Bloomberg News

Sunac China Says Sales to Exceed $3.3 Billion on Rich Buyers

October 20, 2011

(Updates to close share price in second-last paragraph.)

Oct. 20 (Bloomberg) -- Sunac China Holdings Ltd., the developer part-owned by Bain Capital LLC, said sales may exceed 20 billion yuan ($3.3 billion) next year as it sells more luxury homes to wealthy Chinese buyers.

Tianjin-based Sunac’s cash will rise to 6 billion yuan after the company expects to reach this year’s 18.3 billion yuan sales target in November, Chairman Sun Hongbin said. The company aims to use 2 billion yuan to 3 billion yuan of the money to boost its land holdings as prices slow, he said.

Sunac is expanding as demand for luxury housing shows resilience even as the government intensifies efforts to curb home prices, Sun said. Housing prices gained in fewer than half of the 70 cities monitored by the statistics bureau in September for a second month as sales eased after limits on home purchases in some cities were imposed and mortgage rates increased.

“People cherish their opportunities to buy even more because of the home-purchase restrictions,” Sun told reporters in Beijing on Oct. 17. “That’s very lucky for companies developing high-end properties like us.”

Sunac focuses on high-end properties in Beijing, Tianjin, Chongqing, Wuxi, Suzhou and Yixing. New-home prices in four of the six cities Sunac operates in, including Beijing and Chongqing, either fell or were unchanged from August, according to the statistics bureau data on Oct. 18. Sunac’s net income rose 67 percent in the first half from a year earlier to 318.7 million yuan after sales of properties jumped 64 percent, according to the company’s financial statement.

Higher Prices

The average selling price for Sunac West Chateau, located near the Old Summer Palace in northwest Beijing, has risen to 48,000 yuan a square meter (10.76 square foot) from 44,000 yuan when the residential project was first sold in June, as wealthy Chinese favor high-end properties in prime locations, said Lou Yanqing, deputy sales manager of the project.

Sunac’s sales projection may ease concerns that have driven the shares 43 percent lower since May 2, when Fitch Ratings revised its credit outlook to negative from stable as the cancellation of a bond issue threatened to strain liquidity and sales lagged behind the developer’s target. Sunac’s debt has a BB- non-investment grade rating at both Fitch and Standard & Poor’s.

The rating “will remain relatively stable for the near term unless sales drop significantly before the end of the year or the company makes some drastic land purchases,” Bei Fu, a Hong Kong-based property credit analyst at Standard & Poor’s, said by phone. If land acquisitions greatly exceed Sun’s plans, “the rating may be under pressure,” Fu said.

‘Too Cheap’

Sunac’s stock valuation of as low as 1.4 times expected earnings this year is “absurd and too cheap” as concerns about government curbs outweigh the company’s fundamentals, Sun said.

A “normal” level for the stock should be at least five times earnings, he said. Sunac’s 60 closest competitors trade at an average multiple of 19, according to data compiled by Bloomberg.

The valuation is preventing Sunac from additional stock offerings and the lack of foreign-currency holdings hampers any plan to buy back shares, which are traded in Hong Kong, Sun said. Gross profit margin for this year will be about 40 percent, similar to last year’s, he added.

Positive Action?

Sunac’s sales “have been strong because of highly successful project launches despite the market environment,” Hong Kong-based Fitch analyst Su Aik Lim said by phone. “As the company’s performance continues to meet expectations, it does satisfy one of the factors for positive action, but this is weighed down by recent large investments.”

Sunac agreed to acquire the remaining 50 percent of a subsidiary operating West Chateau from Beijing Shougang for 1.45 billion yuan, obtaining the right to receive all net profits from the project, the company said in a statement to the Hong Kong stock exchange yesterday.

Sunac was unchanged at HK$1.57 at the close in Hong Kong trading. The Hang Seng Index fell 1.8 percent.

Prices for residential land in China rose 2.17 percent in the second quarter from the first quarter, slower than the first three months of the year, the official Xinhua News Agency reported in July, citing a report from the Ministry of Land and Resources. Land prices in Beijing dropped 0.58 percent.

--Zhang Dingmin. Editors: Linus Chua, Andreea Papuc

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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