Decrease in gross profit rate of commercial agent construction business
According to the companys prospectus, from 2017 to 2019, the companys operating revenues were RMB 1.016 billion, RMB 1.48 billion and RMB 1.994 billion respectively, with a year-on-year increase of 45.8% and 34.6% respectively in 2018 and 2019, and the year-on-year growth rate decreased in 2019; during the same period, the companys profits from continuing operations were RMB 256 million, RMB 363 million and RMB 389 million respectively, with a year-on-year increase of 42% and 7.1% respectively in 2018 and 2019, the same as the previous year Compared with the growth rate, it has declined significantly; correspondingly, from 2017 to 2019, the gross profit margin of the company was 56.8%, 50.2% and 44.2% respectively, which also showed a continuous downward trend.
Green city management is mainly divided into three parts: commercial agent construction, government agent construction and other services. From the perspective of three business income distribution, from 2017 to 2019, the revenue of commercial agent business accounted for more than 70% of the companys total revenue, which was the companys main source of revenue; the second was government agent business, which accounted for 10% - 20% in the same period; the smallest revenue accounted for other service businesses, which accounted for less than 10% in the same period.
Commercial agent construction business means that the project owner is responsible for land acquisition cost and property construction cost, and the company is responsible for providing various property development services such as planning and design, engineering management, and collecting management fees from the project owner. From 2017 to 2019, the company achieved the business income of 877 million yuan, 1.146 billion yuan and 1.471 billion yuan respectively, with a year-on-year growth of 42% and 28.4% respectively in 2018 and 2019, and the year-on-year growth rate decreased in 2019.
It can be seen from the above table that from 2017 to 2019, the gross profit margin of commercial agent construction business was 61.4%, 55.7% and 46.2% respectively, which decreased year by year. Because the proportion of commercial agent construction business was high, therefore, the decrease of gross profit margin of this business was also the main reason for the decrease of the companys comprehensive gross profit margin.
Further breakdown shows that the decrease in the gross profit rate of commercial agent construction business is due to the decrease in the gross profit rate of commercial agent construction sub project business in cooperation with business partners. From 2017 to 2019, the business gross profit rates of commercial agent construction sub projects with business partners were 50.4%, 29.8% and 24.7%, respectively, with a significant downward trend.
Business model crowding out the companys cash flow
Cooperation with business partners in commercial agent construction mainly means that the company cooperates with business partners (mainly composed of 15 joint ventures) to operate commercial agent construction business. From the perspective of the number of projects, from 2017 to 2019, the number of projects in cooperation with business partners in commercial agent construction was 37, 67 and 89 respectively, accounting for 28.7%, 31.5% and 34.2% of the total number of projects of the company, with the proportion increasing year by year.
Correspondingly, from 2017 to 2019, the sub businesses achieved revenue of 120 million yuan, 383 million yuan and 676 million yuan, respectively, accounting for 14.9%, 33.4% and 45.9% of the business revenue of commercial agent construction, and the proportion of self operated projects of the company decreased year by year. It can be seen that the company increased its layout in the business of commercial agent construction with business partners.
According to the companys prospectus, the company recognizes all the management fee income generated from the commercial agent construction project with the business partner as the companys income. As for the business partners income, it is reflected in the service cost under the companys sales expense. In addition, the project prepayment collected by the company is generally between 20% and 30%, but the company needs to pay the business partners fees in full in advance.
From the above data, we can see that the companys revenue from commercial agent business cooperation with business partners continues to grow, greatly squeezing the companys cash flow.