China Housing & Land Development's CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: China Housing (CHLN)

China Housing & Land Development, Inc. (NASDAQ:CHLN)

Q2 2013 Earnings Conference Call

August 14, 2013 8:30 AM ET

Executives

Bill Zima – ICR

Pingji Lu – Chairman

Xiaohong Feng – Chief Executive Officer and Managing Director

Cangsang Huang – Chief Financial Officer and Managing Director

Jing Lu – Chief Operating Officer

Analysts

Angel Liu – Pope Asset Management

Operator

Good day and welcome to the China Housing and Land Development Incorporated Second Quarter 2013 Earnings Conference Call. Today's conference is being recorded.

At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Bill Zima. Please go ahead sir.

Bill Zima – ICR

Hello everyone and welcome to the China Housing and Land Development Q2 earnings conference call. The company's results were released early today and are available on the company's Investor Relations website at www.chldinc.com as well on the respective wire services.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties and as such our results may materially differ from the views expressed today. Further information regarding those and other risk and uncertainties is included in our Registration Statement and our Form 10-K and other documents filed with the SEC. China Housing does not assume any obligation to update any forward-looking statements except as required under applicable law.

On our call today is Mr. Pingji Lu, Chairman of the Board; Mr. Xiaohong Feng, Chief Executive Officer; Ms. Jing Lu, Chief Operating Officer; Mr. Cangsang Huang, Chief Financial Officer.

Management will provide some remarks about the general business climate, a review of the Company’s financial results, and supply some perspectives on the Company’s outlook going forward.

At this time, I’d like to turn the call over to Mr. Feng. Please go ahead, sir.

Xiaohong Feng

[Foreign Language]

Hello, everyone, and welcome to our call today.

[Foreign Language]

Our strong second quarter results continue to reflect the overall trends in Xi'an housing markets and we once again exceeded our previous guidance forecast. This positive market trend combined with our growing project development, allows us to capitalize on strong average selling prices in the second quarter.

[Foreign Language]

According to data provided by e-House China, GFA total sales in Xi'an increased to 1.3 million square meters in the second quarter of 2013, compared to 1.1 million square meters in the first quarter of 2013, and 1 million square meters in the second quarter of 2012. Average selling prices in Xi’an increased to RMB 7,502 per square meter, compared to RMB 7,418 in the first quarter of 2013, and RMB 7,431 in the second quarter of 2012.

[Foreign Language]

Looking at our projects, our newest projects, Puhua Two and Three, Park Plaza, and Ankang projects contributed to the majority of our second quarter revenue. Second quarter gross floor area for GFA sales increased significantly in the second quarter to 48,439 square meters, an 87% increase from the same period last year.

[Foreign Language]

We plan to launch one additional project before the end of 2013, that has got delayed, which will represent one of our largest projects today. With an estimated 252,000 square meters gross floor area, we will initiate marketing at Golden Bay on the third quarter and adjust our sales strategy based on market impact on the project. We anticipate official presale will start in the fourth quarter.

[Foreign Language]

With stable levels of transaction volume and average selling prices in Xi'an market, we expect demand for new home buyers to remain stable, despite the central government guidelines to curb speculative investment over the last six months. We expect demand in pricing our projects to remain stable.

[Foreign Language]

We continue to focus on the development of our current projects in our portfolio, and ensure effective and timely execution to further capitalize on housing demand trends, we believe that our strong performance will continue through the second half of 2013.

Now I‘d like to turn the call to our Chief Operating Officer, Ms. Jing Lu to more thoroughly review our operational performance in the second quarter.

Jing Lu

Thank you, Mr. Feng. We are pleased to see this continued demand for our projects in the second quarter of 2013. We basically once again exceeds our revenue guidance forecast. Our revenue increase will be reflected after demand for our two new development projects that commenced the pre-sale in the fourth quarter, as well as continued ability of Xi’an housing market.

Our second quarter 2013 revenue and GFA sales increased significantly from the same quarter of last years. The revenue growth reflected the standard demand in Xi’an’s housing market, as well as our ability to invest those investment, execution to green yield demand quality resident to growing to about four times to help buyers.

Look at our individual projects. Park Plaza once again generated highly (inaudible) optimization revenue in the second quarter, as GFA sold for this projects with most amount owned up our projects.

Park Plaza reported that GFA sales up 17,348 square meters and the transaction sales up to $25.1 million. Second quarter average selling price at project was RMB 8,903, increasing from our ASP in the last quarter. With 110,000 square meters of unsold GFA, this project will be notable contributor to our recognized revenue stream in the second half of this year.

Puhua Phase Two was the second largest revenue contributor responsible for over 14 million in the recognized revenue. Puhua Phase Two reported GFA sales up 9,181 square meters and its contract sales, up $14 million. The GFA sold during the second quarter increased 80.9% from the last quarter, it was ASP relates this to RMB 9,181 from the RMB 8,700 in the last quarter. This project will have over 127,000 unfilled GFA remaining.

Our Puhua Phase Three project has generated $9.2 million in recognized revenue. That our Park Plaza projects is the project will also launched in the fourth quarter of Puhua Phase Three reported that GFA sales was up 8,665 square meters, and the contract sales up to $10.1 million, all through the GFA sales was considerably lower during the quarter, second quarter ASPs over 55% from the current quarter. This project has over 71 and so unsold GFAs remaining.

During the second quarter, we began to recognized revenue to our Ankang project, which was commenced pre-sales in the fourth quarter of the 2012. Ankang recorded GFA sales up 12,655 square meters. Contract sales up $80 million and a $5.5 million in recognized revenue in the second quarter. The ASPs remaining about the same level in the last quarter compared with that of the last quarter.

Our second quarter gross margin up to 13.6% with a high-end of our project full years gross market range up to 25% to 30% that was due to the increasing the average selling price and the commercial steps in Puhua Phase II, which contributes the significant related to our high gross margin. We continue to expect our full year gross margin to be in the 25% to 30% range for the 2013.

Look at our new project. We have one remaining development project expect to come on line this year. We will intentionally marketing for Golden Bay from the third quarter and adjust our sales strategy based on market feedback on the project. We anticipate that official pre-sales will be starting in the fourth quarter.

We continue to focus on improving our balance sheet, reduce our liability and maintaining the strong working capital position. We have a sufficient cash levels for our new business project launched in the fourth quarter, continue to experience include buyers’ demand and our generated meaningful operating cash flow through out business.

We believe in the housing market condition this year will measure the billable for the foreseeable future, which will benefit our operation. We are very pleased with our strong first half and with our opportunity during the half of this year. We believe 2013 can continue to be an excellent year for China Housing.

At this point, I would like to change this call over to our CFO, Mr. Cangsang Huang to review our second quarter financial summary.

Cangsang Huang

Thank you [Jing]. Let’s review our financial results and outlook in more detail. Total revenue in the second quarter increased by 9.9% to $59.7 million, from $54.4 million in the first quarter this year, and increased 70.6% from $35.0 million in the second quarter of last year.

Our revenue decreased to $7 million from $11.1 million in the first quarter, and increased from $4.9 million in the second quarter of last year; the year-over-year increase was due to the Company’s recognition of interest income on deposits with several banks from borrowing U.S. dollar more from overseas banks.

And in the second quarter of this year, the majority of Company’s real estate revenue came from Puhua Phase Three, Phase Two East regions and Park Plaza projects. Contract sales in the second quarter totaled $59 million compared with $82.4 million in the first quarter of this year and $23.5 million in the same period of last year.

Total GFA sales were 48,439 square meters during the second quarter compared with 89,691 square meters in the first quarter of this year and 25,908 square meters in the second quarter of last year.

The Company’s ASP in the second quarter were RMB 7,499 compared with RMB 5,695 in the first quarter of this year and RMB 5,705 in the second quarter of last year.

Gross profit in the second quarter was $18.3 million, representing an increase of 101.9% from $9 million in the first quarter of this year, and a 125.3% increase from $8.1 million in the second quarter of last year. Gross profit margin for the quarter was 30.6%, which is above the 16.6% in the first quarter of this year and the 23.2% of second quarter of last year. The increase in gross profit margin was mainly due to a combination of the increased sales volume, increased average every sales price and the sales (inaudible) of these two commercial units which had higher gross margins that company continues to expect full year gross margin to be in a range of 45% to 30%.

SG&A expenses was $4.9 million in the second quarter of this year compared with $3.2 million in the first quarter of this year and $4 million in the same period of last year. SG&A expenses as a percentage of total revenue was 8.2% compared with 5.8% in the first quarter of this year and 11.3% in second quarter of last year. Year-over-year increase in SG&A expenses was due to the increased salary expenses during this second quarter associated with the new projects announcing pre-sales activity.

Operating income in the second quarter of this year was $9.2 million or 15.3% of the total revenue, compared to $4.3 million or 7.9% of the total revenue in the first quarter of this year and $3.1 million or 8.7% of the total revenue in the second quarter of last year. The year-over-year increase in operating income was mainly due to the increased sales revenue and improved gross profit margins.

Net income attributable to China housing in second quarter of this year was $6.4 million or $0.18 per diluted share its performance compared to net income of $3.1 million or $0.9 per diluted share in the fourth quarter of this year and net income of $1.9 million and the diluted share in the second quarter of last year. As of June 30, 2013 China Housing reported $101 million in our restricted cash compared to $6.1 million as of December 31, 2012. Total debt outstanding as of June 30 this year was $301.9 million compared with $202.6 million on December 31st, 2012.

As we look ahead to the third quarter of this year, we anticipate total recognized revenue to reach $34 million to $36 million compared with $28.9 million in the same period of last year. The company is reporting revenues which are not subject to percentage of completion [all durations].

This concludes our prepared remarks for the day. Operator, we're ready to take questions please.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we’ll take our first question from (inaudible).

Unidentified Analyst

Hi guys. One question, how the net cash went up from $6 million to $100 million for the quarter?

Xiaohong Feng

Yeah, we generated (inaudible) and also drove down some loans from our credit lines. So at the end of quarter, we have roughly $100 million of cash because of we have a potential land acquisition coming in the third quarter, so we should be ready for that.

Unidentified Analyst

Land acquisition okay and in terms of the interest cost going down, do you see that going down in the next couple of quarters or is it going to be pretty much same what we’ve seen in the last few quarters?

Xiaohong Feng

I think it will be the same for the first half of this year.

Unidentified Analyst

Okay. Any thoughts about payout of dividend or stock buyback?

Xiaohong Feng

On dividend, we need to discuss that, but for share buyback, we do core, we do accrue a share buyback program and we will still take that program going forward and we just wait in for trading window to open.

Unidentified Analyst

Okay. And you guys are looking at any investments outside of China like (inaudible) or you’re going to pretty much considering yourself in the Chinese market?

Xiaohong Feng

Currently we are looking at a potential projects in China right now, but of course we keep our eyes open, if there is any attractive deals coming in of course we will take that up.

Unidentified Analyst

Okay, thank you guys.

Xiaohong Feng

Thank you.

Operator

(Operator Instructions)

And we will take our next question from Angel Liu from Pope Asset Management.

Angel Liu – Pope Asset Management

Hey everybody, congratulations on the good second quarter. My first question is I wonder if you can breakdown the gross margin based on each project base?

Xiaohong Feng

Basically we have for our construction projects. The growth margin for residential side is roughly 25% and this collar we have what is a higher gross margin insurance. We have two commercial units being sold if you want to close it, which has roughly 70% gross margin.

Angel Liu – Pope Asset Management

Is that though the (inaudible) because that’s where the average in that trans was really high buyback?

Xiaohong Feng

Well, at least one (inaudible) roughly 40% gross margin.

Angel Liu – Pope Asset Management

Okay. That’s awesome. Looking ahead which one have average selling prices of – do have a average selling price of $17,400 for this quarter, is this for a commercial year sale?

Xiaohong Feng

Yeah, in the Phase II.

Angel Liu – Pope Asset Management

In Phase II?

Xiaohong Feng

Yes.

Angel Liu – Pope Asset Management

So what is that part of you saw that this quarter? From Phase I they have a much higher average of selling price comparing to average, is that kind of double the price comparing to average?

Xiaohong Feng

Yes, the Phase II, with regard to Phase II…

Angel Liu – Pope Asset Management

Phase I. In your breakout comparison, in your announcement for the Phase I you have?

Xiaohong Feng

Yes. Most from units those are small units. Small basically.

Angel Liu – Pope Asset Management

Okay. And then what about gross margin?

Cangsang Huang

Gross margin is roughly 30% to 35% overall.

Angel Liu – Pope Asset Management

Okay. And for Ankang?

Cangsang Huang

Ankang, right now, we are looking at roughly 25%.

Angel Liu – Pope Asset Management

All right. And what kind of gross margin you’re planning to achieve Golden Bay for you and Textile City as you launched sales?

Cangsang Huang

Currently, when you think the project is still in the range, roughly 30% to 35%, overall, 30% just is a kind of high-end project for all costs, it depends on a lot of (inaudible). And at this stage, especially, right now, I think we are still look at roughly 30%.

Angel Liu – Pope Asset Management

Okay. And then my second question is regarding this stock-based compensation in this quarter, that’s a little bit higher than usual. Can you add a little bit color on that?

Cangsang Huang

The compensation for the assets or bank?

Angel Liu – Pope Asset Management

Is that $1 million or is that the compensation for the assets?

Cangsang Huang

Yeah. It’s actually the annual interest we’ve gained the shares and compensations especially shares the year after once a year. So we are accrued all to be expensive in this quarter and the last quarter.

Angel Liu – Pope Asset Management

All right, okay. I don’t have any other questions. Thank you very much.

Cangsang Huang

All right, thank you.

Operator

(Operator Instructions) And at this time, we have no further questions. I would like to turn the conference back over to management for any closing or additional remarks.

Xiaohong Feng

All right, tank you everyone for listening to our second quarter 2013 conference call. We’re looking forward to updating you in the next quarter. Thank you.

Operator

And that does conclude our conference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

About this article:

Expand
Tagged: , Real Estate Development, China,
Error in this transcript? Let us know.
Contact us to add your company to our coverage or use transcripts in your business.
Learn more about Seeking Alpha transcripts here.