China Overseas Land & Investment bets on demand in top cities even as earnings miss estimates
- China Overseas Land & Investment, Guangzhou R&F and Agile Group Holdings’ revenues and profits fall short of analysts’ expectations
China Overseas Land & Investment (COLI), the second-largest Hong Kong-listed Chinese developer by market capitalisation, will focus on residential projects in top cities as the margins are high, the chairman said after its 2018 results failed to impress investors.
“We believe China’s first-tier cities and clusters around them will continue to be the most buoyant economically,” Yan Jianguo told a press conference on Thursday. “We have invested 40 billion yuan (US$6 billion) in Beijing, Shanghai and Hong Kong last year – over a third of our 2018 new investment.”
The state-backed developer earlier on Thursday reported a mere 3.25 per cent growth in revenue and a 8.3 per cent increase in core profits from a year earlier. The HK$171.5 billion (US$21.8 billion) revenue fell short of the HK$198.8 billion expectation polled by Bloomberg, while the HK$37.1 billion core profits missed the HK$39.8 billion estimate.
COLI’s shares fell 3.4 per cent after the results were announced. They eventually ended the day 1.9 per cent lower.
Yan attributed the weak growth in profit to the change in taxation policy, leading to more taxes.
He highlighted the company’s net margin of 26.2 per cent, which Toni Ho, an analyst at RHB OSK Securities Hong Kong, said was one of the highest in the industry.
The net margin of China’s top 30 developers in 2018 stood at 13.7 per cent, according to data from the consultancy Guandian.
Yan’s comments about China’s property market contradict Yeung Kwok Keung, chairman of Country Garden.
Yeung said two days ago that he remained bullish on China’s small cities and counties, adding that “the future of Chinese property lies here”.
Over half of Country Garden’s sales are expected to come from smaller cities this year.
COLI meanwhile has set a sales target of 350 billion yuan for this year, up 16 per cent from 2018. It has also increased its land investment target by nearly 25 per cent.
Separately, two other smaller developers, Guangzhou R&F and Agile Group Holdings, also saw their revenue and profit lag behind estimates.
Guangzhou R&F reported a 49 per cent increase in core profit to 9.53 billion yuan, but still missed the 9.88 billion yuan estimate of analysts polled by Bloomberg. Its revenue of 76.86 billion yuan also came below the 81.1 billion yuan estimate. Net profit excluding one-off investment gains, plunged 60.5 per cent to 8.37 billion yuan.
The company had previously warned investors about the big drop in profit because of its 2017 takeover of the 19 billion yuan hotel portfolio from Wanda Group.
Guangzhou R&F’s shares fell 2.6 per cent after the results announcement, but closed unchanged.
Agile Group Holdings reported an 18.3 per cent increase in net profit to 7.13 billion yuan, missing the 7.44 billion yuan average estimate of analysts.
Revenue rose 8.8 per cent to 56.1 billion yuan, falling shy of the 61.1 billion yuan estimate.
The company’s shares retreated 5.4 per cent after the results were announced but clawed back losses to close 1.8 per cent lower.
