Evergrande Real Estate sees future in smaller cities as earnings rise

Mainland developer boosts core income 66.3pcon aggressive push into more developed areas

PUBLISHED : Tuesday, 01 April, 2014, 1:14am
UPDATED : Tuesday, 01 April, 2014, 3:14am

Evergrande Real Estate said attributable profit rose 37.5 per cent to 12.6 billion yuan (HK$15.7 billion) as the firm touted the health of the property market in third-tier cities despite its own aggressive expansion into economically more developed cities last year.

The mainland's third-largest developer by sales bought 66 land parcels last year, of which 34 were in upper tier cities, including Beijing and Shanghai.

It now has 291 projects across 147 cities, with 45.4 per cent in the top-tier cities compared with less than 30 per cent previously.

"Does that mean we've lost our confidence in third-tier cities? No," chief executive Xia Haijun said at an earnings conference. "Third-tier cities represent the future of the property market, thanks to the government's strategy on urbanisation."

The company's core net profit rose 66.3 per cent to 10.3 billion yuan. Gross profit margin improved to 29.5 per cent from 27.9 per cent in 2012, as the company cut refurbishing costs while also pushing up the average selling price by 13.1 per cent.

Evergrande lowered net gearing ratio to 69.5 per cent from 84.2 per cent.

A final dividend of 43 fen per share will be paid.

A more balanced geographical plan would give Evergrande the confidence to achieve a 10 per cent rise in contracted sales this year to 110 billion yuan, company executives said.

Evergrande seeks to replenish its land bank this year and would continue to buy land in top-tier cities.

Land purchases in top-tier cities drove up the company's average cost of newly acquired land to 2,633 yuan per square metre last year, while its outstanding land reserves of 151 million square metres at the end of the year carried a price tag of 949 yuan per square metre.

"The situation in third-tier cities is not so pessimistic [as reported by the media]," said Evergrande chairman and founder Hui Ka-yan, one of the country's richest men.

Hui said home prices in top-tier cities would rise at least 5 per cent this year, with an increase of more than 10 per cent in the first tier, despite signs the property market has cooled.

Evergrande shares yesterday rose 1.67 per cent to HK$3.66.