Shulou(Shulou.com)06/03 Report--

Central South Construction (SZ000961) released its annual results for 2019 on April 28th, with total revenue of 71.83 billion yuan during the reporting period, an increase of 79.08% over the same period in 2018

The net profit attributed to shareholders of listed companies was 4.16 billion yuan, an increase of 89.8% over the same period last year, and non-net profit also increased by 114.56% to 3.51 billion yuan over the same period last year.

This eye-catching financial report data also makes Zhongnan Construction think highly of itself: the company's performance has achieved high-quality growth, the debt structure has been further optimized, and financial stability and safety have been further improved. it provides a strong driving force for the sustainable development of the company.

But can Central and South China really afford such a conclusion?

The actual situation may not be!

The performance is bright on the surface, but the quality of growth is actually mediocre.

Judging the performance growth quality of the real estate enterprise mainly depends on its operating efficiency. When the operating efficiency looks at the level of gross profit margin, the higher the gross profit margin, the better, which means that the marginal cost of the company is lower.

Second, look at the operating cash flow of the enterprise, which can reflect the amount of disposable funds of the enterprise, as well as the sales rebate, and directly show the health status of the business structure of the enterprise.

Let's start with gross profit margin, which is an effective indicator of its operating efficiency.

According to Zhongnan construction financial report data, real estate sales and construction are its two main businesses, accounting for 68.03% and 29.24% of the group's revenue, respectively.

Photo source: central South Construction Financial report 2019

But the combined gross profit margin of these two main businesses is only 16.7%, which is not high, down 2.8 percentage points from the same period in 2018.

Among them, the gross profit margin of the main real estate sales business was 17.93%, down 2.3 percentage points from the same period last year, and even lower than the industry average gross margin of 25%.

The gross profit margin of the construction business is not high, only 9%, down 2.58 percentage points from last year.

Photo source: central South Construction Financial report 2019

Then look at its operating cash flow.

The financial report shows that Central South Construction achieved an operating cash inflow of 111 billion yuan in 2019, with abundant cash on paper, but also generated an operating cash outflow of 102.8 billion yuan. The net operating cash flow for the whole year was only 8.196 billion yuan, a decrease of 57.82% compared with 19.43 billion yuan in 2018.

Operating cash flow expenditure greatly diluted operating cash inflow, it can be seen that its cash flow situation is not good.

And the improvement in its cash flow is not driven by sales, but by the increase in the scale of financing. To put it simply, it is to borrow money to make yourself look rich, and to use an inappropriate example is to "make the face swollen and fill the fat".

Compared with 2018, the increase in operating cash flow of Zhongnan Construction in 2019 mainly came from "other cash related to business activities", reaching 32.33 billion yuan, an increase of 4.7 times over 2018, but the sales rebate, that is, the cash received from "selling goods and providing services" was only 78.65 billion yuan, which was nearly 11.6 billion yuan less than the 90.22 billion yuan in 2018.

Photo Source: Oriental Wealth display data

To some extent, this data change can prove that the improvement in the operating cash flow of Central and South China construction is not driven by performance, but due to the increase in external borrowing.

Because there are two main ways for real estate enterprises to get cash, one is sales rebate, and the other is foreign loans, that is, cash related to business activities.

Therefore, only from the two aspects of gross profit and operating cash flow, it is sufficient to demonstrate that the superficial performance of Central and South China Construction has greatly increased, but in fact, its business structure is not healthy, and the quality of performance growth is not too high. On the contrary, it is the problem of the increasing scale of debt, which makes its financial health extremely worrying.

The debt is high and the financial structure is not healthy.

As we have said before, real estate is a debt-driven industry, financing, selling the house to refund, repaying the loan, and the rest is our own.

Therefore, reasonable debt is conducive to housing enterprises to expand the scale of operation and achieve higher profit growth, but if the scale of debt is too large, or the company has its own cash can no longer cover the scale of debt, a series of operational problems will appear, and the financial structure will continue to worsen. At this time, the debt problem will become the sword of Damocles that threatens the company's operation, and the ability to resist risks will be greatly weakened.

According to the Central South Construction Annual report, its total asset-liability ratio reached 90.77% in 2019, down 0.92 percentage points from the end of 2018, but still higher than the industry average of 64.3%.

Although the net debt ratio fell by 25.56 percentage points, it was also as high as 165.95%, also well above the industry average of 92.5%.

Specifically, the short-term loans and non-current liabilities of Central-South Construction reach 23.56 billion yuan, while the disposable cash of Central-South Construction is only 25.41 billion yuan, of which 9.2 billion yuan belongs to restricted funds that cannot be disposable freely.

In other words, the actual amount of funds available for debt service in Central and South China Construction is only 16.21 billion yuan, which is difficult to cover the debt scale of 23.56 billion yuan, which shows that its cash flow situation is not ideal.

Moreover, under the tone of deleveraging in the real estate industry, Zhongnan Construction seems to be going in the opposite direction, going further and further on the road of increasing the scale of debt.

According to the financial report, in the cash inflow of Central and South China Construction's fund-raising activities in 2019, the amount of borrowing reached 52.31 billion yuan, an increase of 14.26 billion yuan from 38.05 billion yuan in 2018, and the amount of bonds issued reached 7.088 billion yuan, nearly double the 3.283 billion yuan in 2018.

Photo source: Wande data

It can be seen that its so-called debt structure optimization is not ideal, and Central and South China Construction is still increasing the debt scale, this leveraged mode of operation, it is difficult to see the improvement of its financial structure.

Therefore, the conclusion that Central and South China Construction has achieved high-quality performance growth, continuous optimization of debt structure, further improvement of financial stability and security, from its actual business structure, it is difficult to be recognized.

On the contrary, it is more appropriate to draw a conclusion based on the low operating efficiency of the enterprise, the general quality of performance growth, the debt structure has not improved, the cash flow is tight, and the financial stability and security are worrying.

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