China South City Holdings, which has been out of favour since listing in September, is making efforts to paint a rosy picture on profitability in a bid to improve its appeal to investors. Chairman Cheng Chung-hing said the company had reaped strong property sales, which would be booked in the second half of the year. He also pledged a steady earnings outlook from continued sales of commercial space and improved rental growth in the long run. The stock has traded between HK$1.31 and HK$1.61 since its listing on September 30, which is as much as 37.6 per cent below its initial public offering price of HK$2.10. '[Investors] do not understand our business model. We are not a purely property play,' said Cheng. Established in 2002, the company operates a trading centre in Shenzhen's Longgang district, covering a gross floor area of 2.2 million square metres. It sells and leases out space to investors and companies involved in making industrial materials, including textiles and clothing, and leather and accessories. Firms also make electronics and accessories; printing, paper products and packaging materials; and metals, chemicals and plastic materials. 'To make it simple, investors can see us as a developer and an operator of a big commercial centre but those spaces are sold or leased to wholesalers, not retailers,' said chief financial officer Stephen Fung Sing-hong. Fung said the company had set a property sales target of 108,000 sqmetres of gross floor area this year. As of November, it had sold 102,000 sqmetres with an average price of about 15,000 yuan (HK$17,000) per square metre, or total property sales of 1.5 billion yuan, Fung said. The company has announced a profit of HK$245.7 million for the six months to September. The company's strategy is to use property sales income to run the business and sustain profit growth before its trading centre is fully occupied. Its two-phase trading centre in Shenzhen can accommodate more than 30,000 shops for wholesalers. The phase one development, covering 2,500 units, was fully let. About 2,500 units, about 10 per cent of the newly completed second-phase development, are leased out. 'Nine out of 10 shops are empty at the moment. But it is acceptable because it is newly built,' Cheng said. Rent is about 100 to 120 yuan per square metre per month, which is only 5 per cent of the market rate. Kenny Tang Sing-hing, a research head at Redford Securities, said there were uncertainties in the outlook of China South City, adding that the rental growth momentum was unclear. 'They get all rental incomes from tenants at the time they sign the three-year contract. However, two of the three years are rent-free. That means the average rental is low,' Tang said. 'If they cannot get new tenants, they will not get new rental income. There are too many uncertainties.' But Tang buys the concept of developing a trading platform for wholesalers. 'The outlook is not bad if it can draw sufficient tenants,' he said. Investors need not rush to buy the stock at the moment, said Tang. Cheng, however, is confident of attracting tenants because of the cheap rents and solid demand. 'The Pearl River Delta is still a major manufacturing hub in China, even though some big factories faced closure amid the global financial crisis in the fourth quarter of last year,' he said. To enhance its growth potential, the company is set to build its mixed-use development, covering 4.2 million sqmetres of gross floor area, in Nanning. Cheng said 1.6 million sqmetres of space would be designated for residential use, which could reap quick profits. Two million square metres would be used for the trading centre, with the rest for other facilities, he added.