China property

China Evergrande first-half profit jumps 832pc on strong sales, lower debt

China’s top developer by sales aims to raise 30 billion yuan to 50 billion yuan ahead of its planned listing in Shenzhen

PUBLISHED : Monday, 28 August, 2017, 7:30pm
UPDATED : Monday, 28 August, 2017, 11:04pm

China Evergrande Group, the country’s largest property developer by sales in 2016, reported first-half profit jumped 832 per cent to 18.8 billion yuan, in line with analysts’ expectations, thanks to higher selling prices for its properties and a greater volume of sales booked during the period.

A poll by Bloomberg found average analyst forecasts were for a profit of 19 billion yuan (US$2.87 billion), compared to the first half of 2016 when the company reported profit of 2 billion yuan.

Revenue totalled 187.98 billion yuan, representing 115 per cent year on year growth, the property giant, controlled by tycoon Hui Ka-yan, said in an exchange statement. The gross profit margin also rose to 35.8 per cent from previous 28.3 per cent. The company said no interim dividend will be distributed.

The Guangdong-based developer this year has refreshed its strategy to focus on profit growth from previous scale growth. It repaid perpetual bonds amounting to 112.94 billion yuan in the first half, which helped boost profit attributable to shareholders.

“In the past 20 years, we had been leveraging financing vehicles to quickly catch up with our competitors, grabbing the fastest growth period of China’s property market,” said chief executive Xia Haijun during the earnings conference in Hong Kong.

“But as the sector growth moderated and competition intensified, it’s a time for us to shift our strategy,” he said. “We now want to be No 1 in gross margin and net profit margin, not contracted sales.”

The developer, one of the country’s most indebted home builders, now targets to reduce its debt ratio to 70 per cent by 2020. The company’s gearing fell to 240 per cent as of June 30, compared to 432 per cent at the end of 2016.

It will also slow the pace of land acquisitions after boosting its reserves to a record 276 million square metres in the first half, Xia said.

“We are positive on the company’s outlook as its fundamentals are improving, especially the debt level,” said Carol Wu, a China property analyst with DBS Vickers.

For its planned mainland A-share listing, Evergrande said it aimed to raise between 30 billion yuan to 50 billion yuan from a third round of strategic investors in the second half, ahead of listing its property arm on the Shenzhen Stock Exchange.

“We will submit the application [to the stock regulator] after pulling in this round of investors,” Xia said.

The developer already pocketed 70 billion yuan after introduced two rounds of investors in the first half, which was seen as a way to help Evergrande lower its debt level.

Shares of Evergrande hit all time of HK$24.10 on Monday, before closing 2.47 per cent higher at HK$22.80.

Evergrande’s contracted sales amounted to 288 billion yuan in the first seven months, a 56 per cent year-on-year growth, trailing rival property developers Country Garden and China Vanke.