Mainland office developer Soho China’s disappointing earnings in first half leads to stock sell-off

Investors showed their disappointment with Soho China’s results for the first half by selling the stock.

Excluding the one-off disposal gains on its Sky Soho office project in Shanghai, Soho China, one of China’s largest commercial developers, recorded a core net loss of 3 million yuan (US$436,000) compared to a 116 million yuan profit a year earlier, according to its interim results announced on Friday. Rental income was 848 million yuan, only slightly higher than a year ago and average occupancy ratio was 97 per cent for its major investment properties.

The company said there would be no dividend payout.

Soho’s stock price tumbled as much as 11.3 per cent in Hong Kong after the results announcement, before recovering to close 6.8 per cent lower. This was in contrast to the rally in Chinese property stocks, led by China Vanke’s 6.3 per cent rise, on optimistic earnings outlook.

“The results were very disappointing,” said Raymond Cheng, a property analyst with CGS-CIMB Securities. “We have a sell rating on Soho. We believe the share price should react negatively on this set of bad results.”

Co-working space operator Soho China targets Hong Kong IPO next year as it expands in the mainland

Of the 10 broker ratings on Soho, three have “sell” and five “hold”, according to Bloomberg data.

Cheng said the core net profits missed his estimate of 206 million yuan by a big margin. He cited the disappointing results to higher tax and interest expenses.

Net profit attributable to shareholders of the company was 1.09 billion yuan. Taking into account a 480 million yuan revaluation gain Soho reported an operating of 1.53 billion yuan for the first half.

After a flurry of asset sales in the 2016-17, chairman Pan Shiyi said earlier this year that the company would halt sales and retain its core office assets, including Beijing Guanghua Road Soho, Wangjing Soho and Shanghai Bund Soho, iconic office buildings in the two cities.

He said during a press briefing on Friday that he had no immediate plan to sell more assets.

While shifting away from a high turnover model and concentrating on being a landlord, Soho China in recent years has focused on expanding its co-working space business.

As of June 2018, 3Q – Soho’s co-working space business – has expanded to 31 projects in seven mainland cities, with over 30,000 seats.

Pan had earlier told the Post that he planned to spin off and list the 3Q unit in Hong Kong next year.

Co-working space operator Soho China targets Hong Kong IPO next year

“We will go public when the capital market improves,” Pan said on Friday when asked about the schedule, referring to the recent market trend, adding that he would prefer a Hong Kong listing.

Pan said the revenue from 3Q remains small, although he declined to disclose figures, saying the current focus is on scale and profitability.

He also excluded the possibility of 3Q expanding to overseas markets including Hong Kong or plans to acquire other co-working rivals.