China Property

Chinese developer KWG to seek projects through mergers and acquisitions

Core profit rises 0.7 per cent to 2.6 billion yuan

PUBLISHED : Monday, 22 February, 2016, 3:55pm
UPDATED : Monday, 22 February, 2016, 3:55pm

Hong Kong-listed mainland developer KWG Property says it will seek projects through mergers and acquisitions rather than bidding for land after seeing an increasing number of small developers face financial strain.

“Land is too expensive in big cities,” KWG executive director Hoffman Tsui said at the company’s annual results press briefing on Monday.

Guangzhou-based KWG posted 0.7 per cent annual growth in its core profit (excluding fair-value gains and non-recurring items) to 2.6 billion yuan (HK$ 3.1 billion) last year.

To save costs amid a slowing mainland housing market, Linda Wu, the company’s head of investor relations, said it would focus on M&A or share-purchase opportunities for expansion this year.

“We see more chances as smaller developers finding it getting very difficult to borrow money from financial institutions, and this would surely lower our land costs,” Wu said.

We see more chances as smaller developers finding it getting very difficult to borrow money from financial institutions
Linda Wu, KWG Property

The intensified divergence in the mainland’s property markets, with housing sales in third- and fourth- tier cities are struggling while home prices skyrocket in top-tier cities and some leading second-tier ones, has seen developers swarm to bigger cities, pushing up land prices there.

Tsui said the recent easing in the domestic borrowing environment, including the reopening of onshore bond issuance for developers, only benefited big and listed developers as lenders were taking a cautious view of the sector.

KWG chairman Kong Jian Min said he expected the mainland housing market would be stable this year given the government has implemented a number of stimulus measures to prop up the sector.

The company has set its sales target for this year at 22 billion yuan, 9 per cent more than last year’s result. KWG completed contract sales of 20.2 billion yuan last year, missing its sales target of 22.5 billion yuan.

Beijing, Shanghai and Guangzhou contributed about 57 per cent of total sales.

Kong said the slower-than-expected sales last year were mainly due to the delay of two projects in Beijing’s Tongzhou district due to a change in local policies, and he expected sales at the projects would be launched this year.

He added KWG would maintain its focus on first-tier and leading second-tier cities, and would not sacrifice profit for expansion.

The company’s gross profit margin was 36.1 per cent last year, up from 35.3 per cent in 2014.

Wu said the company would build more large units this year in response to China’s new “two-child” policy.