Future of property market lies in China’s small cities, Country Garden chairman says as company’s 2018 core profit beats estimates
- The developer’s core profit rose 38.2 per cent in 2018, against a 126 per cent spike in 2017
Wherever its rural migrant workers will go, Country Garden Holdings, China’s biggest property developer by sales, will follow.
“I think highly of small cities and counties. The future of Chinese [property] lies where thousands of migrant workers will settle down,” Yeung Kwok Keung, 64, the company’s chairman, said during its result briefing on Monday.
Country Garden reported profit slightly ahead of estimates. The Guangdong-based builder’s core profit rose 38.2 per cent last year to 34.13 billion yuan (US$5.08 billion). That just beat the average estimate of 33.8 billion among analysts polled by Bloomberg, but was a far cry from the 126 per cent spike seen in 2017. Its revenue jumped by two thirds to 379 billion yuan, against a 350 billion yuan estimate.
Yeung, born in a farming family, said migrant workers who quit farms for cities, will not go back to these rural areas, and will try to bring their children and families to China’s cities. “However, they cannot afford homes in first or second tier cities. But they can afford homes sold for about 6,000 yuan per square metre in [smaller] counties,” he said.
When asked about the performance of his daughter, Yang Huiyan, who was appointed the developer’s co-chairman in December, he replied “very good” in English. Yeung founded Country Garden in 1992.
Mo Bin, the company’s president, denied rumours that Country Garden was laying off staff amid a downturn in the industry, but confirmed it would continue to build homes in Forest City, the biggest private residential township in southern Malaysia.
It has been a tough year for Country Garden. In August, Malaysian premier Mahathir Mohamad said the country would not let foreigners buy property in Forest City, to which Country Garden later said that his comments “may have been taken out of context”.
Later in October, angry buyers vented their rage at its sales centres in Jiangxi and Shanghai, when it slashed prices after they had already bought units in a development.
In 2018, its contracted sales grew by 32 per cent to 728.7 billion yuan, a deceleration from a 78.3 per cent expansion the previous year. Contracted sales fell by 11.3 per cent in the January to February period.
“We expect its contracted sales growth to slow down substantially to about 10 per cent in 2019, after fast growth in 2018 due to a high base, and its high exposure to small cities,” Raymond Cheng, a researcher with CGS-CIMB Securities, said in a note before the results.
Moreover, analysts have said they are worried about Country Garden’s ability to continue to deliver.
Chinese developers book their revenue and profit with a one to two year time lag after contracted sales. The strong profit growth last year had been widely anticipated after its rapid expansion the previous two years.
But analysts said they were concerned about its performance this year and beyond.
“We are concerned about its construction pace and project delivery time, as that will affect how long it takes for its 2018 contracted sales to be converted to revenue and profit,” said Toni Ho, an analyst at RHB OSK Securities Hong Kong. “It is already the [biggest developer], so size doesn’t matter that much. It’s about sustainability and profitability.”
The developer, which has projects in virtually all 300 or so Chinese cities, said last August it would slow down its reckless expansion after a series of construction accidents that left seven workers dead.
It emphasised construction safety again in Monday’s earning announcement, saying it would “profoundly reflect on and rectify” its past mistakes, and make sure the company is “on the right path”.
Country Gardens has also committed to investing 80 billion yuan in robotics over a five-year period.
“We are not convinced by its robotics business. We think the return will be very low or even loss-making,” said Cheng.