China Resources Land

What does the company do?

CR Land is the largest property developer in China that we see as a key beneficiary of consolidation in the mainland real estate sector over the long term. CR Land has a diversified portfolio and industryleading margins, underpinned by a strong brand identity and competitive financing cost. Its large-scale landbank is also primarily in first and second-tier Chinese cities, which positions it well to capitalise on a turnaround in sentiment. The group also enjoys stable recurring income streams from its portfolio of high-quality shopping malls, which provides some level of stability and visibility in its earnings. Its portfolio of investment properties provides a further liquidity source, in addition to a strong project pipeline. Its financials are also solid with a strong balance sheet. All this is reflected in its premium valuation, and its resilience amid an industry downturn that was orchestrated by the government to reduce sector leverage. Recently, the Covid flare-ups in China have affected industry sales and worsened liquidity conditions for highly geared developers. A well-capitalised, blue-chip developer like CR Land will benefit from market consolidation over the long run. Additionally, continued urbanisation and rising affluence of a growing middle class in China will underpin housing demand in high-tier cities and domestic consumption, which are also positive tailwinds for the property group. CR Land is also a good example of how we identify and close perception gaps in ESG quality in China. We rate it highly internally based on our research and due diligence. However, scores from rating agencies like MSCI were low, reflecting an under-appreciation by the market. It also meant that the company was not explaining its ESG story well to investors. We felt that engagement with CR Land to enhance performance and disclosure would help on this front. We worked with CR Land collaboratively, identifying areas for improvement and providing benchmarking examples in Asia. This patient and constructive approach has worked well in China. Our engagement has been running for several years now, and CR Land’s response has been positive. Our calls have grown to include many from its end. The group has a strong focus on improving ESG performance and disclosure, and we understand that these issues are discussed at a senior level. In its latest upgrade from BB to BBB in August 2021, MSCI flagged CR Land’s commitment to green buildings and improved efforts in occupational safety management. These were two areas we had focused on as part of our engagement, and so it was particularly pleasing to us that the company’s efforts had been recognised.