressure will be alleviated. So by adding all the factors, our core competency will continue to grow. So double digit growth, we feel very confident about that. Allow me to supplement. 2016, 2017, 2018, that was the scenario or the situation in the industry in general. So concerning assets obtained, they were quite pricey. And afterwards, there was some comprehensive adjustment and control measures. So from our angle, we are though rather strong in terms of asset management to ensure our performance will continue to grow. So we have a lot of confidence in terms of management. Thank you. All right. Thank you, Mr. Kuo Let's take the next question. John from UBS. Thank you. I'm John Lin from UBS. First of all, I would like to congratulate for outstanding performance. I have two questions. First. Incentive scheme for 1109 because we can see that from the IPO last year, 200 odd employees and directors joined this incentive package. Do you have anything similar implemented this year. And then it was mentioned about recurrent income. Basically it can cover the dividend payout and interest rate payout. So next year and the year following, do you think there is room for further enhancing the payout ratio? Thank you, John. I will take the first question. Mr. Kuo will take the second one. Concerning 1109 incentive scheme. Indeed, our analysts and investor friends are very concerned about this, and we want to thank you considering this from the management angle. Of course, we hope that we will continue to implement this for obvious reasons. As SOEs, you would understand that we have certain regulatory constraints. But indeed, during the 14, 5 year plan, it is going to be an amazing opportunity for SOEs. There will be certain reform policies for SOEs and CR Land we'll grasp this opportunity to promote incentive scheme for 1109. It has been commenced already. And during the year, we hope to realize it. Thank you. I will take the second question. You talked about rental income. Can that support higher payout ratio next year, 2021? It is possible. In terms of payout policy, we need to balance long term stable development of the company and also shorter term return for our shareholders. So in the future, in terms of shareholder return, we are very concerned about that. Our payout policy, So next year or the year after. We will try to strike a good balance before we make further adjustments. All right. Thank you. Let's invite the next question. Thank you. I'm Ryan from JPMorgan. I have two questions. First about development. There are two levels of philosophy. First, on the sales end, sellable resources grew by 20 odd percent this year. So what about sales target this year? Is it going to grow by the same margin? And then another issue. If GP margin outside Shenzhen is 22%. If you look at light asset investment outside of Shenzhen, what is the GPA margin for delivery projects or sold but not booked assets. For 2021, JP margin may rebound. Where is it going to happen? 2nd question, If we look at Investment Property, this year, There should be a major rebound because last year, we were hit by the pandemic. 4 to 5 years ago, we talked about this plan to spin off investment business. But later on, you stop talking about that. So in terms of investment business, Are you going to spin it off? All major assets all based spend off. Do you have any follow-up or guidance? Okay. Thank you. I will take the second question first. JP margin. Question will be taken by Mr. Kuo. Investment Property, the ongoing during the 14 5 year plan. We have done strategic rationalization and positioning. In terms of business structure, we have 3 plus 1 consolidated business model. 3 refers to Development Segment, Light Asset Business and also Investment Property Business. Development segment. It is simple. It covers residence and public area and then Investment Property will be shopping mall, etcetera, and Asset Light Business will be CR mix. For Investment segment, in the future during the 5 year plan, CLN Land. We'll continue to focus on this business segment. So its development. We have high expectation. For the shorter term. Any spin off for Investment segment all other such arrangements. The likelihood is basically 0. I have another question about GP margin. Beginning from 2019 to 2020, newly signed GFA. We are talking about 20 2% to 25% GP margin. So looking into the future, the GP margin should remain at more or less the same level. We're also talking about land acquisition the low GP margin from that side. 2020, 2021 delivery cover land parcels acquired in 2016, 2017 2018. So by 2022, we should be able to reach 25% level. Thank you. Thank you. Let's invite the next question. From BBS, Wang Shan. Good afternoon. I'm Wang Zhang from DBS. I have two questions. First, about the leverage ratio. Beginning from 2016, the NDRC has implemented a number of requirements in terms of leverage rate show for SOEs. 2020 was the final year, right? After 2021, lowering the leverage ratio in terms of project spin off, Do you need to continue to shoulder any such mission? If the mission it's already gone in terms of your beverage ratio. Do you think there is room for further enhancement considering the current land supply policies and also in terms of adding to your land reserve. So that is about leverage ratio. The second question about your reserve. This year, we have done quite a big reserve. So such impairment has been completed. Is that true? Or do you think We will do further actions within the year. If it is the latter case, what is the level of impairment? All right. Thank you, Wang Dan, for your questions. Will take the first question and then the second question will be taken by Mr. Huo. It is true that the State Council has prepared a number of requirements for SOEs and Sea On Land has gone through 20 years of development. We have been relying on very solid and reliable financial this. This is the outcome of both. So whether there will be further requirements coming from the central authority. It is not totally clear, but we will not go beyond 3B plus rating and we will not fall beyond our financial baseline. So we will continue to be very strict in terms of realizing the leverage ratio put forth by the SESAC. When it comes to flexibility in actual use, of course, we will combined land supply situation and see how controllable things are. And then perhaps obtaining certain good opportunities in terms of land resources, solid and reliable financial policy, 3B plus rating, all combined together will drive us to continue to achieve low level of growth, but this kind of growth is very solid and healthy. Thank you. Well, allow me to respond. According to our previous announcement, between 2016 and 2018 indeed, we've got land resources that were quite pricey. And then the government implemented the policies leading to certain losses. But for 2020, basically, we have already covered such issues. So beyond 2020, this is no longer an issue. Thank you. Next question is coming from Merrill Lynch Mr. Yes. So does that means the contract growth target of this Yes, we will be higher than 15%. That is our target. The national authority It's promoting the rental income, the rental market. Therefore, we want to have an idea on the service apartment development and the rental market development plan. So the First question is to Mr. Kuo, and I will take the second question. We have 3 major policies in place. We have taking them comprehensively, they are the 2 red lines. The 2 red lines, 3 red lines, 2 of them are related to the supply of land. From the market perspective, I think that has an influence to the market resources and to the target of sales. So what is the influence of our sales because of the 3 guidelines? So what is your target of growth of sales? We are aiming RMB 3,000,000,000 to RMB 5,000,000,000. Last year, we realized RMB 385,000,000. So RMB 3,000,000,000 to RMB 5,000,000,000 is the target for this year. The rental market, this is your second question, I take it. I have to mention what is the role of the real estate in the 14 to 5 year plan. We have 3 plus One business model. Long term rental service department is the plus one part of this policy. That means we have to integrate ourselves as the ecosystem builder of the city. So the long term rental apartment is one of our focus of development of CR Lines. In the 14th 5 year plan, in this regard, we will have some key fundamental developments and positioning. In the last 5 year plan, the 13th 5 year plan, we made some advances in this regard That yield very favorable results. So, so far, we don't encounter any major difficulties, And we have some scalable resources by leveraging our leverages And to boost the development of the long term rental apartments. So the past several years, we penetrated into Tier 1 and 2 cities, and we have a considerable amount of the reservations. By last year, 7,400 rooms are open to the market that yield around RMB 200,000,000 RMB 1,000,000 margin is generated as well, RMB 100,000,000. So we made our reputation And we made the good quality of development in the future. In terms of the reservation of resources, The growth rate will be 1,000 rooms per year. That's I mean, 1,000 new rooms will be added to our reservation. The growth rate of the performance will be over 40% per year. For the incremental growth, That is the major driver of our financial performance in the long term rental apartments. We will consider to invest a considerable amount of the money each year, mainly focusing on Tier 1 and Tier 2Cs. And by using the collective utility lines and rental lines, We will develop this market through a light capital way. I hope by the ending year of 14th year, We want to be the top 10 player of the rental apartment market. Next question, I invite Operator, to invite the next question. Next question is coming from Citiq, Chenfeng. Good afternoon. I'm Chen Feng with Citiq. Two questions. First is the office market. Office market has been influenced tremendously by COVID-nineteen. The occupancy rate dropped. So what is your strategy of in coping with that? Are you going to take less land in this Area or what's your strategies to cope with the situation? 2nd, other competitors is restructuring the management Structures, some of them are called their regions and reintegrated the regions And some give more autonomous to the lower levels, some take up the decision making to higher levels. So what's your takes and ideas in restructuring of your administration? How do you maximize the talents And to make the best use of the Thailand's pool, so I have those two questions for you guys. I'd like to take both of those two questions. For the office market, as you're aware, The industry is apparently showing the very Weak and difficult time is oversupplied. For CR Lines, The office market has 2 situations. The 1 office is a sales driven market. That means when we build it, we won't sell it. The other is an integrated one. They are being integrated into a large comprehensive mass. So mainly located in Tier 1 and Tier 2 cities, so we will operate them after completed them. So When we are setting our principle of acquiring the resources, we've made some plans. We do some restructuring. We want to consume the existing stock. We have a specialized plan In this regard, starting from last year, we are dealing with those headache issues Like the selling of the office, we made very good results. So far, that project yields Very positive results through various means through various channels. By 6 months, So looking at the location and the cities of those offices, they are mainly located in prime cities at the prime locations. Therefore, that's formed our competitive edge And it is within our expectation. For the rental office, So far, CER lines by the end of 2020, we are holding 44, among them, 22 are operating. For those under operating, the quality are quite good. There are 2 features of those offices. First, those rental offices are located in Tier 1 and Tier 2 cities at the prime location, playing as an integral part of a bigger environment. And when they completed, it is the landmark of that city. Those land was acquired quite a long time ago, so we have the advantages of the low cost. So through the performances so far, we can have very positive results. The general rental income is 1.6 So bidding, the margin is 72%. The EBITDA is 7.6%. So this is the basic figures you can see the very positive trend. The Tenants of our office are quite high end. Among them, a good number of those tenants are Top 500 Fortune Companies. I think 112 tenants are among the top 500 list. In the future, I hope this kind of the resources will form a very good influences and will form a very good profit So this is my answer for all of this. For the restructuring of our company, Yes. I'm from Citi, Chen. When they are doing the reviewing of the performing performance during the full 13th 5 year plan. One of the conclusion That's the 20 year development of CR Lines gives us a quite new perspective In reviewing our company, we are no longer a very specific developers. We are quite comprehensive. So when we are doing the management, we have to restructure ourselves. What's the major direction of restructuring? First, the front line should be consolidated, should be strengthened And it should be enhanced. So they should be able to drive the development by themselves. 2nd, we need a strong high quarter As a company valued over KRW 1 trillion and operating at various channels and markets, The highest quarter is playing the role as the central operator or the manager of the whole company. So therefore, we do some dual restructuring and adjustments. So generally speaking, we want to strength And enhance our whole company, our frontline and our headquarters. For the major regions, They are the performer of the duties assigned by the higher quarter. They are the major transition player Between the cities and to the headquarters. So they are playing a key coordination role in between. Through those adjustments, the human resources are really directing to the headquarters And the financial resources, Thailand's resources are all directing and channeling to those Regional and the city companies, the realization of performance, the realization of budgeting and the KPI Evaluation are really integrated with each other. By doing this, we are enhancing The self driving capacity of the frontline workers, our core administration team We'll be channeled to the headquarter in order to enhance our controlling capacity. So a couple of the directors, high level VPs are relocated To the headquarters in recent years, this is the major change of our restructuring. So now we have 5 CEOs Plus 1 President. So this is a very strong leadership. With the demand of our development, we have Through this 5+1 leadership, We hope we can form a well managed and well organized headquarters. We will set a very strong line in the management of responsibility as Of those regional companies, those regional subsidiaries is the major responsibility realizing the budget as a target and the duties assigned by the headquarter at the local level. Secondly, we initiated the talent cultivation program to those young managers. And we are breathing enough to use and to give the major management's role To those people of post-1980s or post-nineteen 85, so we evaluate the performance of those So young managers with their KPI performances in order to incentivize their performance. We are also doing a lot of trainings on the organization capacity. We have Huarang Academy or Huarang University. We want to leverage those resources to do the best training to our management staff. And in the training, they will do the very practice driven training model. Therefore, they can make a very good result That university will play a key role in cultivation of Thailand. Okay. Thank you very much. Operator, please get us the next your question. Hi, Tom, Andy. I have a couple of questions, only one minor issue. Last year, I I think you acquired quite a big number of lands you spend on RMB140 1,000,000,000 that accounted only 18% of the total sales. So do you think that percentage or 48%, I think this 48% is the highest Among all the peers, so after the three red lines, do you think you are going to use less I'd like to pass this question to CSO. Yes. You just mentioned JPY140 1,000,000,000. I don't think that is the correct one. I think the total equity value is RMB95 billion. So This figure shows the legacy and the tradition of CER Land. The market is quite competitive, But we are very prudential, and we are doing the restructuring, repositioning by ourselves. Major of these competitions, we are using various channels and means to acquire the land. Now we see the very good payoff. We have good quality and good returns. We have 2 concentrations policies, as you know. This policy is quite favorable to company like See our land because we are classified as green For our company, we benefit from the market movements, And we take very scientific view in making the decision and take the right timing To make the right financing decision. On top of that, I believe in 2021, the acquisition launch, We won't miss the good opportunity. At the interest of time, I'd like to take the last question. Operator, please. This is the last question from Xin Ye, Ms. Fu or Fu Jian. I'm Xinye, analyst, Fu Tian. I just read the news that the SASEK require all the listed company to do the performance to do the results release to make the better communication with the market. You set a good example in this regard. I think in the next stage, SASEK, do you think they will make some changes in assessments of those listed company Before they set some threshold on the gearing ratio, on the margin reach and on a lot of other figures and the requirements, Now given the current situation, do you think China SASEK will make more some assessment requirements in order to reflect the changes of the market. It's a good question. It's a deep question. I will give my humble answers In the 12, 5 year plan, the 13th 5 year plan, Sasag Did not make very direct administration influences to CR Land. They just set some requirements and we revised up to their requirements. I think the most obvious feeling of our CR lines That's the leveraging ratio requirements. I think this is a very fixed requirement And the SaaS accepts these requirements and our company carry on these requirements. And then the SaaS access the requirements on the losses reduction and the reduction of the capacity. I don't have very strong and obvious feeling on the other respects. So we just carry on our Performances in accordance to the Hong Kong Exchange and other administrative authorities. I don't have the very good knowledge to answer your question further, but I think the general trend is to manage flexibly. Thanks, Ms. Xin. Before the final conclusion of today's results annual results. I would like to pass the floor for the wrap up. Mr. Li? Thanks very much for your continuous support and attention to CIR lines as well as your trust. Through the 13th 5 year plan, CER lines realized a very high quality The growth, thanks to the very thanks to the excellent direction set by the 5 year plan. In the next 5 year plan, we will still position ourselves on the 3 major businesses, Development, operation and the large asset management. We want to make the high quality development and growth. Moreover, we will be proactively to develop the new ecosystem like the long term rental apartment We will insist on offering good quality and good products. And so we'll build up our weaknesses. We will take a long term view and keep a prudential financial requirements. We will set the strategically important viewpoints in making decision. We will use technology Science to enable and empower our performance. In this 5 year plan, we believe we will make the good performance In transitioning in the high quality development and in the long term development, I think in this new 5 year plan, We will continue our legacy and continue our briefness and continue our performance pursuit of excellence practice to the top level of our industry. Therefore, we can pave the way of high quality development And to be the model of this industry, thanks very much again for all the analysts and investors. Thank you. Thanks, Mr. Li. I can feel your confidence and I can feel your vision through your conclusion remarks. This is the final end of today's session. If you have further questions, please never hesitate to contact the IR department of our company wish you very good health, wish the virus is behind, which we can see each other soon.