Shui On boss shakes up management
Vincent Lo Hong-sui, chairman of Shui On Land, has introduced a string of measures to shake up his firm's senior management to improve property sales, expand its land bank and streamline development strategies.
The company has been criticised by investors for its slow turnover in assets and focus on urban redevelopment projects that involve heavy capital but long payback periods.
The January 10 announcement that chief executive Freddy Lee Chun-kong is stepping down highlighted Lo's reform drive.
"The restructuring is aimed at enhancing the efficiency of execution. We need to act promptly to the change in market demand if we want to achieve higher property sales," he said.
An executive committee headed by Lo will be formed and take on the company's key management role and make executive decisions at its biweekly meetings.
After two years of disappointing performance and concerns from institutional investors, Lo has taken a more active role in Shui On since the middle of last year. He even apologised to shareholders when the firm reported full-year profits plunged 87 per cent year on year to 201 million yuan (HK$255.7 million) in 2012.
Under Lo's effort, results have improved. Total contracted property sales reached 16.6 billion yuan last year, 151 per cent above its target. Of that, 9.9 billion yuan came from residential sales and 6.7 billion yuan from the sale of commercial properties.
"We have hired consultants to come up with an incentive scheme such as providing bonus to the teams to speed up development," Lo said. "We need to act promptly to the change in market demand to speed up sales. You will not be surprised to see me at a construction site with my sleeves rolled up."
Alan Jin, an analyst at Mizuho Securities, said mainland developers like Country Garden - which achieved sales of more than 100 billion yuan last year - could release mass residential projects for pre-sale as fast as one year from the date they bought the land.
"Investors like fast-growing stocks. The higher contract sales the company can generate, the better the share performance," he said. "Shui On is moving in the right direction. But [it] still needs … to [be] observed if it can deliver its performance."
Shares in Shui On have lost nearly 50 per cent in the past 12 months to close at HK$2.40 on Friday.
With interest rates expected to head upwards this year, Jin said the profit margin of highly geared companies would be squeezed.
Shui On's gearing ratio was 59 per cent in June last year. The deferral of the US$1.5 billion proposed spin-off of its commercial property arm, China Xintiandi, has forced the firm to dispose of assets to cut debt.
Last month, it sold its 99 per cent interest in a proposed 790,000 square metre commercial, office and retail project in Shanghai's Taipingqiao, due to be completed this year, for more than 3.32 billion yuan to China Life Trustees. The company is expected to generate a gain of 192 million yuan from the disposal.
Lo said Shui On would be more active in land replenishment.
"Many city governments have invited us to replicate Shanghai's Xintiandi retail-hotel-entertainment project in their cities. But we will not get involved in resettlement and will let the municipal governments handle it," he said.
Negotiations are under way on two development sites in which Shui On will be responsible for master planning and the basic infrastructure before the plots are put up for government auction. "We will share the profit with the government after the land [is] sold. We may also bid for the land," Lo said.