Earnings Call: H1 2021

Aug 24, 2021

21 Interim Results Conference of Country Garden Holdings Companies Limited. Today's meeting will be conducted through live video webcast and teleconference. You can view the presentation slides simultaneously through the live video webcast. First of all, let me introduce to you the management who attended the presentation today, Mr. Mo Bin, President and Executive Director Mr. Chen Guang Yu, Vice President Ms. Wu Bijun, CFO and Vice President. In today's agenda, Mr. Mo will first walk us through the 2021 interim results of the company and future prospects. Then there will be a Q and A session and media are welcome to ask questions. Mr. Mo, please. Good afternoon, investors. Welcome to Country Garden's 2021 Interim Results Presentation. This year is the 100 year anniversary of CCP. We have achieved the 1st 100 year target. So those are moderately wealthy economy. So we are growing enterprise during the period. This year, the central government emphasized that housing is for inhabitation, not speculation. They want to stabilize price and expectations in the market so that there will be healthy development. Country Garden faced up to this large trend of reform. And we would like to build housing affordable to members of the public. And overall speaking, we have entered a new stage and given the current situation, we will continue to be customer oriented and continue to work hard. We will make sure that we can also improve our overall competitiveness. We believe that new products and services can lay a strong foundation for virtual development. Word-of-mouth is most important and we are long term in our orientation. So operating efficiency is very important leading to high organization efficiency. We attach importance to high construction quality, digital technology and through smart production and informatization, we can enhance safety standards and safety management. We listened to the appeal of the 14th 5 year plan, so that there will be a county based urbanization. We would like to make ourselves stronger and better. And then in the new era, Country Garden will follow the steps of market development to develop robotics, modern agriculture and other high-tech industries. So we will use technology to service people and we will try hard to build good living, high-tech and also consolidated enterprises for society. On behalf of the management, I would like to do a review of our results, operations and also outlook. So first of all, for this year interim results, let me give a brief explanation. In the first half, together with JVs and associates, attributable contracted sales was around RMB30.3 billion or actually RMB 303,000,000,000 up 13.5 percent year on year. Attributable cash collection RMB 272,000,000,000 and then for 6 consecutive consecutive years, we are over 90% in terms of attributable cash collection rate. And in this half a year, it's still 90%. And we are in the 139th position in Fortune 500 for 5 consecutive years, our ranking goes up and this shows our consistent growth and our strength. As of the end of first half, we have revenue RMB 234,900,000,000, up 27% year on year. Gross profit was RMB 46,300,000,000, up 3.1 percent year on year. Net profit around RMB 22,400,000,000, up 2.3 percent year on year. For the company, we have 31% dividend payout for interim dividend RMB 20.98 or RMB 20.98. Our financials are very sound and in fact our financials are further enhanced. Net gearing ratio at the period end 49.7 percent, down 5.9 percentage points since the end of 2020. Total debt was RMB324.2 billion, down from the end of last year. Borrowing cost was 5.39 percent, dropped by 17 basis points since the end of last year. We have sound financials, so we are able to face up to ever changing market conditions. Within the period, we continued to control costs effectively. In the first half, SG and A in a consolidated way accounted for 5.9% of revenue, down by 1.4 percentage point year on year. Now let me talk about our major operations in the first half of the year. For our property sales, it was leading in the industry. In the first half of this year, together with JVs and affiliates, attributable contracted sales amounted to RMB303 1,000,000,000, up 3.5% year on year, attributable GFA 34,510,000 square meters, up 8.4% year on year. And in terms of our urbanization comparing with advanced countries in the world, there is still a gap. Urbanization still sees a lot of potential and this year if you look at our sales growth, it is positively related to urbanization rates of our country. In future. There's still big room for development. According to some statistics from 2016 to 2020, proportion of property sales in Tier 3 and 4 cities rose from 43% to 49 percent. And for Tier 3 for cities, city resilience is even more obvious and stronger. And so there is a long term support for the property market for a long time. During 2016 and 2020, our attributable contracted sales increased at CAGR of 25%. We continue to have diversified sales channel and we built an online sales team with technology we can enhance our sales and with competition there being very intense, our sales is still very resilient. For many years, we are in a leading position in the industry. In order to go better and deeper, we want to dig deep into the personal market. So we focus on our market. So we focus on our management refinement and for newly acquired projects and various indicators there is a lot of improvement. For commenced projects, there is an enhancement of 1% in terms of turnover and then we're up 3% in average annualized rate of return for prospects and we are up to 97% in proportion of projects with rate of return over 25% and we are 36 days in advance in terms of average time of presale launch period. Interest bearing debts are coming down as of the end of June. Total debts came down to 324.4%, 5.39% is the borrowing cost, down 17 basis points since the end of last year. We have adequate cash as of the end of June. Cash balance amounted to RMB186.24 billion. So we have good liquidity guarantee in the future. We will make sure that cash flow is adequate and in case with the market, we can face up to all the opportunities and challenge. With these good operations and stable financials, so we are being recognized by rating agencies. As of now for Moody's, we have BAA III, which is a stable outlook. And then for S and P positive outlook, these are very good ratings. With enhancement in credit rating, our borrowing costs can come down and our financing structure is also enhanced. So for that maturing within 1 year, down to 27% share of the total. And then we are now in very healthy position, net gearing ratio and to cash, the ratios are very good. And then from 2010 at the end, it's 80% down to 77% now. And we are confident that before 2023 interim period, we are able to achieve further adjustments. Our financials are stable. At the same time, our profitability stabilized giving us a promising future. In the first half, gross profit was RMB 46,300,000,000, up 3.1% year on year. Net profit around RMB 22,400,000,000, up 2.3% year on year. Net profit margin 9.5 percent. Core net profit attributable to owners of company was RMB 15,200,000,000, up 4.2% year on year. This year, our group continued to enhance our cost control. So in the first half, SG and A accounted for 5.9% of revenue, down 1.4 percentage points and then its share of attributable sales 4.6%. So comparing with 2020 down 0.4 percentage point, total expenses RMB RMB13.9 billion. So our cost control effects are very obvious. Looking into the future, we will continue our stable operation and we will enhance our core competitiveness. In terms of regional breakdown, our projects are in all provinces in China. So in other words, we have full coverage of the market. As of end of June 2021, we are in 31 provinces in China, 2 96 municipal administrative regions, 1408 districts or counties and there are altogether 3,127 projects. So in China, the room for urbanization is still broad. We will tie in our work with urbanization effort of the country. We adhere to prudent investment and also turnover of our investment and we have land acquired attributable value RMB 88,400,000,000 equivalent to RMB 278 1,000,000,000 of attributable value and then attributable ratio 80 5%, 82% of land reserve is in the main five regions, 65% Tier 3, 4 cities. And so 62% or 84% in Tier 3, 4 cities. So in the first half of the year, out of the land supply, we have acquired 14 parcels of land, attributable value RMB 17,100,000,000 in Chongqing, Zhengzhou, Wuhan and so on. We have acquired land basically average premium rate 7%, quality of land acquired is better than the 1st batch of land supply in July. So we have a JPY 22,000,000,000 value and our land reserve is very diversified. As of the end of June, in China, in Mainland China, attributable saleable resources KRW 1,690,000,000,000. And then there is non contracted potential attributable saleable resources, KRW 490,000,000,000 and this can support our future 3 years sales demand. At the same time for attributable saleable resources, they are well distributed 99% is in area with population more than 93% in inflowing migration places in Bohai Rim, Yangtze River Delta and Pearl River Delta, there is also a good percentage. Our operation efficiency is much better than in 2017 2018 in terms of acquired projects, turnover was higher by 5 percentage points. And then in terms of product launch, we expect that in the second half of the year for newly launched attributable value RMB 450,000,000,000. So in the second half of the year, attributable saleable, RMB660,000,000,000 we have enough saleable resources. So we actually conduct a closed loop management for the whole year sell through rate will not be lower than 65%. And then when we develop our core property business around high-tech comprehensive business, we want to build a total industrial chain, technology empowerment and business diversification. We are making layouts in high-tech property chain. In terms of property development, by means of robotics, we can do smart production. And then we have a home decoration service, so that we have a complete upstream, downstream chain. In terms of catering, we have catering robots using smart technology. And then for modern agriculture, we have agricultural products and then there is raw material for central kitchen and then culinary robots can actually transport the products to consumers. So it is a full coverage from the source to the final end. All these can interact well together with all these among all these different segments. Based on market needs and high-tech trend, we have laid out our robotic business. We want to offer we want to become a total solution provider for smart construction. BrightDream Robotics focus on smart construction and building industrialization. And then digitalization or successful commercialization of various digital products is the core and we would like to build a full cycle system so that we can have a new construction method. So right now there are 16 styles of robots and 13 of them can be for commercial use for critical spare parts. Well, there are 46 types of construction robots, which 18 of them have been commercialized and 28 of them are in the process of validation testing. And we have already achieved a 0 breakthrough for in many areas. For construction robots, they are now used in 14 provinces in 70 projects with more than 1,000,000 square meters. In May, the first time, we faced the external sector. So early in the year, there are 2 projects that we are awarded demonstration project from the States and we will make use of our technological advantage together with greening, safety, environmental protection and good construction standards. We will actually organize and plan in an overall arrangement. So in this way, robotic is going to be in the core and we are able to achieve very good results. In July, we actually are included in the states nameless and right now we are doing a lot of construction and demolition trials. So we hope robots can also be used in production line style production in the future. We'll continue to dig deeper to improve our operation. And in terms of our high-tech industry, culinary robots are developing fast for 1,400,000,000 of people, we offer very good food. So we are based on R and D. We hope that our robots can be the main carriers of our catering service and there is equipment manufacturing, catering operation and also a full industrial chain. Right now, we have already successfully opened 95 robot restaurants and there are more than 2,400 units of machines being used. So we have become the 1st catering robot standard setter. In June this year, Tianqi robots would be offering different services for people, especially the last 100 mile delivery. Contactless robot is also another area. So that would be higher safety standards. And for catering, we will be iterating towards smart operation and Tianqi has successfully entered high speed station and other highly effective venues of use in more than 100 cities and high-tech is being used in catering industry. There are customized equipment and software systems, hoping to achieve smart transformation and we are working with a a number of different companies, for example, Biogen and so on. At the same time, we use the best cost to offer the most effective, most suitable products, so that we can offer world leading home solution. This year, modern home decoration focuses on large furniture, manufacturing and R and D through automation and also total solution we can offer good price for money. So Southern China, Southern Eastern China are some of our bases. Last year, we will move from construction area to retail business segments. We expect that every year there will be 10% growth to achieve sales growth. Sales for 2022 can reach KRW 8,500,000,000 for 2023 more than KRW 10,000,000,000. And then there would be KRW 2,000,000,000 from external revenue. So we will be entering whole furniture market. We are developing modern agriculture covering whole industrial chain. So we will be modern agricultural system solutions and services provider. We set up our R and D. So on production side, right now in Wuhan, we started the South Wuhan Seeding project. It is driven by Geocar and now in Greater Bay, it is building a demonstration base. So high-tech is used in agriculture in the future or in smart aquafarming in the future, we'll continue to upgrade the overall agriculture efficiency. We'll contribute to food safety in the market. We will work with Biogen and in this way we can make sure that from the start to the end, we can offer very healthy projects for all households in the market. We can produce and offer safe and delicious agricultural products. At the same time, we are based on the industry. We want to empower the industry and we can create value together. So towards upstream and downstream, we can do equity investment. For our venture capital investment, we have invested in more than 50 enterprises, 8 of them had done IPO successfully and there is the 2nd round of financing as well. 40 5% of the projects are in advanced manufacturing, semiconductor and carbon neutral projects. So when we go for high quality development at the same time, we create our own areas of different businesses. So the group and the founders have already done a lot in education and poverty alleviation and then through different ways we have helped 900,000 people to alleviate or leave poverty. And then we have altogether accumulated donation of KRW 9,000,000,000. This is the starting year of the 14th 5 year plan and we have already started to move the core work of poverty alleviation to rural villages. So in this way, we hope to get wealthy together. We hope to contribute our efforts and every 100 years. Then we hope that only by working hard can we enjoy a very long and stable journey. Thank you, Mr. Mo. I believe now you have more in-depth understanding of the company's interim results. Now we will move on to Q and A. We'll take questions from conference call first. We also welcome investors online to send your questions in writing. And I will read out the question on behalf of the investors for the management to respond because of time. Please do not ask more than 2 questions each time. Thank you. First investors, question over the phone please. First question is from Morgan Chase, Ryan Lee. Yes, please go ahead. Management, Mr. Mo, greetings from me. I have two questions. First, in March, you mentioned your view about CAGR, so 10% for a 3 year period. So based on your latest land acquisition and sales and also gross profit margin, do you still have confidence to achieve this target? That's my first question. And this is about strategy as well. Another question is, now I want to ask about something macro. Looking at the latest population census data, urbanization is raised to 63%. If you look at this day's target, by 2,035, we should reach 70%. In the past 10 years, if you look at urbanization rate and you compare it with the coming 10 years, actually in the coming years, we have to enhance a lot. So how should we interpret these data? There are different developers who are very optimistic about urbanization. So in Tier 1 cities, support, especially for Tier 3 cities with that support, especially for Tier 3 cities with that population structure and urbanization rates more or less the same as the past 10 years. How should we interpret the data? How does Country Garden adjust your strategy? My last question. If you look at the company's half year period, in the first half of the year, the growth rate is the lowest in the past, 2,000,000,000,000 total assets, right? So all in all, we have been saying that in 2023 June, you will be able to go into the green zone, right? So are you going to insist on the coming 24 months window to seize the investment window? So perhaps you are able to increase investment in some projects or in the coming few months, it seems that the regulator is tighter in regulating the property market. So in terms of investment, you will be more cautious as compared to March. These are my questions. Thank you. Right. Let me first take the second question. 1st, let me tell you, talking about the 10% target growth, we have confidence. Our confidence comes from the state's macro policy and also adjustment of the property policy. The goal is to enable healthy development of this industry. Actually the authority issued a paper. So with 3 years, the property market will enjoy healthy development. So in this market, definitely this industry will exist forever, but the government wants this industry to be healthier and healthier. So of course, this is something we would like to see. Number 2, urbanization. You mentioned the progress of urbanization in China. Well, it is going to be stable and healthy for sure. The central government talked about growing rich together and there is one important point and that is counties should be the basis for urbanization progress. And with that, I think that would be positive help to growing healthy together. Number 3, I think that you can see from the Chinese economy during the pandemic, there is still positive growth during the pandemic this year. There will be very good growth I believe and in the coming few years, China's economic growth will still be the best in global economy. So given such macro environment and with healthy development of the industry, how can we improve our work? It all depends on our management capability, especially our competitiveness. Just now you asked about 10% growth and where does my confidence come from? Now I want to spend a little bit more time to talk about what the management has done in the past 2 years and now. I want to give investors more confidence. Of course, we have to enhance our competitiveness. There are a few areas. First, our investment capability. The precision of our investment is higher and higher. At the same time, we insist on 3 main points. So first, our DNA principle will not change. We have to be law abiding and have to attach importance to safety and then there would be annualized return for our funds and total return. All these are things that we adhere to. At the same time, our investment criteria will not change. Criteria will not change. So, analyze rates of return of our capital, our profit margin, 1 is static, 1 is dynamic and then our commercial or office building share of total return. There are a number of different targets and indicators. Of course, there are different unique characteristics for different cities. So our criteria won't change. So based on maturity of different projects, we will make adjustments. So our land acquisition is getting more and more precise besides, if you look at our overall management, we have a closed loop management. So we are very stringent on that. It is related to investment. So investment will take the lead and then sales will follow. It will be in line and then supply of resources, cash collection and all these will form a closed loop. So what do we mean? We have a standard for investment. We have criteria for investment and that will lead or that will guide our sales and supply of products. If it is higher than the target that means our management is good otherwise, we have to evaluate where our problems lie and we have to keep on improving. This year, those projects that we have commenced. So you can see that our capability is higher and higher, our investment is more and more precise. And then in terms of investment, we are also smart based. In the first half, JPY 88,400,000,000 attributable amount of investment in July. We invested JPY 20 odd 1000000000. In July, there is fact, our land investment is getting higher in the amount and more precise. If we can acquire a good parcel, then that is equal to 70% of final success. So in land acquisition, we attach a lot of importance to that and we are very prudent in acquiring land. And then this will tie into our healthy development. 2nd, our financial management capability is now better. So this is a safety point for us. Our financial management is based on cash flow all along. There must be profit there must be profit together with cash flow. And our financial management comparing with other companies is quite different. We are doing consolidated management and it is vertical management. For our financial management, there are accounting, financing, cash collection, fund management, budget management, tax management, legal and risk management. All these are within financial management. So it does not only get cash flow back to us and it can also control risk. Our vertical financial management is on project level every month. So there's dynamic arrangement of funds. These are all very clear. And then for our vertical management to what extent does it go, our financial system people, their wages, their bonus, their pay adjustment are all vertically operated with our financial system and they are also correlated with various regions. So all along our financial management is sound. At the same time in terms of financial management starting 2019, actually cash collection is one of the major appraisal evaluators, so I. E. Cash flow appraisal. So our company can develop in such a sound way because every month, every quarterly cash collection is being guided by administrative measures. Every month sales will take the lead and then every quarter cash collection is the main evaluation criterion. So that the operation of each project can be more focused. At the same time, concerning incentives, again, the financial management will do analysis and it is matched with our operation process. In this way, normal development of each project can be ensured. So through financial management and system and also all our staff members hard work, each project continues to develop healthily. I talked to our So I So I think this area of management is very, very strong. Closed loop management is very strong. The 3rd management is full cycle core competitiveness enhancement. I said at the beginning of the year, our improvement in competitiveness is getting better. We started in August in 2018. We talked about high quality development. We want to enhance our core competitiveness and we have done this for 3 years. Every year, every month, there is improvement. So right now there is smaller and smaller room for enhancement, but we will still adhere to it to make sure that things will not go the other way around. So high efficiency, cost effectiveness, product effectiveness, sales, service, tech capabilities, all these are our core competitiveness. So that our overall organizational competitiveness can be enhanced. Let me give an example, product capability. Now we need to make sure that there is a central point. The quality of each property is has to be good. We need to treat each property as our own property and we ask that party to do evaluation of the quality. So we will not deliver if our criteria are not met. If customer satisfaction is not good, then the regional director every Friday has to do a review with the last three or the worst 3 players or staff members. In this way, we can enhance our competitiveness. In terms of repair and proxy management service, we further strengthen them. So right now, customer satisfaction improves very fast. And then in terms of cost effectiveness, we will not endure any wastage and we must be customer oriented. So no waste by means of the past 3 years' effort in enhancing our cost competitiveness. Our our cost competitiveness, our cost competitiveness is now stronger. If you look at our selling and office administration costs from 2019 till now, we have reduced by more than half. This is a very good corporate culture and a realization of our cost competitiveness. So by means of this enhancement in core competitiveness, our company can put students from or graduates from university and there are PhD students and they are in very important positions. In our 106 regions, 37 of them are nurtured by our future leader program. They are now in core positions and they play important role. And in benchmark regions, many of them many people are nurtured by our future leader programs. So our team members are very young, average age 35 years old, they are very energetic. Regional director, 72 percent of them are 40 or below. Every year we recruit 2,000 odd university graduates. This is conducive to our talent development. Recently, our Chairman wanted to make sure that our good talents can stand out. So he personally extended an invitation for a course for good quality talents. 20 to 30 outstanding talents were recruited to work alongside him. So this shows the importance attached to good talents and good talents are very important to enhancing our competitiveness. And in this way, we can have more vitality and energy and by setting up the 106 regions, our regions can be deeply worked on and based on customers' word-of-mouth, I think people will treat the projects as their own missions. That's about our good talents. The 5 area the 5th area is our long term orientation. Every 5 day, we will spend half a day's time to do training. It is a normal training or permanent training. In every training there are more than 3,000 people. So if a project does well in a certain region that will be experience sharing, so people will teach people around them. If a project does badly, then there should be review of the experience. So with this kind of permanent or long standing training, Well, it is very effective, so our team members can learn and with this training, our experience or lessons learned can be internalized so that projects can improve. At present for all people, all participants to this training, they all look forward to the Friday training all the time. I was part of them. We did rehearsal every time for these training. I want to make sure that the presentations delivered are lively and effective. So many of our regional directors have to join the video conference. So as a result, a big number, a large number of good executives are nurtured. And then new businesses and synergistic developments. In the PPT, I talked about construction robots. I believe that when construction robots are launched, so construction sites can be turned into factories. So that would be production robots are launched. So construction sites can be turned into factories. So that would be production line style production or construction, quality and safety and cost can be better supported. At the same time, standardization can also be implemented well. For our our property number 2, love for country number 3, service to make sure property number 2, love for country number 3, service to make sure that society can advance number 4, we must employ people on merits and next sharing number 7, continuous advancement with all these corporate cultural elements, while they are deeply effort, long term healthy development. So by means of the past efforts, I think we are on an upward trend and we are confident to be able to achieve the 10% growth target set at the beginning of year, we hope that all operation indicators can grow together. At the same time, we have confidence that right now, if you look at this industry, the fittest survive, we believe that we can survive and develop stably. We have confidence that through our efforts, we can create value for our shareholders, our investors and society. There will be stable return for you all. So please rest assured, in terms of our management, if there are any inadequacies, please feel free to offer your advice and comments. Thank you. Right. Let me Right. Let me answer your question and let me supplement. Concerning population census. For population census, there are a lot of messages and data reflected as you said in the future concerning new housing sales and markets that would be some impact or implications. And then in the population census, for example, a big increase in mobile population, 500,000,000. Right now, we only have 40 odd percent who call coverage. And then in 10 years, there is a lower there is a reduction by 0.5 in terms of a single number of household, I think this will affect consumption structure and volume. If you look at urbanization rates, Tier 3, 4, 5 cities, urbanization rate is still low. 63.8% is the nationwide urbanization rate. However, in Tier 3, 4, 5 cities, urbanization is relatively lower than the number I just said. So in terms of economic development and sustainable development and also going wealthy together, so there would be further push and we all pursue good living. So in terms of housing, this is basic need. I think there would be enough support. That's why we are positive about Chinese economy and urbanization over the long run. So these are my supplements. And then regarding total assets and slower growth, Mr. Mo talked about the macro situation and it is related. In the coming period, China's property market is being focused on its healthy development, stable property price, stable expectation. These are the main three red lines requirements. So we always said that given our funding situation, well, it's quite satisfactory. So we make use of organic sales and cash collection and then we want to optimize our asset structure. So this year in the first half total asset scale rose just a small amount. However, if you look at the structure, there is a big increase and decrease in liabilities and increase in assets. So as a result, there is a small growth in our asset scale. When we face up to markets and policy requirements, our policy is that our total asset scale is stable, attributable growth and liabilities came down. And then at the same time, we do look forward to an increase in asset scale, especially liabilities driven asset scale increase to boost growth in sales scale. We will be healthy and stable in walking along our path. In the second half of this year regarding investment, our view is all along we insist on balance distribution in TSR-one to 6 cities and also opportunity driven investment. So in the first half of this year, we invested RMB88.4 billion in attributable investment. So the investment amount was lower than sales. We invested in KRW 260,000,000,000, we sold KRW 300,000,000,000 of products. So the investment amount attributable value is lower than the sales. So especially from January to May this year, in the first half of this year, land market was very competitive. At the end of May, starting then, there is structural adjustment in the market, investment window is being opened. So in June, in July, investment increased as Mr. Ma said, within July, 20 odd 1000000000 of investment. So towards the second half of this year, when the market trended downward, investment opportunities will emerge more. And Industry 2.0 in relation to land price and so on, there is a change in trend. So I think this will lead the land investment market back to a normal rational situation. And there are investment opportunities with the right gross profit for us. We will closely monitor opportunities in the land market in the second half. So we will consider our investment based on sales. For the whole year for investment, it is more or less the same as in 2020. Right now, we are still making or doing the work according to budget, if in the second half there are more good investment windows, then we will increase investments. So overall speaking, balanced distribution and opportunity led arrangement. So in the second half, we will consider actual circumstances in the land market to make investments. Thank you. Right. Thank you for your answers. Thank you. Thank you, Ryan, for your question. Can we take question from the next investor? Next question will be asked John Lam. Please go ahead. Thank you. Mr. Mo, Mr. Wu, greetings. I have two questions. First, for non property development business, for example, robots and also home decoration and agriculture, what will be the scare of these businesses 3 years later? Will that be a spin off plan to pay back to shareholders? Recently, there are some companies or developers because of liquidity problems, experiencing a decline in projects, will that affect GP margin of projects for your company? Will you take this opportunity to acquire some developers? As Mr. Moore said, land acquisition will determine 70% of success. Would this be a good opportunity for you? Thank you. First question, I will take it. New businesses. So I think it is going to be a long term business in our industrial chain. So home decoration and robotics, they are synergistic development within our ecology. So I believe that robotics will definitely be successful. Of course, on the road of success, we need to do more experiments and also on-site monitoring in order to achieve comprehensive effectiveness. We have 18 types of robots and then some can be commercially launched and we have 28 robots, which are gradually moving on-site. So with construction robots and also culinary robots and so on, then construction sites can become factories and effectiveness can be greatly enhanced. In 106 regions, we won one project from each region for our construction robots to test its effectiveness. But of course for the test, product quality and safety must be ensured. And with the test next year in relation to some products, we'll see whether we can mass produce with mass production and scale of utilization, I believe cost effectiveness and safety and quality can be further enhanced. So I believe construction robots next year can see profitability. At the beginning of this year, we saw some good progress already. And then in the PPT, I said that in 2023, we hope that revenue can exceed KRW 10,000,000,000 and then in retail, we hope to grab a market share. So apart from our core business industrial chain revenue, there is KRW 2,000,000,000 external revenue. That's our plan. So with the efforts, we believe that the situation will be better and better. Now we are in 3 bases already. In 2 of the bases, there is production already started. So I believe that with our production chain, with our industrial chain being completed and with market demand, we will build more production basis and then construction robots and home decoration and spin off possibility, I believe that there would be a comprehensive plan from the company as long as things are beneficial to our shareholders and investors, as long as it's good for our long term development and social advancement, we will do whatever we should. So you can see that the effectiveness of proxy management spin off and the level has been enhanced. And you can see the synergy with our core business. So in the future, we hope our new businesses can do a good job. Thank you. Now you talked about developers implementing some strategy. Now for us, we are in TRS 1 to 6 cities. We have balanced distribution. We have 3,000 odd projects in China in 300 odd cities. So regarding our market judgment analysis and response, well, we do not target at specific developer. We only target at the market. We do not focus on any particular developer. Number 2, in the past period, well, gradually, there has been developments starting April this year. It is obvious some developers adopted irrational price strategy and some market intervention. So they wanted to dump their products. We believe that this situation in the second half of this year when the market continues to tighten or when policies continue to tighten, this will continue to happen. So this and that developer here and there will do something like that. So this is something a norm that we may see in the future period. Number 3, for April to June, if you look at the situation then we have done some analysis and we have made some response. The impact is on 140 odd projects of us equivalent to about 9,000,000,000 of product value. So the intervention is about market expectation and also sales rhythm. So there is more obvious intervention to these. So based on Mr. Moore's requirement, we will make dynamic adjustment and we will adopt aggressive sales strategy. Number 4, impact on gross profit. Unless if there are important change in the market usually that would be pricing strategy for the whole country in order to do sell through. So this year in the first half, our ASP comparing with same period 2020 was up 4%. So behind this 4% increase, there are other negative impacts, but then still we enjoyed 4% growth. So period in 2020, 2021, the gross profit of sales was quite stable, 20% to 25% for projects acquired during that year. So for project gross profit level, it just mainly depends on research about investment and overall competitiveness in the subsequent period. Usually the cycle is 1.5 to 2 years. So short term, irrational price interventions from specific companies will not cause big impact on our overall gross profit. Of course, we'll continue to pay attention to changes in the market and also competitive sales strategy to make adjustment and to write out the challenge. But at present, if you look at our analysis for April to June, the impact on us is limited and controllable. It only affects our sales conversion and so far our gross profit has not been impacted. Thank you. Next question please. Next question, Eddie Chan from Morgan Stanley. Please go ahead. Thank you, management. Good afternoon. I am Ellie from Morgan Stanley. I have two questions today. First, Mr. Mo, a presence given the property policies and financing situation, things are tight and difficult and sales have slowed down in the market. There is discussion about property tax. So how long will this difficult situation continue? And in terms of your strategies, what kind of preparation and arrangement have you done? 2nd question, just now a question was asked about M and A. So when it comes to M and A investment opportunities, what are the indicators that you will consider in terms of importance? Will you focus on more standalone projects? Otherwise, the debt question. I will comment on the first. As I said earlier, the central government adjustment and control over the property sector include the 3 red lines and control over mortgage loan and centralized land supply, 40% of restriction on land acquisition, all these aimed at healthy development of the market. And this is something we most want. All along, we want to enhance our competitiveness. So in a healthy developing market that is the best market for us. I believe that in the past few years after our efforts in the 7 areas I mentioned at the beginning, in 2018 August to now, we have worked out for 3 years. Our competitiveness has advanced a lot. In a healthy development, we will see better potential. So we are confident to achieve 10% growth and we are confident that in the new emerging businesses or industries we can develop, we can deliver stable return to society, or industries we can develop, we can deliver a stable return to society and investors. That's where our confidence lies. And that's also our attitude about the capital market. Yes. Just now I forgot to answer one question. Let me answer now. For M and A opportunities in the past, there are more and more opportunities in the past. Answer now. For M and A opportunities in the past, there are more and more. Recently, there is a more obvious increase of such opportunities. In first half this year, in terms of land acquisition, we were more active to 51%. So we acquired those land by means of active exploration or development, including M and A. So when there are many opportunities, when we deliberate, we will select those that are suitable for Country Garden, those in line with our standards and criteria. Just now, it is mentioned that for our platform, we have not seen a particularly appropriate platform with appropriate assets and liabilities level. So those are not in line with our investment requirement. So in other words, we focus on standalone projects. So when we invest on individual projects, I think the rationale was similar. When we invest in individual project, we also look at a single individual piece of asset as the smallest unit. Of course, when we talk about the same piece of land, there may be single projects or single assets, there may be 3, 5, 10 or 8 such projects. And then we'll look at the individual conditions and then there can be an asset pack, but then we don't want to work on platform. So they are being separated into individual assets, then this can solve the lesser part of your question. When we acquire these asset tags, what are the criteria we are concerned about? Well, the criteria are the same as single project or criteria for a single market investment consideration. So profit level, cycle, turnover, a dynamic return and so on. Of course, when we consider these projects, we will be a bit more cautious. We will increase risk control and due diligence work. So these are different from single projects in the normal way of land application, bidding and so on or auction. But then in terms of the criteria, no difference from single assets or projects. Thank you. Thank you. Now let's take the next question please. Thank you. Next question, Citi Securities, Chen Chong, please. Okay. Thank you, management. Two questions. First, robotics, that is bright stream robotics in the future. When it comes to 3rd party commercial clients, what are their usual backgrounds? Are they other developers or government in the future? When you talk about construction robots, will they become very popular? To what extent? How big will be this market in the future? How far away are you from that target? Next question. In recent years, when it comes to attributable salable resources, it is coming down. Now it is below RMB500 1,000,000,000. So is it true that you don't want to do Tier 1 development or that there are fewer opportunities in the market? Thank you. Concerning BrightDream Construction robots, right now we want to be down to earth. We haven't said which are our target customers. In the future, we haven't said how big the target market can reach. For the whole construction industry, it is a 26,000,000,000,000 market. For the property sector, last year it's 7,000,000,000,000. So the construction market is even bigger with more room for development. So with our construction products, they will be implemented in our projects. So if they are successful, then we can transfer them or generalize them to the whole market. In 106 regions, each region will put forth one project for pilots. So Southern and Northern China will be different for construction robots. The products won't move, but then the robots will move. And the products are more the robots are fixed and in those cases, the situation is different. So we have 4,000 R and D people working on it. So we want that our products will be best sellers. And then for high level and multi story size, the work process will be different. So we are doing a lot of tests. And in the future, I believe that the room will be huge, 20,000,000,000,000,000 yen and there is also the global markets. So we hope that we will make good progress and gradually we will first develop our domestic markets and then we will move overseas. In the process, we will also open to external markets so that our construction robots can serve society more. About Tier 1 reserve, actually city renewal is a future big direction. The state, the government encourages that. So all along concerning city renewal or old shanty town redevelopment, we have been actively participating. And all along, this is our important source of land reserve or land bank. So our attitude all alone has been active first. Number 2, if you look at changes in the data, there are some reasons first. Tier 1 land bank has a long cycle on average around 5 years for land development cycle. And then city market strategies, policies and so on can change a lot within 5 years. And within this process of change, we will dynamically make adjustments. We are in 17 cities. We have 70 odd projects. So the total amount is big. As of this interim period, RMB 490,000,000,000 and we have around RMB100 1,000,000,000 attributable value in the first half, RMB30 1,000,000,000 has already been developed in the second half, we can handle the remaining amount. So this number is fluctuating. The decrease is because of the maturity of land development and formation. And then in the cycle, the policies in respective cities may be adjusted. So that for some projects, there may be some policy obstacles adjustment or adjustment in relation to planning or so on, because within 5 years, these policies often see adjustment and change. Then we will exit from places with policy barriers or obstacles. And in this way, you can see a decrease in the total amount of Tier 1 projects. Besides, we will continue to increase some active land development projects as well. For example, in Guoshan and also some Changshan, there are some new projects. So we will make sure that we will be sustainable and we will continue to increase and there should be a virtuous arrangement, a full process development every year that should be stable supply of KRW 100,000,000,000 of products. And for these, they will be mainly in Tier 1, 2 cities, the hotter markets and GP level level is relatively better. We do hope that our active reserve in our past land acquisition strategy is an important or a key way of land acquisition. We'll continue to respond to the appeals made by the state. We will take active part. Thank you. Thank you for the question. Next question please. Next, Danielle Wong remarks about management. So very high achievement rate of investment, stable asset and liabilities or balance sheet. In the second half, there may be more investment opportunities. All these are very nice. Now in relation to GP margin, in 2021 in the annual report, it is stated that 2021 will be the worst and after that, there would be some rebound. So after the first half, regarding GP margin, are you confident that GP margin will stabilize and rebound in the first half? Sales and land acquisition margin as well as sold but unbooked GP margin. Can you share with us the figures so that we will have clearer judgment of future GP margin? Second question. Mr. Mo explained competitiveness in 7 areas. He presented a very good conclusion. In the past, Country Garden is a target of learning by counterparts. And now it seems that you have not mentioned a lot about investment. So my question is for old projects, right now you are in the harvest stage adjustment? Thank you. In 2020 for our sales gross profit, it has stabilized in 2021. Our sales gross profit is around 20% to 25%. This year, it is slightly higher. And when we calculate gross profit, we have to wait to next second half of next year, we can see a rebound for sold but unbooked gross profit. It is lower than now because we have to digest part of 2017, 2018 assets which was acquired at high price. And when it comes to our financial statement, I would like say that our financial statement is rather cautious. So we have assets of KRW 2,000,000,000,000. Why is it that there is no further expansion? Just now there was a clear explanation given. We hope to enhance our operation quality so that we can be better and then interest bearing liabilities will be kept at a stable way. So in this way, we can turn green under the three red lines. And in the financial statements, liabilities came down, financing costs came down, SG and A came down. And for 20 17, 2018, the non performing assets are being digested. So for new assets, GP margin is higher and the share of new assets continues to rise. So if you read from our financial statements, we been working hard for construction costs of new projects. This year, it came down from last year. And in the future operation and management and also cost control, you will see further good outcomes. So the market is changing, but we are still safe and sound. Mr. Mo also said that we are gathering our strengths. We are training our talents and in the investment market, we are very cautious. So we're able we are very cautious. So we're able to accumulate a lot of resources for the future. If the market is stable, then we will be able to make a leap forward. So you can see our efforts and change hopefully. Thank you. Now concerning incentive system, well, we are continuing it. In 2017, 2018 at the high point, we acquired land and that was lost in some projects. So I think for the company, there is same rights for the same type of equities. So this year, we made some adjustments. What kind of arrangement? We don't want you to have too high expectation within our ability to absorb the situation we want to improve our projects, management and operation. So in the region, we will go for operation and then for projects, safety, part of delivery, customer satisfaction, supply, all these are the main targets. And for the regions, there should be overall performance, good performance of projects. For example, profit targets, funding, efficiency and so on. So for the regions, we have formed an investment platform and the investment platform is the same as the past, but then for each role position, we have put in place some limitation. So investment limits, so to speak. So there is an investment package and first the regions and projects together should not invest more than 10 percent. Now there should be balanced investment for each project in accordance with fundraising and investment should be made in all projects in the region in a balanced way. Financial management will do analysis and overall management so that our capital, our funding is matched with project operation, so that our projects can be run well. So this system will continue to run. Thank you. Thank you for the questions. Can we take the next question please? Haitien International Securities. Xuewei Lei, please go ahead. Thank you very much management for giving me this chance. I'm from Haitong Securities. Regarding the macro situation and the enterprise, I have benefited a lot from your sharing and analysis. I have two questions. 1st, in the financial statements, I can see that this year for selling expenses comparing with last year, there is slight increase. Compared with the year end of last year, there is an increase. So what are the reasons? 2nd, in terms channel marketing strategy, especially for the second half of the year, there will be some change in your strategies, right? These are my two questions mainly. Right. Selling expenses in the first half this year, total amount increased. However, if you consider our same period revenue growth of 27%, but then SG selling expenses only up by 11 point something percent. So expense ratio came down. That's one point. And besides well, this is related to your latter question. When we look at expense ratio coming down, the main expenses like promotion and so on, they are coming down. The only point that is rising is commission and it includes sales commission and also outsourcing and other commission. So that is related to channel attitude. All along, we insist to work with the market. We use fewer agents. Our direct sales is quite a big percentage, so we can control our customer service. So that's why. But then for external size, we adopt a more open attitude. This year, there are 2 parts. 1st, social distribution social distribution accounting for 13% of sales, another part is by means of our sales and also retail outlets, repair or maintenance and so on, that took up 10.4% or 10.7%. In other words, for external channels and external channels marketing, we are active. Besides there are self built clusters or channels apart from online direct sales, we have got another channel that is for social distributors and also old property owners and staff members that is a comprehensive marketing tool That accounted for 25% of our sales scale. So overall speaking, in terms of selling channels, including the 100% self built channels, direct sales and also people based sales and also our Wandian Tongmeng that channel and also cooperation with other distributors, traditional distribution, all these effectively support our sales. But we will control the effective ratio for different projects, the effective or appropriate commission level and distribution level. So after May, the relevant commission expense ratio slightly went up, but then it is controllable. And externally, we will actively work with marketing partners in society to drive the overall selling strategy and completion of the strategy. So we will be active, but then in terms of expenses ratio, we will exercise reasonable control. Thank you. Thank you for the answer. Thank you investors for your questions. Can we now take the next question please? DOCR Research, Liu Yuxheng, please. Management, greetings. Your results overall speaking can deliver a peace of mind. There are 2 things we are concerned about. 1st, profit margin. Just now there's a question about GP margin. Can you talk about minority shareholders' equity when we acquire land, 80% is the attributable ratio. So can you talk about turnover? So this year, next year, what will be the attributable ratio? When will it bottom up and start to rise? And what about net profit? When will it see the bottom? This is related to the 3 red lines. So basically, you want to lower debt, you want to lower total debt at the same time, you want to keep a certain growth. So in other words, you need to expedite your turnover. It is difficult to raise profit margin by a lot. And if gearing ratio comes down, then we may have to do something with the turnover. But at your company's level, you are already at a very high level. So how are you going to achieve that in terms of strategy? In land acquisition, are you going to go for land, aiming at quick turnover? So when you acquire land, when you consider the types of land to acquire, how are you going to further improve turnover rate, please? Net profit. Our current estimate and our resources will be that at the end of next year, end of next year, net profit will see the bottom. I just said that our sales gross profit and book gross profit, there is a gap of 1.5 years to 2 years. So at the end of next year, we will see bottoming up. Now I have been emphasizing that in land acquisition, we have higher requirements than other tiers. We have higher requirements about turnover. So we have whole chain layout. So in Tiers 3, 4, 5 cities, we have more plan than our peers. That's because of our land acquisition requirement. We hope to achieve faster turnover. So if we can acquire good land in these past 2 years, we are moving towards this direction, results have been good. You can see that in this half year. With this operation quality, we're able to accumulate profits and increase attributable ratio and then debt can come down. For minority shareholders' equity at present, it is still not realized. But next year, I think some minority shareholders' equity can be reflected in the turnover. So I think it will rise gradually starting next year. Thank you. So, okay. One point is about minority shareholders' equity in mid this year in our reports. In mid last year, 35 point something at the end of last year, 35 point something now, 33 point something it is coming down in the statement since 2019. When we acquired land, attributable ratio is going up for new investment in 2020 and first half twenty twenty one. In 2020, bigger than 85% in first half of twenty twenty one, 85 percent. So in other words, our attributable ratio is slightly higher. In the future, our minority shareholders' equity can be effectively controlled. And I think our scale portion will go up. You just mentioned the lowering of gearing ratio. So financial leveraging should be should come down and at the same time we still can grow. As Mr. Moore said, we want to enhance our operations, so high turnover. How can we enhance operation leveraging? So we pick tiers 3, 4, 5 cities. So land acquisition rate is quite high. This year, it came down a bit 2.9 still. So based on state requirement of 40% of cash collection, if we make investment accordingly, then we only need 33.9% cash collection in order to achieve that target. So I think this leveraging will be such that with limited investment amount, we still are able to achieve quite high collection of cash from sales. Our development pace is now faster. Our cash collection efficiency is higher. Closed loop management is enhanced. All these will raise our operating leveraging fast. So you just asked how we enhance. So while we lower debt by means of raising operating leveraging, we can still solve problems and achieve growth. Thank you. Thank you for the question because of time. We will conclude the question part over the phone. Now we will leave the time for online investors. There are many questions coming online. So let me briefly conclude UBS CICC, Credit Suisse and so on. First question for Mr. Wu. Dividend and also venture capital yield, can you share with us in the coming 12 months, what is your financing plan? Right. Dividend. So same as before for venture capital, we start to have some profit and it is in our core net profit and dividend is paid from that. We hope investors can enjoy the profit with us. So it is included in the core net profit with RMB1.6 billion in the coming 12 months regarding financing plan. We will take out new loans to repay old ones because our overall financing scale won't change. So in terms of financing, we hope to have lower cost of financing. We will make new loans. We will use new loans to cover old ones. And for onshoreoffshore bond issuance, they are quite good, cost achieved record low. Thank you investors for your support. There are 2 there are good investment grades now. So our bond price in primary and secondary markets are good. Price in secondary market is stable. Thank you investors for your support. We will take new loans to pay down old loans. Next question. Will the company enhance your investment reserve in Tier 1, 2 cities in first half this year concerning our actual land acquisition in Tier 1, 2 attributable share is rising. Mr. Mo said that in centralized land supply for projects acquired during then, our overall assessment is quite good. And the second half for centralized land supply, it is version 2.0 for hot cities. The state continues to make adjustment in control over the price, the actual land price, policy direction is very appropriate for us. We can lower the premium rates and then we can improve quality. And with this method, it can effectively control investment risk. So at reasonable price and gross profit level, we can acquire relatively good land to build good quality products. That is very suitable for our philosophy of building affordable, good quality houses and we can also control investment risk. So we will take active part and we will closely monitor the second or the third centralized land supply policy change and also land availability. In the second half, we will take active part. And of course, we will continue to be actively prudent to look at land supply and we will be very smart in acquiring land. If this trend is clearer than in Tier 1, 2 cities, I think the ratio will increase. Thank you. Thank you, management. Because of time, we will conclude our results presentation here. There are still many questions from investors. You are most welcome to contact our management and investors relations team. We will answer them 1 by 1. Thank you for joining. See you next time. Thank you.