Longfor warns of profit squeeze after asset sales

PUBLISHED : Saturday, 22 March, 2014, 1:30am
UPDATED : Saturday, 22 March, 2014, 1:30am

Longfor Properties, a listed mainland developer, warned yesterday that profits would be squeezed this year as it disposed of underperforming assets.

The developer, which reported a fall in gross profit margin to 28 per cent last year from 40 per cent the previous year, said the impact on earnings of the sales would be most pronounced in the first half.

However, Longfor, with a strong presence in Beijing, Hangzhou, Chongqing and Chengdu, targets full-year contracted sales of 57 billion yuan (HK$71.8 billion) after a 20 per cent increase last year to 48.1 billion yuan.

"We can ensure that new projects would carry a gross profit margin of 30 per cent or even higher," chairman and founder Wu Yajun said.

"But we have stock worth 10 billion yuan, mainly car parks, with a compressed gross profit margin.

"They may hardly make any money for us, but we have to sell them. This will have an impact on our profit result."

Chief financial officer Wei Huaning said that with the company being wary of a challenging market as banks tightened credit, "the key words for us are destocking, cost control and co-operation with partners".

He said Longfor would raise funds mainly through offshore syndicated loans and onshore bank loans, rather than issuing new bonds. The costs of the latter are rising after the mainland's first onshore debt default and the collapse of a private small developer in Ningbo earlier this month.

Longfor's net gearing ratio stood at 58 per cent and core profits grew 15 per cent to 6.2 billion yuan last year.

Fellow mainland developer Yuexiu Property is eyeing a 50 per cent increase in contracted sales to 22 billion yuan this year after reporting a 28.8 per cent jump in core net profits last year to 1.5 billion yuan, the Guangzhou-based developer said.

Yuexiu said it would continue to buy land with an investment fund this year.

The partnership, which began last year, enables the developer to fund expansion without pushing up its net gearing ratio, which stood at 62 per cent at the end of last year.

Meanwhile, China Resources Land, another listed mainland developer, reported yesterday that revenue for last year grew 60.9 per cent to HK$71 billion and net profit rose 39 per cent to HK$15 billion.