Coastal Greenland bucks small developer trend
Small developer Coastal Greenland expects to see an improved earnings growth in the year to March on the back of higher profit margin and larger sales volume.
However, analysts said smaller-sized developers such as Coastal Greenland, which suffered from high gearing ratios, would face higher pressure to operate and expand their business as more austerity measures were expected to be introduced by the central government next year.
Coastal Greenland saw strong property sales in the first half and the growth trend would continue, director and chief financial officer Paul Cheng Wing-bor said.
Coastal Greenland, which on Thursday posted an underlying profit of HK$209 million for the six months to September, saw its profit margin rise to 28 per cent during the period, up from 24 per cent for the past financial year.
Revenue from the sale of properties, which increased significantly to HK$1.5 billion, continued to be the major income source for the group.
'We expect the profit margin in the second half will be sustainable,' Mr Cheng said.
After the post-interim result press conference, Mr Cheng said the company had pre-sold projects valued at HK$1.3 billion as of September. Of which, HK$1.1 billion will be booked into the second half.
'Sales revenue in the second half will be more than HK$1.3 billion in view of the continued pre-sales from October to March.'
However, Prudential Brokerage associate director Kingston Lin King-kam said stock investors buying Coastal Greenland would face higher investment risks due to its high gearing ratio and limited land bank in the face of Beijing's credit squeeze measures.
According to Mr Cheng, the company's net debt to total equity ratio was 97 per cent in September. It aims to cut this to 60 to 70 per cent in the next three to four years.
Coastal Greenland's developable land bank stands at 4.9 million square metres. The company has cash on hand of more than HK$1 billion.
But Mr Cheng said capital expenditure in the next 12 months could be more than HK$4.5 billion for the construction costs of existing projects and potential acquisitions of new of land sites.
The capital expenditure would be partly sourced from the property sales next year.
Mr Cheng said sales response in the past two months was not bad but had slowed.
But he said he expected the move by the central government to regulate the property market would only last for 'a few months' as property had become a major engine driving the mainland's economy.