Focus on major cities to help shield Kaisa from market downturn

Firm less affected by the industry downturn due to higher margins from redevelopment projects

PUBLISHED : Tuesday, 15 July, 2014, 3:30pm
UPDATED : Wednesday, 16 July, 2014, 2:04am

Kaisa Group Holdings, a leader in mainland urban redevelopment projects, said it would be able to hit its sales target of 30 billion yuan (HK$37.5 billion) this year and maintain a gross margin of 30 to 35 per cent in the next few years despite market volatility.

Vice-chairman Tam Lai-ling, who is in charge of investment and financing strategies, said the firm had refinanced its debts maturing this year and next, except a 1.5 billion yuan convertible bond due in December next year, making it confident it could ride out the still unfolding downturn.

Tam told the South China Morning Post the company had secured 12 million sqmetres of space for redevelopment in the next few years - 7 million sqmetres in Shenzhen and the rest mainly in Guangzhou.

Redevelopment projects will continue to contribute 25 to 30 per cent of Kaisa's revenue in the next five years. Such projects often generate gross profit margins above the industry average.

The company's gross profit margin increased to 33.8 per cent last year from 32.5 per cent in 2012, while many of its rivals suffered thinning margins despite strong sales.

"We will be able to sustain the gross profit margin at the current level even though the market outlook is deteriorating," Tam said.

Redevelopment projects are less affected by market downturns.

Kaisa started in 2011 to focus on the mainland's first and second-tier cities, which generate more profit and now account for more than 70 per cent of contracted sales. This strategy should leave the company less vulnerable to the oversupply plaguing the third and fourth-tier cities.

The proportion of sales from first and second-tier cities would grow next year as the company planned to start selling its projects in Guangzhou, Tam said.

Kaisa's contracted sales increased 1 per cent in the first half from the same period last year to 11.2 billion yuan, and the average selling price rose 28 per cent to 11,856 yuan per square metre.

"We'll have no big problem achieving the annual sales target of 30 billion yuan this year," Tam said before the latest figures were released.

In this week's C-Suite interview, Tam talks about Kaisa's redevelopment projects and its strategy of focusing on top-tier cities