Bloomberg News

China Overseas Profit Growth Slows to 22% on Property Curbs

March 15, 2012

China Overseas Land & Investment Ltd. (688), the country’s biggest developer by market value listed in Hong Kong, said 2011 profit growth slowed as the Chinese government introduced measures to cool the property market.

Net income rose 22 percent to HK$15.03 billion ($1.9 billion), or HK$1.84 a share, from HK$12.4 billion, or $HK1.51 a share, a year earlier, the company said in a Hong Kong stock exchange filing today. That compares with the HK$12.7 billion average estimate of 17 analysts, according to data compiled by Bloomberg News. Sales rose 9.6 percent to HK$48.6 billion from HK$44.3 billion.

China Overseas’ earnings growth slowed from 66 percent in 2010 after the government last year expanded efforts to control the property market including raising down-payment and mortgage requirements and imposing home purchase restrictions in about 40 cities. Property prices are far from returning to reasonable levels, therefore China must not relax controls on real estate prices, Premier Wen Jiabao said in Beijing yesterday.

“The developer’s profit growth slowed because the company’s focus of mid-and-high end homes were more or less affected by the government’s property measures as its sales were not as brilliant as before,” said Peter Bai, a Beijing-based property analyst at China International Capital Corp., the country’s biggest investment bank, before today’s release. “But big companies like China Overseas are still doing better than peer developers in a bad market.”

Market Change

Profit excluding revalutions increased by 37 percent to HK$13.02 billion yuan from 2010.

The Hong Kong-traded stock fell 2.7 percent to HK$15.36 at local close, the lowest in two weeks. The drop pared its gain this year to 18 percent, compared with a 20 percent increase in the Hang Seng Property Index (HSP), which tracks the seven-biggest Hong Kong-listed builders including China Overseas.

“Going to the second half of the year, the market environment changed rapidly. The group is still fully confident about long-term development of the mainland China property market,” Chairman Kong Qingping said in today’s statement. The company will “calmly meet the challenges ahead.”

‘Remain Challenging’

The developer’s contracted sales rose 42 percent in the first two months of this year from the same period in 2011 to HK$17.1 billion, it said in an e-mailed statement on March 13. Hong Kong and Chinese developers begin selling properties while they’re still in construction and book profit upon completion.

The company sold a total of HK$87.1 billion worth of properties during 2011, up 29.8 percent from a year earlier, it said today. That was compared with 40.4 percent growth in 2010.

“The market will remain challenging in the first half of the year,” Kong told reporters in Hong Kong today. “We will be cautious when approaching new projects.”

The developer set the sales target for at least HK$80 billion for 2012, it said in the statement today.

Operating Profit

China Overseas, which builds homes and offices in 25 cities in the mainland, said operating profit from its property development business in China rose 13.1 percent to HK$18.5 billion, accounting for 79 percent of the group’s total profit.

The company is studying plans to invest in foreign property markets through its parent, Chairman Kong said in an interview in Beijing on March 5. It is looking at office markets in the U.S., London, Europe, Taiwan and Southeast Asia, with a rental return ratio of around 4 percent to 5 percent per year, Kong said.

The developer bought 20 parcels of land with a total gross floor area of 9.1 million square meters (98 million square feet) during the year, it said.

Property markets in Hong Kong and Macau will undergo some adjustment, but the high-end segment that the company operates in will be little affected, Kong said in the statement.

The company will pay a final dividend of 20 Hong Kong cents per share, compared with 17 Hong Kong cents a year earlier.

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net

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


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