Wuzhou International shifts focus to second-tier cities in China
In a bid to stabilise profit margins, the logistics property developer moves to bigger urban areas
Mainland trade centre and logistics property developer Wuzhou International Holdings has decided to switch to second-tier cities and maintain gross profit margin of between 40 per cent and 45 per cent in the long run.
Global credit agency Fitch Ratings said in a September report that the commercial developer's decline in gross profit margin, to 41 per cent in the first half of this year from 44 per cent last year and 53 per cent in 2012, would be permanent.
A reliance on third-tier cities and high sales, general and administrative expenses incurred from fast expansion, despite efforts to reduce funding costs, are behind the slide.
Company founder and chairman Shu Cecheng said: "We were mainly in third-tier cities in the past. We are moving to second-tier cities now.
"We will not go to first-tier cities if the investment threshold is too high," he told the South China Morning Post.
So far this year, Wuzhou has invested in provincial capitals including Changchun, Shenyang and Zhengzhou, and expanded to central and western cities such as Xian, Chengdu and Wuhan.
Shu helped set up a fund, raising one billion yuan (HK$1.26 billion) in the first phase, in August to invest in projects in third-tier cities, but will not deploy much of Wuzhou's money in it, unless projects can fetch returns of more than 20 per cent.
But Wuzhou will help manage projects invested by the fund, to nurture small start-ups as its clients when they move to provincial cities after two years of strong growth, Shu added.
It had a pool of 77,000 clients as of September, more than double the number at the end of last year. With the developer's ability to acquire land at cheaper cost than others, Wuzhou has attracted strategic partners such as Ping An Real Estate, the property arm of the mainland's No2 insurer, and Singapore-listed Global Logistics Properties (GLP).
Ping An will invest 1.5 billion yuan in the next five years in Wuzhou's projects and channel insurance funds to help the firm expand. This is in addition to a US$60 million investment in a Wuzhou convertible bond issue. GLP, the largest operator of distribution centres and warehouses in China, is jointly developing projects with it.
In this week's C-Suite, Shu explains how Wuzhou aims to ride the boom in China’s logistics property sector