LINE

Text:AAAPrint
Economy

Vanke profit slows despite more buyers in first half

1
2015-08-18 09:04China Daily Editor: Si Huan

Developer says margins under pressure as overall market conditions yet to fully recover

China Vanke Co, the world's largest residential-property developer by revenue, posted slower net profit growth during the first six months of the year compared with gains in the same period last year.

Net profit edged up 0.77 percent to 4.85 billion yuan ($758.3 million), a sharp drop from the 5.6 percent expansion in the first half of 2014. It had recorded a 57.5 percent plunge in net profit in the first quarter. A strong pickup in sales during the second quarter helped recoup losses to some extent.

Though the developer sold more homes during the first six months, it is still struggling to maintain profit margins, according to its earnings report.

Vanke recorded a 9 percent increase in contracted property sales during the first six months to 110 billion yuan. During the January-March period, the company's contracted sales fell 9.8 percent from a year earlier. Robust sales in the April-June period pushed sales growth to 14.8 percent. In the 14 core cities for the company, sales growth even rebounded to 49 percent.

"Major cities have emerged from their lows, market confidence has gradually picked up, and looser sector measures and monetary policy have helped set a stable foundation for market recovery," said Yu Liang, Vanke's president.

Disappointed by the results, Vanke's shares slid by 1.3 percent in the Shenzhen bourse and fell 3 percent in Hong Kong on Monday. Vanke operates in more than 60 cities. Its earnings are seen as the barometer for China's major developers.

Yu said that the sharp decline in net profit was mainly due to Vanke's special business model. In pursuit of a "light asset" model, Vanke adopted a strategy since last year that does not pursue whole ownership of projects. In the first half, more than 20 projects were co-financed by Vanke's subsidiaries and partners in which partners take a more than 35 percent stake. Under China's accounting codes, profits generated from these projects are counted as "minority interest income", and not included in the "net profit" of the parent firm.

Adding these "minority interests", net profit would be 6.79 billion yuan, up 23.6 percent over a year earlier.

"Vanke chose the 'minority shareholding' strategy to boost its return on equity. This is a clever strategy but so far, it has trimmed net profit, which dampened investor sentiment," said Zhu Yiming, a Shanghai-based analyst with China Real Estate Information Corp.

During the first six months, revenue rose 22.7 percent to 50.27 billion yuan, which is in line with its profit growth (including minority interests). Vanke managed to maintain its gross profit margin at 21 percent, slightly down from 21.88 percent last year. But its net profit margin declined to a record low of 9.6 percent. It was 13.4 percent a year earlier.

In a sign of surging confidence, Vanke started 26 new projects in the first half, with planned construction floor space of 5 million square meters, up 92 percent over a year earlier.

  

Related news

MorePhoto

Most popular in 24h

MoreTop news

MoreVideo

News
Politics
Business
Society
Culture
Military
Sci-tech
Entertainment
Sports
Odd
Features
Biz
Economy
Travel
Travel News
Travel Types
Events
Food
Hotel
Bar & Club
Architecture
Gallery
Photo
CNS Photo
Video
Video
Learning Chinese
Learn About China
Social Chinese
Business Chinese
Buzz Words
Bilingual
Resources
ECNS Wire
Special Coverage
Infographics
Voices
LINE
Back to top Links | About Us | Jobs | Contact Us | Privacy Policy
Copyright ©1999-2018 Chinanews.com. All rights reserved.
Reproduction in whole or in part without permission is prohibited.