China property

Five Hong Kong-listed Chinese property developers to see big rises in 2017 profit

Surging property sales and rising margins will lift profits, though the effect of property market curbs adds a note of uncertainty

PUBLISHED : Sunday, 25 March, 2018, 5:52pm
UPDATED : Sunday, 25 March, 2018, 9:32pm

China’s five major property developers are expected to report combined net profits of just over 100 billion yuan (US$15.8 billion) for 2017, thanks to surging property sales, although curbs on the market by the central government could increase uncertainty over the outlook.

China Vanke, China Evergrande Group, China Overseas Land & Investment, Sunac China Holdings and Shimao Property Holdings are due to report their full-year results beginning on Monday.

According to forecasts in a Bloomberg survey, China Vanke is expected to report net profit of 27.46 billion yuan, up 30.7 per cent from 2016, while China Evergrande’s profit is likely to have risen 52.4 per cent to 31.7 billion yuan. China Overseas Land & Investment will see a rise of 13.8 per cent to 28.6 billion yuan while Sunac’s net profit is expected to surge 275 per cent to 5.47 billion yuan. Shimao Property is likely to see a rise of 15 per cent to 7.2 billion yuan.

“In general strong results are well expected, as a result of fast-growing contracted sales as well as higher gross margins reflecting higher property prices and lower financing costs,” said Alfred Lau, a property analyst at Bocom International.

“The same momentum should be seen in 2018 earnings, reflecting the buoyant sales in 2017,” he said.

However one unknown factor for the current year’s earnings would be impact of measures put in place in China to curb runaway housing prices, he added.

Chinese developers report strong profits but credit curbs could spell trouble

The latest such measures, in January, saw China’s securities regulator ban non-banking financial institutions from channelling funds into the property sector through entrusted and trust loans. There was also a clampdown on lending by the shadow banking sector, which had effectively funded many land purchases over the past two years and helped fuel the spectacular surge in property prices.

Another top developer, Country Garden, last week reported earnings up 107 per cent to 20.3 billion yuan in 2017, above forecasts, on strong volume growth and expanded margins. It said contracted property sales – those not yet completed – totalled 550 billion yuan in 2017.

But in a note of caution, it declined to provide a sales target for 2018, saying only that sales would be higher than those in 2017.

“We believe the reasons management is reticent about providing guidance are its very high sales base and relatively tight credit in China this year,” Raymond Cheng, an analyst at CIMB Securities, wrote in a research note. “Investors should be disappointed and wary about this,” he said.

Also last week, SOHO China reported a 420 per cent rise in net profit for 2017 from the previous year.

Small, mid-sized Chinese developers still facing funding woes

The chairman of China Evergrande, Hui Ka-yan, has already flagged better earnings for 2017, saying on March 8 that it expected a “substantial increase” in net profit for last year, in the order of “four to five times” that of the previous year, thanks also to a reduction in interest expenses.

Meanwhile, Sun Hongbin, chairman of Sunac, said on March 5 in a filing to the Hong Kong stock exchange that he expected net profit would increase 240 per cent for last year from 2016, helped by an over 80 per cent increase in revenue and a 7 per cent rise in gross profit margins.