Bloomberg News

Vanke's 1st-Half Profit Jumps 59% on Property Sales

August 01, 2006

China Vanke Co., the nation's biggest publicly traded property developer, said first-half profit jumped 59 percent as higher incomes and economic growth drove up demand for apartments and offices.

Net income climbed to 1.27 billion yuan ($159 million), or 0.33 yuan a share, from last year's 799.7 million yuan, or 0.23 yuan a share, the company said in a statement to the Shenzhen Stock Exchange today, citing international accounting standards. Sales rose 52 percent to 6.2 billion yuan.

First-half home prices in southern China's Shenzhen city, where Vanke is based, jumped almost 30 percent even as the government tightened bank lending and land supply to cool the market. China's economy grew 11.3 percent in the second quarter, the fastest pace since 1994, and disposable incomes in towns and cities rose 10.2 percent.

``Projects in Shenzhen and Shanghai contribute more than 80 percent of Vanke's profit,'' said Zhang Luan, an analyst at Haitong Securities Co. in Shanghai, who has a ``buy'' rating on the company's shares. ``Vanke has benefited from its production scale and brand awareness.''

Vanke's shares rose 1.3 percent to 5.61 yuan at the 3 p.m. close after climbing as much as 4 percent. The stock has gained 51 percent in the past year, lagging a 57 percent surge in the benchmark Shenzhen Composite Index.

Rising Property Prices

Average residential and commercial prices in China's 70 largest cities rose 5.8 percent in June from a year earlier, led by gains of more than 10 percent in cities such as Beijing and Shenzhen, the National Development and Reform Commission said in a July 20 report.

China's government has raised taxes and imposed restrictions on foreign purchases of real estate out of concern that prices and investment are rising too rapidly, threatening a collapse that could cause an abrupt slowdown in the world's fastest- growing major economy.

Publicly traded real estate developers such as Vanke may benefit from the curbs because their land reserves and financial resources can help them better withstand the restrictions than smaller competitors.

Vanke said on July 24 that it had received a 5 billion yuan credit line from Bank of China Ltd., six days after announcing plans to sell as much as 4.2 billion yuan of new shares to finance apartment construction.

``Vanke may acquire some mid-sized companies and projects for further expansion,'' said Ren Zhuang, an analyst at Industrial Securities Co. in Shanghai. ``The company needs qualified projects to maintain its sales in the second half as government policies curb home trading.''

Land Reserves

Vanke agreed to pay 1.1 billion yuan for a piece of land in Shenzhen to build apartments, the company said on July 24. The company plans to add land reserves of about 10 million square meters this year, mainly in big cities such as Shanghai, Beijing, Guangzhou and Shenzhen.

New property prices in Shanghai fell 10.7 percent last week from a week earlier after the central government announced rules restricting foreigners from buying luxury villas, office buildings and apartments. Prices dropped to 8,394 yuan ($1,053) per square meter, according to Ehomeday.com, a Shanghai-based Web site that compiles data on the city's property market.

Vanke needs to diversify into more cities to balance the risks of investing in Shenzhen and Shanghai, according to Haitong's Zhang. Haitong forecasts Vanke's net income will increase 28 percent to 1.73 billion yuan for the full year, he said.

To contact the reporter on this story: Irene Shen in Shanghai at Ishen4@bloomberg.net

To contact the editor responsible for this story: Bruce Grant in Hong Kong at bruceg@bloomberg.net


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