Yahoo Finance Property giant China Evergrande says profit may have surged 90 per cent last year as 2019 starts with a sales slump
China Evergrande Group, one of the country's biggest property developers, said it is likely to record a 90 per cent surge in core net profit for last year, a day after it reported a dramatic sales slump in the first two months of 2019.
In a positive earnings alert filed to the Hong Kong Stock Exchange on Tuesday, the firm said its net profit for 2018 would show a "substantial increase" with the earnings from its core business up at least 90 per cent from the previous year, thanks to higher profitability and cost cuts.
It came a day after the construction giant saw its contracted sales tumble 46.8 per cent year-on-year in the January-February period. In value terms it dropped 42.5 per cent to 64.7 billion yuan (US$6.97 billion), the worst result in the last three years, according to its public filing.
Three analysts interviewed by the Post said the strong earnings for last year were expected because under current accounting rules Evergrande's operating revenue and profit stems from sales during 2016-17 " a time of supercharged growth for the company. This year's performance will be seen in 2019-20 earnings.
It has been a poor start to the year for all major developers. China Vanke reported an 11.1 per cent decline in the value of sales in the first two months. Country Garden, the biggest developer in the country, saw its contracted sales fall 11.3 per cent in the period.
Declining home sales in smaller Chinese cities during Lunar New Year point to longer term troubles
The big three developers' dismal performance is a result of a nationwide slowdown in property sales, dragged down by souring sentiment amid a slowing economy. The momentum is particularly weak in small cities after a two-year bull run that exhausted people's purchasing ability.
According to consultancy CRIC, during the Lunar New Year week and the following week " normally a busy time for small Chinese cities " home sales in 28 so-called tier 3 and tier 4 cities fell by 23 per cent from a year ago, a far greater decline than the 4 per cent seen in larger, tier 2 cities.
"Evergrande's sales drop is expected but the extent somehow exceeds expectations," said Toni Ho, a property analyst with RHB OSK Securities in Hong Kong. "A high comparison base last year, and its bigger exposure to lower-tier cities may explain the big slump."
A year ago residents in China's small cities were in the midst of a buying spree. Their purchasing power was particularly boosted by local governments' subsidies for slum redevelopments. Evergrande was a beneficiary of the upturn, with its sales in the first two months of 2018 swelling 64 per cent to 112.5 billion yuan.
In early January, Evergrande lowered its annual growth target for 2019 to 9 per cent, the most modest goal since at least 2015. Some analysts said Evergrande can still achieve its modest target for the whole year.
China Evergrande targets modest sales growth for 2019 amid weak outlook for property market
"January-February is not a reliable indicator to see whole-year performance because of the big disruption of the holiday factor," Ho said.
Evergrande stock lost 1.56 per cent in morning trading before rebounding 2 per cent by the close.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.
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