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Results Anlysis| LVGEM (China) Focused and Prudent Development to Secure Sustainable Growth Being the most respected city value-creator in China Author: CHINA LVGEM

On 30 August 2022, LVGEM (China) Real Estate Investment Company Limited (00095. HK) [hereinafter referred to as LVGEM (China) ] held the 2022 interim results presentation online. Adhering to the principle of “Focused and Prudent Development to Secure Sustainable Growth, the Group continued to focus on the residential and commercial development projects of urban renewal in the Greater Bay Area, striving to expand and refine the single urban renewal project, and consolidating a solid moat in the urban renewal segment in the Greater Bay Area with promising prospects.

1Management of LVGEM (China)

During the Reporting Period (for the six months ended 30 June 2022), the Group achieved total revenue of approximately RMB1045.0 million. The decrease in revenue was mainly due to the decrease in the number of projects carried forward from the non-Shenzhen region and the significant difference in unit price between the non-Shenzhen region and the Shenzhen region during the Period; At the same time, market confidence has not been restored in the first half of 2022, and house buyers have a strong wait-and-see attitude. The average sales of the top 100 real estate enterprises in China also experienced a near-half decline, and the demand side shrank significantly.

During the Period, the Group’s gross profit was RMB434.4 million, and the gross profit margin continued to maintain at 41.6%, based on the increase in the value of investment properties. Profit for the Period was RMB1026.8 million, representing a year-on-year increase of approximately 65.2%. Profit attributable to shareholders of the Company was RMB630.8 million, and basic earnings per share were RMB12.4 cents.

Several urban renewal projects progressed steadily and Phase I of Baishizhou is about to enter the harvest period

In the first half of 2022, the Group adhered to regional penetration and gradually promoted the maturity of high-value residential and commercial development projects located in the core areas of the core cities of the Guangdong-Hong Kong-Macao Greater Bay Area. Wherein, as the largest and most iconic urban renewal project for old area in Shenzhen City-Baishizhou urban renewal project is progressing smoothly.

In March 2022, the Group paid the remaining land premium for the pre-sale of land parcel No. 08 of Baishizhou Phase I and obtained the land use right certificate to satisfy the withdrawal conditions of the bank development loan.

In terms of project progress, the construction progress of the phase I project was satisfactory. The Group united as one to ensure the construction period. At present, the construction of plus minus zero is underway. According to the construction progress, Phase I of Baishizhou will be officially launched for pre-sale in 2023, which will bring a leap-forward income and cash flow scale to the Group, and also mark that LVGEM (China) has officially entered a stage of rapid growth.

2Baishizhou Project

It is worth mentioning that the Baishizhou Project was awarded the “Certificate of Material Project” by Shenzhen Municipal Development and Reform Commission, demonstrating the high recognition and support from the government and all sectors of the society for the Baishizhou Project. The Group will forge ahead, fully develop the Baishizhou Project, strive to build a benchmark for urban renewal, and help the old area in Baishizhou to transform into a smart city with international standards, to empower the city value and live up to the expectations of the society.

In addition, the contract rates of the Liguang Project and Phase II of the Shazui Project have reached 100%, of which the main body of Shazui Phase II has been confirmed and officially commenced construction. It is expected that the pre-sale conditions will be met in 2023.

The Zhuhai Dongqiao Project (LVGEM Royal Bay), as the high-end residential project in the core luxurious residence zone of Nanwan, Xiangzhou, Zhuhai City, has proven its scarcity value. The sale was satisfactory since the market launch in October 2021, which ranked top ten many times on the hot-sale list of Xiangzhou District, Zhuhai City, and became one of the hot offers in the region, thereby adding a new growth driver of the Group’s revenue. In August 2022, the north area of LVGEM Royal Bay was fully topped out and became a quasi-existing mansion in the Nanwan district. As of the date hereof, the saleable inventory value of LVGEM Royal Bay that has satisfied the conditions of pre-sale amounted to RMB 6.0 billion, which will contribute to steady sales income and increase the capital available for the Group.

3LVGEM Royal Bay

4LVGEM International Garden

In terms of land reserves, for the six months ended 30 June 2022, the Group had land reserves of over 16 million sq.m., of which approximately 90% were located in key cities such as Shenzhen, Hong Kong, Zhuhai, and Dongguan in the Greater Bay Area. In addition, the land reserves owned by our controlling shareholders include projects in Shenzhen, Zhuhai, and Zhangmutou, Dongguan, all of which are located in the core areas of the Guangdong-Hong Kong-Macao Greater Bay Area. The abundant land bank can meet the development needs of the Company in the next decade and ensure the Group weathers the industry downturn smoothly.

Introduced Vanke as a strategic shareholder of the Baishizhou Project, greatly improved market recognition

 It is also worth noting that the Group successfully introduced Vanke as a strategic investor to the Baishizhou Project in the first half of the year. Vanke will make a capital injection of approximately RMB2.3 billion into Sida Industrial, which holds the Baishizhou Project. Upon completion of the transaction, Vanke holds approximately 8% of the equity interests and obtained the rights of dividend distribution from Phase III and IV of the Baishizhou Project at an appropriate consideration. In terms of the cooperative business model, both parties will set up a board of directors in the project company. The first and second phases of the project will be independently developed and operated by LVGEM (China). Both parties will leverage their respective advantages in engineering and marketing to achieve win-win cooperation in the third and fourth phases.

As one of the leading companies in the real estate industry in China and a long-term cornerstone investor of the Group with strong capabilities. Vanke has entered the Baishizhou Project with a long-term investment perspective, which is a high recognition of the Group and the Baishizhou project. Vanke will leverage its advantages in development and operation, credit, and brand influence to further enhance the safety of the construction and operation of the Baishizhou Project, and greatly enhance the capital market’s confidence in the Group’s successful development of the Baishizhou Project.

This cooperation has been highly recognized by the capital market. DBS released a research report saying that the inmmediate cash provided by Vanke will help reduce the liquidity pressure of LVGEM (China) to better facilitate its future negotiation with creditors/investors via leveraging on its closer relationship with Vanke. Regarding this collaboration, DBS stated that “the major uncertainties of the company have been eliminated” and maintained a “Buy” rating for the Company.

The rapid development of commercial real estate has steadily expanded

During the Reporting Period, adhering to the “two-pronged” development model of “residential and commercial”, the Group held and operated the commercial properties located in the core areas of core cities of the GBA, which contributed diversified rental revenue and steady cash flows to the Group. Currently, the Group has established the commercial property presence represented by NEO Urban Commercial Complex and Zoll Shopping Centre, continued to increase the number of commercial property projects, steadily expanded the total gross floor areas under our operation and management, and further developed its capabilities in high-quality commercial operation. As of 30 June 2022, the Group held over 30 quality commercial property projects, comprising a total gross floor area of approximately 1,635,686 sq.m., a significant expansion of commercial space compared to the same period last year of 831,326 sq.m.

5View of LVGEM NEO

In the first half of 2022, COVID-19 is still raging, and the global economy has entered a downturn. During the Period, the Group made great progress, forged ahead, actively reduced the risks brought by the external environment, and the occupancy rate of Shenzhen NEO remained at 91%. In January 2022, Zoll Mangrove Shopping Centre staged its grand opening, which marked another significant commercial layout to the Zoll series.

6          View of Zoll Mangrove Shopping Centre

For Hong Kong NEO, a super-class office building with a panoramic sea view located in East Kowloon, Hong Kong, continued to face the challenges brought about by repeated epidemics and lack of customs clearance during the year. The occupation rate from 60% steadily increased to 71%, achieving a contrarian rise. During the Period, the internationally renowned fashion brand Casetify and higher education institutions settled in Hong Kong Neo. At the same time, the building achieved 100% customer satisfaction, which showed the high-quality commercial operation ability of Hong Kong Neo and provided a solid guarantee for the gradual rise of the occupancy rate.

During the Period, on 30 June 2022, the Group’s comprehensive rental rate was approximately 94%, significantly outperforming the market; The income from commercial property investment and operation was approximately RMB338.0 million, an increase over the same period last year. The Group believes that with the transformation of the economic development of GBA to high quality and the interconnection of the core urban agglomeration, the fair value of the core commercial properties held by the Group will increase in the long term, which will continuously improve the quality of the Group’s assets.

The short-term debt was gradually completed, and the security of the refinancing arrangement was significantly improved

 During the Reporting Period, the Group firmly pursued the top priority of “ensuring safety”, actively deployed various financing plans, constantly expanded diversified financing channels at home and abroad with high-quality assets as the cornerstone, and seized the financing opportunities brought by favorable industrial policies, further improved the financial structure, and ensured the liquidity safety of the Group. Under effective and active debt management, the Group’s comprehensive financing cost in the first half of 2022 was 6.5%, which remained within a reasonable range.

In the first half of 2022, the Group gradually completed the short-term debt repayment and refinancing arrangements due within one year. The debt pressure continued to ease and the security was significantly improved. At the same time, the Group maintained a simple and clear debt structure, mainly bank and other loans, without any off-balance-sheet liability, trusts, and financial products targeted at financing. During the Period, the Group took high-quality urban renewal projects as the asset base, and bank withdrawals were carried out smoothly to meet the Group’s project development and daily operation needs. It is worth mentioning that the Baishizhou RMB20.7 billion special credit syndicate is normally promoted during the Period, and it is expected to complete the establishment of the bank consortium and realize the withdrawal cash soon, which will provide a solid financial guarantee for the development of Baishizhou Project.

In the first half of this year, based on the high deterministic growth path and long-term development prospects, LVGEM (China) was recognized by the industry and was once again awarded the “Top 10 Shenzhen Real Estate Development Enterprises in Comprehensive Strength”, “Shenzhen Real Estate Development Enterprise Brand Value” and “Shenzhen Real Estate Development Enterprise Social Responsibility” by Shenzhen Real Estate Association. The advantages of regional intensive cultivation are obvious and LVGEM (China) has become the ideal urban renewal brand and won the good reputation in the Bay Area.

Looking forward to the future, Mr. Tang Shouchun, Executive Director and Chief Executive Officer of LVGEM (China), said, “The real estate industry has bottomed out in terms of policy regulation, and market confidence has been slowly restored. I believe that the darkest moment for the real estate industry has passed, and the future will gradually recover. LVGEM (China) is deeply cultivating the core areas of the core cities of the Guangdong-Hong Kong-Macao Greater Bay Area, and gradually promoting several urban renewal projects to mature, especially the Baishizhou urban renewal project in Shenzhen, which has attracted much attention from all walks of life. The pre-sale will start next year and the Group will also usher in its heyday, and vows to take safety as its primary goal. The Group will adopt the main theme of “Focused and Prudent Development to Secure Sustainable Growth”, and firmly be the most respected creator of urban value.”




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