Shares of Hong Kong-listed Longfor Properties fell yesterday after the mainland developer reported a worse-than-expected 22.1 per cent drop in core profit to 2.13 billion yuan (HK$2.67 billion) in the first half as a market downturn hit sales. The company sold just 40 per cent of its housing stock in the first half, putting it behind a full-year target of 58 per cent, while its net gearing ratio rose to 66.2 per cent as of the end of June from 58 per cent six months earlier. Expansion of the company's land bank worsened gearing. This year it bought new plots capable of generating 1.92 million square metres of total gross floor space, at an average price of 7,380 yuan per square metre. "The debt ratio will improve by the end of the year," chairman and founder Wu Yajun said. Analysts had expected core profit, which excludes non-controlling interests and revaluation gains, to reach 2.71 billion yuan. The company's stock fell up to 3.5 per cent after the release of interim results, the biggest intraday drop since July 9. It closed the day down 0.73 per cent at HK$10.92. "An inventory of 20 billion yuan would be an unbearable burden," Wu said. "In the industry heyday, 20 billion yuan of unsold stock would probably gain in value." The company's new strategy of focusing on cash sales rather than sales volume helped it achieve an above-industry-level cash collection ratio of 90 per cent in the first half. Revenues rose 4.7 per cent in the first half from a year earlier to 15.9 billion yuan. Of that, rental income from the property investment business increased 24.1 per cent year on year to 380 million yuan. The company each year invests 10 per cent of sales proceeds in commercial properties, including shopping malls. The board decided not to declare any interim dividend. In the first seven months, Longfor locked in 42 per cent of its full-year sales target of 57 billion yuan, which the company said would remain unchanged. With an increasing number of mainland cities relaxing home purchase restrictions, Longfor said it would keep its pricing strategy flexible to speed up sales. Gross profit margin rose to 30.9 per cent in the first half, from 27.8 per cent six months ago. Chief executive Shao Xiaoming said Longfor would partner with peers and fund houses in future to share the financial burden. These would include small developers with cheap land reserves keen to leverage Longfor's management expertise and brand name for their projects.