China Merchants Land rises on acquisition of Guangzhou developer
Shares of China Merchants Land closed at a four-month high yesterday after the Hong Kong-listed developer announced on Sunday that it would buy the 49 per cent stake in a Guangzhou-based developer it does not own.
The all-cash deal is worth 1.2 billion yuan (HK$1.5 billion) and is expected to take six weeks.
China Merchants Land climbed 12.07 per cent to HK$1.30, its highest finish since April 4.
The target firm, Merchants Property Development (Guangzhou), is developing a high-end residential and commercial complex in Guangzhou's Panyu district, with unsold properties totalling 676,252 square metres.
It also holds interest in eight projects - six in Foshan, Guangdong province, and one each in Chongqing and Guangzhou.
Of the nine projects, three are making sales and generating profit. The others are expected to be launched for sale this year.
The firm made a post-tax net profit of 1.2 billion yuan on revenue of 3.6 billion yuan last year.
Edison Bian, head of China property research at UOB Kay Hian, said the deal would push up earnings growth and margin recovery at China Merchants Land.
"Higher net gearing is the price to pay, which is expected to stay below 60 per cent, but is still acceptable," he said. "But the real challenge is on the sales pick-up."
After the deal, the consolidated profit of Merchants Property will be 100 per cent attributable to China Merchants Land, as opposed to 51 per cent at present.
China Merchants Land, controlled by state-owned and Shenzhen-listed China Merchants Property Development, reported a 68 per cent slide in core profit to 333 million yuan in the first half of this year from a year earlier. Earnings per share fell to 1.24 yuan from 7.58 yuan during the period.
Its contracted sales fell 18 per cent in the first half from a year earlier to 2.7 billion yuan, but average selling price rose 42 per cent owing largely to a high-end Nanjing project.
The firm said it would continue to increase its presence in six mainland cities, including Xian in Shaanxi province and Jurong in Jiangsu province.