New World China Land, a mainland property unit of New World Development, is looking at a "conservative" property sales target next year after reporting a 64 per cent increase in core profit for the year to June 30.
The developer, one of the first in Hong Kong to venture into the mainland market, projected a sales target of 17 billion yuan next year. In the financial year to June, it secured contract sales of 16.53 billion yuan.
The company announced core profit excluding property revaluation gains amounted to HK$3.33 billion, from HK$2.03 billion in the preceding year. Bottom line profit, including property revaluation gains, rose 49.83 per cent to HK$4.62 billion, compared to HK$3.08 billion in the previous financial year.
It announced a final dividend of four HK cents per share, bringing the full-year dividend for the year to seven HK cents a share.
"We believe the market will perform steadily next year," said New World China's executive director and company secretary Lynda Ngan Man-ying.
The company does not expect the central government to introduce tougher measures to curb home prices amid an economic slowdown.
New World China next year expects to sell more homes in the second-, third- and fourth-tier cities, where prices are cheaper than in first-tier cities. Gross profit margins are expected to drop to 35 to 40 per cent in view of the company's plan to sell cheaper homes in lower-tier cities.
Gross profit margin for the latest financial year has already dropped to 41.8 per cent from 2012's 49.8 per cent with 70 per cent of the company's completed projects in terms of gross floor area in lower-tier cities.
"Profit margins in lower-tier cities are smaller. Still, maintaining this level is not bad," said Ngan. "We sold one of our luxury projects in Guangzhou at a price of about 70,000 yuan per sq metre. Our gross profit margin was between 60 per cent and 70 per cent."
But gross margin hovered around 25 per cent in lower-tier cities such as Changsha in Hunan province and Wuhan in Hebei province.
In view of the urbanisation push and favourable policies for first-time homebuyers, the company is optimistic about the outlook in lower-tier cities.
"There is a huge development potential in the property markets of the second- and third-tier cities, which enjoy a relatively rapid economic growth while facing a comparatively low policy risk," chairman and managing director Henry Cheng Kar-shun said.
New World China has property projects in more than 20 three city tiers on the mainland and a landbank of 26.5 million square metres.