Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
SHIMAO PROPERTY
HKEx Stock Code : 00813 
 
Corporate Profile
Principally engaged in property development, property investment and hotel operation.

Business Review - For the year ended December 31, 2012

Property Development

1) Recognised sales revenue

The Group generates its turnover primarily from property development, property investment and hotel operations. Turnover for the year ended 31 December 2012 grew by 10.1% to RMB28.6 billion, from RMB26.03 billion in 2011 . During the year, revenue from property sales climbed to RMB26.6 billion, approximately 8.2% more than that of 2011 , and accounted for 92.9% of total revenue. The average recognized selling price (including sales of associated companies) decreased by 13.0% to RMB10,251 per sq.m. in 2012, from RMB11 ,786 per sq.m. in 2011 . This decrease was mainly attributable to the discount offers applied to certain projects of the Group, and the considerable increase in the proportion of sales generated from projects in second- and third-tier cities since 2012. The number of projects recognized by the Group in 2012 totalled 37, compared with 32 recognized in 2011 . The 11 projects that recognized sales revenue of over RMB1.0 billion were: Changshu Shimao The Center, Fuzhou Jinjiang Shimao Dragon Bay, Fuzhou Shimao Skyscrapers, Xiamen Shimao Lakeside Garden, Hangzhou Shimao Riviera Garden, Fuzhou Minhou Shimao Dragon Bay, Shanghai Shimao Riviera Garden, Nanjing Shimao Bund New City, Suzhou Shimao Canal Scene, Kunshan Shimao East No.1 and Kunshan Shimao International City.

2) Steady sales growth of the Group, with sales reaching annual target

With respect to property sales, the Group's contracted sales amounted to RMB46.1 billion, exceeding the sales target by 50%. The aggregate sales area reached 4.09 million sq.m., with an average selling price of RMB11 ,277 per sq.m..

The excellent sales achieved by the Group clearly demonstrated the effectiveness of management's sales strategy. Looking into 2013, the Group will continue to launch brand new or existing projects with new phases, which will increase the saleable area by approximately 5.10 million sq.m.. When added to a saleable area of 2.56 million sq.m. as at 31 December 2012, the Group's saleable area in 2013 will reach approximately 7.70 million sq.m..

3) Completion of projects and development plans meeting expectations

The aggregate GFA completed by the Group in 2012 was approximately 3.33 million sq.m., approximate to 3.30 million sq.m last year. During the year, the Group's projects nationwide proceeded satisfactorily, with new floor area under construction reaching 5.22 million sq.m.. As at 31 December 2012, there were a total of approximately 10 million sq.m. floor area under construction.

This increase in the number of projects under construction laid a solid foundation for the Group's future development. In 2013, with a view to maintaining adequate liquidity, the GFA planned for completion was preset at approximately 5 million sq.m., 50% higher than that of 2012.

4) Steady expansion of land bank for long-term sustainable development

To support sustainable development, the Group has remained positive yet prudent in land acquisition. In 2012, the Group acquired approximately 1.3 million sq.m. of residential land bank in Wenchang in Hainan Province, Shanghai, Minhou in Fuzhou, Caidian in Wuhan, Nanjing and Nantong. In addition, the Group acquired approximately 1.25 million sq.m. of land bank in Ningbo, Hangzhou and Jinan recently. In terms of land cost, the average floor price of the new land reserve was approximately RMB4,382 per sq.m., showing the Group's commitment to prudent land acquisition and its ability to strike a balance between development opportunity and risk control. As at 31 December 2012, the Group's average land cost was RMB2,082 per sq.m.. The relatively low cost of its land should help ensure a higher profit margin in the future.

As at 31 December 2012, Shimao Property had an attributable land bank of 36.22 million sq.m., making it one of the top real estate developers in China in terms of land bank size. Geographically, the majority of the newly-acquired land parcels were situated in second- and third-tier cities at provincial capital level. These cities hold enormous development potential, bringing ample room for project development with minimal risks.

Property Investment

Shimao Property develops commercial properties through its 64.22% owned subsidiary Shanghai Shimao Co., Ltd. (¡§Shanghai Shimao¡¨), which is primarily engaged in the development and operation of commercial properties. Besides actively grasping development opportunities in the domestic commercial property market, Shanghai Shimao provides multiple types of commercial properties and high-quality services. It continues to work on achieving greater integration for increased competitiveness, and aims to become a highly successful listed company in the professional development and operation of commercial properties.

With respect to the development of commercial properties, during 2012 Shanghai Shimao recorded contracted sales of RMB8.53 billion and a contracted sales area of 639,000 sq.m., representing not only year-on-year growth of 68.2% and 86.3% respectively, but also a significant over-fulfilment of the sales target of RMB7 billion set at the beginning of the year. Shanghai Shimao actively seized opportunities brought by the ongoing recovery of the commercial property market and remained market-oriented in its product positioning. By adapting the pace of its project launches and sales to market changes, Shanghai Shimao was able to step up sales of commercial property projects in Xiamen, Jinan, Tianjin, Changshu, Hangzhou, Xuzhou, Kunshan, Nanjing and Wuhan, achieving good sales results. During 2012, all projects of Shanghai Shimao progressed on schedule with sufficient resources. New floor area under construction amounted to 909,000 sq.m., construction area reached 3.72 million sq.m., completed area reached 711 ,000 sq.m., and the operating properties held by Shanghai Shimao reached 804,000 sq.m.. As at the end of the year, the land reserve held by Shanghai Shimao amounted to 8.06 million sq.m., providing a strong basis for future development. During 2012, Shanghai Shimao remained market-oriented and customer-centered. Based on its annual operational strategy and targets, Shanghai Shimao made steady progress in implementing various operational, management and control measures. It focused on clarifying and strengthening its internal structure and business processes to enhance operational efficiency and optimize its management procedures. The commercial real estate business of Shanghai Shimao grew steadily, while at the same time its professional competence consolidated and improved and its product structure enriched.

Shanghai Shimao's plaza operations are based in prime locations including Shanghai, Shaoxing, Suzhou, Changshu, Kunshan and Xuzhou, giving it a strong foothold in several core business districts. Continuous growth in consumer flow and operational results were achieved, as a result of matching the business model with local consumer demand, and providing consumers with a comfortable environment and an excellent shopping experience. On 28 September 2012, Kunshan Shimao Plaza (Phase II), located at the intersection of Qianjin East Road and Dongcheng Avenue in Kunshan, held a grand opening ceremony. One of the largest commercial complexes in Suzhou, the Kunshan Shimao Plaza project includes a variety of property types such as commercial streets and commercial buildings. As an extension of Kunshan Shimao Plaza's commercial complex, Phase II was anticipated to extend the success of Kunshan Shimao Plaza in terms of its business model and development. Besides, Shanghai Shimao is building up good relationships with the stores in the Plaza by paying close attention to their operation and development, their commercial value and business cycle. On the operational front, Shanghai Shimao continued to strengthen the capacity and efficiency of its internal operations and management, while keeping strict control over its operating expenses. While focusing on attracting a diverse range of quality stores, we have increased the number of local stores and booths in Shimao Plaza, and provided stores with customised and diversified commercial services to help further improve their operations.

With respect to its department store operations, Shanghai Shimao kept a close eye on market trends and changing demand in the cities in which its department stores are located. Shanghai Shimao's department stores located in cities such as Beijing, Yantai and Fuzhou adjusted both their operational strategies and management methods by closely tracking consumer demand and market trends, and introducing famous brands and quality stores that matched local demand. Careful allocation and deployment of products targeting specific groups of consumers enabled positive brand building of various products at different department stores. Shanghai Shimao firmly believes that its Shimao department stores will benefit from development opportunities presented by the growth in consumption due to national urbanisation. Therefore, Shanghai Shimao will continue focusing on improving its retail environments, and will re-evaluate its stores' operating capabilities and contribution to total revenue in its efforts to achieve significant growth in revenue.

With respect to cinema investment, box office results from the movie market in China recorded further growth in 2012. Annual box office takings reached RMB17.07 billion (including the urban cinema market, the second-tier market and the rural market), representing a year-on-year increase of 31.08%; urban cinema audiences reached approximately 470 million in 2012, representing a year-on-year increase of 27%; 3,832 new screens were added during the year. As at the end of 2012, the total number of screens nationwide amounted to 13,11 8. During the reporting period, Shimao cinemas achieved revenue of RMB103 million, representing a significant year-on-year increase of 164.3%, providing more than 3.34 million people with cinema services. Various cinemas recorded notable growth in box office receipts, related products and goods for sale. As at the end of 2012, Shimao cinemas owned 10 cinemas and 87 screens nationwide. The number of seats in its cinemas also increased to 11 ,600. Shimao cinemas further enhanced its internal management structure and boosted the efficiency of its professional teams, while promoting inter-departmental coordination and integration. Shimao cinemas also carried out in-depth studies relating to cinema management, movie screenings and non-box office sales as aids to generating significant growth for the year. ¡§Shimao International Cinema¡¨, the second Shimao cinema in Kunshan, opened in September 2012. This cinema not only owns a SPC panoramic IMAX ¡§the Shimao Vision¡¨, but is also the first full 3D IMAX cinema in Kunshan. Apart from its business of self-developed commercial properties, Shimao cinemas plans to develop external businesses and new cinemas given the rapid development of the domestic movie market. In addition, the project management and preparation of new cinemas got on a fast track towards the predetermined goals for the opening.

With respect to child-focused business, during 2012 ¡§Shitian I Kids¡¨ constructed new outlets in Fuyang, Wuxi, Dahua in Shanghai, Jinshajiang in Shanghai and Kunshan, making a total of 14 outlets in operation. Staff training and assessment was upgraded at the various outlets, leading to enhanced service standards and operating capabilities. Shanghai Shimao plans to further explore development within the industry and gradually enrich its child-focused product lines by experimenting with new businesses. Shanghai Shimao will also adopt a more favourable commercial profits model in order to achieve better operating results.

HOTEL OPERATIONS

Currently the Group has six hotels in operation, with 2,679 guest rooms in total. They are Le Royal Meridien Shanghai, Hyatt on the Bund Shanghai, Le Meridien Sheshan Shanghai, Hilton Nanjing Riverside, Mudanjiang Holiday Inn, and Shaoxing Shimao Holiday Inn.

In 2012, the hotel industry was affected by the slowdown in China's economy, the European sovereign debt crisis, the China-Japan dispute over the Diaoyu Islands and the strict control over public funds imposed by the new government after the 18th CPC National Congress. These political and economic factors, coupled with the emergence of new hotels, led to an increase in hotel supply in certain regions and affected the overall revenue of Shimao hotels to a certain extent. In response, the Group's hotels consolidated its European and American markets, and explored emerging markets in Russia and India to compensate for the reduction in overseas guests. It also stepped up its marketing efforts in the domestic market, actively building new customer bases in state-owned and private enterprises and tapping into the personal consumption market (such as wedding banquets) through flexible pricing strategies. These initiatives helped the Group's hotels record revenue of approximately RMB1 billion in 2012, representing a year-on-year increase of 12%.

Although hotel supply in Shanghai continued to grow, the Group's Le Royal Meridien Shanghai and Hyatt on the Bund Shanghai remained among the top hotels in Puxi in terms of revenue, amid intense competition. Food and beverage revenue from Hyatt on the Bund Shanghai continued to rank top among hotels in Puxi. Le Meridien Sheshan Shanghai has remained one of the best suburban hotels in terms of operating efficiency. Although Mudanjiang Holiday Inn, Shaoxing Shimao Holiday Inn and Hilton Nanjing Riverside have only been open for 1 to 2 years, they have already gained a strong foothold in the local market and are currently heading towards better operating results.

Business Outlook - For the year ended December 31, 2012

Looking into 2013, it is expected that China's GDP growth will be higher than the 7.8% of 2012 and the global economy will witness improvements, even though the U.S. is dealing with the ¡§fiscal cliff¡¨, and there are signs of possible economic recovery there. The European sovereign debt crisis has been further relieved. It is hoped that these favourable macro factors will benefit the Group's hotels. Although the tight restrictions on public funds imposed by the government have affected high-end hotels, the overall operating environment for hotels will continue to improve. In addition, the recovery of the Shanghai hotel industry is expected to accelerate in 2013 after a slump following the 2010 World Expo peak.

Construction of the infrastructure and supporting facilities of Shanghai Disneyland has been largely completed, and the first round of recruitment has started. The theme park broke ground in April 2012 and is expected to open in 2015, providing another boost for Shanghai's tourism industry. As the largest city in China, Shanghai maintained its leading position in attracting foreign direct investment (FDI) in 2012, which amounted to US$15.02 billion, representing a year-on-year increase of 20.5%. China as a whole attracted foreign investment of US$111 .72 billion in 2012, representing a year-on-year decrease of 3.7%. As at the end of 2012, there were a total of 265 investment companies in Shanghai, and 403 multinational companies had set up their regional headquarters in the city, placing Shanghai ahead of all other cities in China in this respect. In the long run, Shanghai's economy, finance and shipping sectors will further rise to world-class city standards. The Shanghai tourism industry (including the hotel industry) will undoubtedly benefit from this trend.

Source: Shimao Property (00813) Annual Results Announcement
Chairman Hui Wing Mau Issued Capital (shares) 3,473M
Par Value HKD 0.1 Market Capitalisation (HKD) 60,214M
 
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