Longfor Properties banks on lower profit margins in 2013
The mainland developer voices confidence in better times ahead, with expectations that higher sales and investment properties will lift returns in future
Mainland developer Longfor Properties is confident about its business outlook even though it expects a drop in gross profit margin next year.
"Gross margin will drop next year as the overall housing market slows this year," Longfor chief financial officer Wei Huaning said.
The group's overall gross margin was 46.1 per cent in the first six months of this year.
The company believes profit in future will be helped by higher property sales and greater contribution from investment properties.
"Profit margin in rental properties is higher [than development properties]," chairwoman Wu Yajun said.
With the contribution from rental properties increasing with an expanded portfolio, overall profit margin would see a turnaround in 2015, she said.
Wu was speaking at a results briefing, where the company announced a 51 per cent increase in net profit to 3.81 billion yuan (HK$4.66 billion) for the six months to June 30. Total turnover rose 85.3 per cent year on year to 14.55 billion yuan. Basic earnings per share amounted to 73.9 fen.
According to Wei, contribution from investment properties is expected to account for 10 per cent of the group's total profit by 2017. In the long run, the company will target a 30 per cent contribution from investment properties.
In the first half, the gross floor area of Longfor's investment properties recorded a year-on-year increase of 8.1 per cent while its rental income from investment properties grew 34.8 per cent to 227 million yuan. Gross profit margin of rental properties reached 83 per cent.
During the period, the company's investment properties amounted to 438,979 square metres, with an occupancy rate of 98.6 per cent. It has seven shopping malls with a total gross floor area of 1.127 million square metres under construction.
Contract sales amounted to 17.46 billion yuan, achieving 45 per cent of the annual sales target. Revenue from its property development business increased 87.2 per cent to 14.13 billion yuan, with about 1.2 million square metres delivered.
According to Wei, the company had 46.7 billion yuan, or a gross floor area of 4.41 million square metres, of sold but unrecognised contract sales as of June 30. That would form a solid basis for the group's future revenue growth, he said.
Wu said the mainland market would remain uncertain amid policy risks and the company would manage its finances cautiously to maintain sufficient cash on hand and a relatively low net gearing ratio.
As at June 30, Longfor Properties had 17.47 billion yuan in cash and bank balance, a record high. Net gearing ratio stood at 49 per cent and the average annual cost of borrowing was 6.73 per cent.
Shares in Longfor Properties rose 6 per cent to HK$11.66 yesterday.