Property loss expected
CHINA Overseas Land & Investment is engaged in property development and management in Hong Kong, Shenzhen, Guangzhou and Shanghai.
Credit Suisse First Boston recently downgraded the stock to a sell recommendation because it believes the company's Hong Kong projects will continue to lose and earnings from mainland projects will not materialise during the next two years.
Earnings per share forecasts this year and next have been revised down by 19 per cent and 23 per cent to reflect the latest completion schedule for its projects and expectation of a 20 per cent devaluation of the yuan next year. Net profit for this year is forecast to be $334 million and $676 million next year.
The fragile state of the housing market in the mainland heightened the risk that earnings would be lower than expected.
China Overseas Land & Investment tried to enter the Hong Kong property market in 1997 before the Asian crisis began to bite, pushing the company's net debt to almost $4.6 billion. This led to the company having to take a $1.72 billion provision against its purchases.