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China Overseas Profit Up 35% on One-Time Gains, Home Sales

China Overseas Land & Investment Ltd., a Hong Kong-based builder controlled by the Chinese construction ministry, said first-half profit climbed 35 percent on gains from one-time items and property sales.

Net income rose to HK$6.8 billion ($871 million), or 83.7 Hong Kong cents a share, from HK$5.1 billion, or 62 Hong Kong cents a share, a year earlier, the company said in a stock-exchange filing today. Sales rose 25 percent to HK$21.9 billion from HK$17.6 billion, it said.

The developer’s profit rose even as China expanded efforts to control risks of asset bubbles. The cabinet said last month it will rein in residential prices in smaller cities after limiting home purchases in metropolitan areas including Beijing and Shanghai. China is intensifying property restrictions nationwide after developers posted gains in first-half sales and housing transactions climbed 31 percent in June.

“China Overseas’ diversified portfolio in both the country’s major and smaller cities helped boost their sales performance and the earnings,” said Kevin Gin, a Hong Kong-based analyst at Yuanta Securities Co. “Looking forward, the developer has sufficient resources to generate profits from projects.”

The company recorded about HK$1.2 billion from two transactions including the sale of interests in three projects to a real estate fund and the acquisition of the control of China Overseas Grand Ocean Group Ltd., it said in the statement.

The Hong Kong-traded stock fell 3.1 percent to HK$15.92 at 4 p.m. local close, after the results. The shares gained 11 percent this year, the best performer on the Hang Seng Property Index, which tracks the seven-biggest Hong Kong-listed builders.

‘Confident’ on Outlook

Net gearing in the first-half was 38.5 percent and the company aims to keep it below 40 percent, Chairman Kong Qingping said at a press conference in Hong Kong today.

The company is “confident” about the medium and long-term development of China’s property market amid industrialization and urbanization, Kong said in the statement. Property prospects in Hong Kong and Macau are “good,” he said.

China Overseas, which builds homes and offices in China, Hong Kong and Macau, said operating profit rose 37 percent to HK$10.9 billion. Operating profit from mainland China increased 29 percent from a year earlier, accounting for 79 percent of the overall result.

The company’s contracted sales advanced 82 percent to HK$60.3 billion in the first seven months from a year earlier, it said in an e-mailed statement yesterday. Hong Kong and Chinese developers usually start selling properties while they’re still under construction and book profits as the projects are being built.

Ahead of Target

“The company has already achieved more than half of the year’s sales target,” said Nicole Wong, a Hong Kong-based property analyst at CLSA Asia-Pacific Markets, who had a “buy” rating on the stock. “China Overseas already operated in those home purchase restriction zones in the first half, so their earnings in the next half will not be much different.”

The company is targeting full-year sales of HK$80 billion yuan this year, Kong said today.

The developer acquired 16 plots in China in the first half and plans to expand its land bank at low cost in the future, it said in the statement. The company’s land reserve is “enough” for the next four to five, said Kong.

China Vanke Co., the country’s biggest developer, said yesterday that first-half profit climbed 5.9 percent from a year earlier as it sold more homes in smaller cities that were immune to government curbs targeting metropolitan areas.

“We’re still facing a very challenging environment,” Kong said today, citing sustained government tightening policies and industry consolidation.

China Overseas cut prices at four projects this year by 10 percent to 15 percent from a year earlier, the company said last month. The price reductions helped boost its market share, CLSA’s Wong said.

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