When someone shares with you something of value, you have an obligation to share it with others.
Monday 21 September 2009
Bleaker outlook for mainland developers
Predicting that mainland developers will experience a less favourable business environment in the second half of the year, analysts say industry players who failed to achieve strong earnings in the first half face a dimmer outlook.
Predicting that mainland developers will experience a less favourable business environment in the second half of the year, analysts say industry players who failed to achieve strong earnings in the first half face a dimmer outlook.
There is rising concern that a declining pace of loan growth and a continued slowdown in sales activity could be a drag on developers’ earnings growth momentum.
These market uncertainties have triggered some analysts to downgrade the sector and suggest investors be selective among the property stocks.
“With the expected slower pace of loan growth for the rest of 2009, it would not be a surprise to see slower transaction volumes for the rest of the year versus the first half,” Citigroup said in a recent research report.
It recommended investors pick developers that have already cashed up following strong contracted sales so far this year, since they would have flexibility in the pricing and timing of property sales.
On the other hand, it recommended a “sell” on mainland developers that achieved only average sales performance or that have not managed to lower their debt levels despite the strong property market in the first half.
“In our view, with the rest of 2009 expected to be more difficult than the first half, it would be even more difficult for these companies to catch up on sales or to fix their balance sheets,” it said.
Those on the “sell” list include Guangzhou R&F Properties, Greentown China Holdings, Agile Property Holdings, Country Garden Holdings and KWG Property.
Guangzhou R&F posted earlier a net profit of 160 million yuan (HK$181.62 million) in the first half, down 90 per cent year on year on turnover of 4.66 billion yuan, up 11 per cent.
Net gearing decreased 13 percentage points but still stood at 110 per cent.
Country Garden’s gross profit dropped 25.1 per cent year on year to 2.9 billion yuan owing to a lower average selling price. Excluding the fair-value change of equity swaps, net profit dropped 5.1 per cent to 1.38 billion yuan.
Meanwhile, KWG posted a 24 per cent decline in net profit to 169 million yuan, on a turnover of 900 million yuan, up 25 per cent year on year.
The decline in interim earnings came as the residential market on the mainland stayed hot in the first half, with property sales in value terms surging 60.4 per cent in the first six months, compared with the same period in the preceding year.
However, some developers have done well in the first half. For example, China Overseas Land & Investment’s profit jumped 31.6 per cent to HK$3.04 billion from HK$2.31 billion last year. Turnover surged 44.4 per cent to HK$15.48 billion.
The company achieved 66 per cent year-on-year growth in first-half property sales and raised its full-year sales target 19 per cent to 40 billion yuan.
Shimao Property Holdings posted a 30.4 per cent increase in net profit to 1.2 billion yuan in the first half.
David Ng Ka-chun, the head of regional property research at Royal Bank of Scotland, said in a recent report that while he still projected continued growth in net profit and revenue in the sector over the next two years, he was downgrading the sector to neutral, given that share prices had risen 206 per cent between October last year and last month.
Another trend that might discourage developers and stock investors alike, he said, was margin compression owing to rising land costs and the trend of including fittings and decorations in flats delivered to home buyers.
The profit margin of most developers rose between 2004 and last year, owing to rising average selling prices in a booming property market and land banks bought cheaply in the past, Ng said. In general, gross margin rose eight to 27 percentage points, while net margin rose zero to 21 percentage points.
Margins declined for the first time for most companies in the first half of this year, with gross margin dropping four to 30 percentage points year on year.
RBS believed this trend would continue as the expensive land bought in 2007 started to have an impact on earnings from next year.
Ng said the physical market might stay hot but there would be more downside for stocks. He said he preferred large developers such as China Overseas and China Resources Land.
2 comments:
Bleaker outlook for mainland developers
Shun weak performers in first half, analysts say
Peggy Sito
21 September 2009
Predicting that mainland developers will experience a less favourable business environment in the second half of the year, analysts say industry players who failed to achieve strong earnings in the first half face a dimmer outlook.
There is rising concern that a declining pace of loan growth and a continued slowdown in sales activity could be a drag on developers’ earnings growth momentum.
These market uncertainties have triggered some analysts to downgrade the sector and suggest investors be selective among the property stocks.
“With the expected slower pace of loan growth for the rest of 2009, it would not be a surprise to see slower transaction volumes for the rest of the year versus the first half,” Citigroup said in a recent research report.
It recommended investors pick developers that have already cashed up following strong contracted sales so far this year, since they would have flexibility in the pricing and timing of property sales.
On the other hand, it recommended a “sell” on mainland developers that achieved only average sales performance or that have not managed to lower their debt levels despite the strong property market in the first half.
“In our view, with the rest of 2009 expected to be more difficult than the first half, it would be even more difficult for these companies to catch up on sales or to fix their balance sheets,” it said.
Those on the “sell” list include Guangzhou R&F Properties, Greentown China Holdings, Agile Property Holdings, Country Garden Holdings and KWG Property.
Guangzhou R&F posted earlier a net profit of 160 million yuan (HK$181.62 million) in the first half, down 90 per cent year on year on turnover of 4.66 billion yuan, up 11 per cent.
Net gearing decreased 13 percentage points but still stood at 110 per cent.
Country Garden’s gross profit dropped 25.1 per cent year on year to 2.9 billion yuan owing to a lower average selling price. Excluding the fair-value change of equity swaps, net profit dropped 5.1 per cent to 1.38 billion yuan.
Meanwhile, KWG posted a 24 per cent decline in net profit to 169 million yuan, on a turnover of 900 million yuan, up 25 per cent year on year.
The decline in interim earnings came as the residential market on the mainland stayed hot in the first half, with property sales in value terms surging 60.4 per cent in the first six months, compared with the same period in the preceding year.
However, some developers have done well in the first half. For example, China Overseas Land & Investment’s profit jumped 31.6 per cent to HK$3.04 billion from HK$2.31 billion last year. Turnover surged 44.4 per cent to HK$15.48 billion.
The company achieved 66 per cent year-on-year growth in first-half property sales and raised its full-year sales target 19 per cent to 40 billion yuan.
Shimao Property Holdings posted a 30.4 per cent increase in net profit to 1.2 billion yuan in the first half.
David Ng Ka-chun, the head of regional property research at Royal Bank of Scotland, said in a recent report that while he still projected continued growth in net profit and revenue in the sector over the next two years, he was downgrading the sector to neutral, given that share prices had risen 206 per cent between October last year and last month.
Another trend that might discourage developers and stock investors alike, he said, was margin compression owing to rising land costs and the trend of including fittings and decorations in flats delivered to home buyers.
The profit margin of most developers rose between 2004 and last year, owing to rising average selling prices in a booming property market and land banks bought cheaply in the past, Ng said. In general, gross margin rose eight to 27 percentage points, while net margin rose zero to 21 percentage points.
Margins declined for the first time for most companies in the first half of this year, with gross margin dropping four to 30 percentage points year on year.
RBS believed this trend would continue as the expensive land bought in 2007 started to have an impact on earnings from next year.
Ng said the physical market might stay hot but there would be more downside for stocks. He said he preferred large developers such as China Overseas and China Resources Land.
Post a Comment