China Vanke 2011 Profit Rises 32% on Mass-Market Home Sales

Vanke Full-Year Profit Rises 32% on Sales of Mass-Market
Construction continues on the site of China Vanke Co.'s "Fun City" apartment complex in Beijing, China. Photographer: Keith Bedford/Bloomberg

China Vanke Co., the nation’s biggest developer by sales, said full-year profit rose 32 percent as it sold more small and medium-sized homes that are less affected by government curbs.

Net income to Dec. 31 climbed to 9.62 billion yuan ($1.5 billion), or 0.88 yuan a share, from 7.3 billion yuan, or 0.66 yuan, in 2010 based on international accounting standards, the company said at a press conference in Hong Kong yesterday. Vanke would report net income of 9.53 billion yuan, according to the average of 20 analysts’ estimates compiled by Bloomberg News.

“Vanke is targeting the mass market, which helped sales,” said Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG. “Starting from the second half of last year China’s high-end property market slumped greatly. Also, in a bad market like this, brand name stands out. Buyers tended to buy homes with good and big brand names like Vanke.”

Government measures including raising mortgage and down-payment requirements and imposing home purchase restrictions in about 40 cities have curbed speculation, while intending to preserve real demand from homeowners. About 88 percent of Vanke’s projects were homes of less than 144 square meters (1,550 square feet), according to a statement in January.

“China Vanke’s business strategies are relatively stable,” President Yu Liang, said in a statement yesterday. “The company has been insisting on building small and furbished units; leveraging a quick turnover operation model; adopting a prudent investment strategy and avoiding having an excessive landbank.”

The company didn’t cut prices and sold homes at “reasonable prices,” Yu said at the briefing in Hong Kong.

Contracted Sales

Vanke shares rose 2 percent to 8.52 yuan at the 3 p.m. close in Shenzhen, taking gains this year to 14 percent. A gauge tracking property shares on the benchmark Shanghai Composite Index advanced 0.6 percent today.

Full-year contracted sales rose 12 percent to 121.5 billion yuan, the second year they were above 100 billion yuan, Executive Vice-President Xiao Li said. Contracted sales in the first two months this year fell 27 percent from last year to 19.05 billion yuan, Vanke said in a statement on March 6.

Xiao said she doesn’t see “big changes” in China’s home policies as the government still wants to help first-time homebuyers.

Chinese President Wen Jiabao has maintained that he won’t waver on real estate controls and efforts to bring prices down to a reasonable level. Regulation of the real estate market is at a “crucial stage,” he said in his work report to the National People’s Congress on March 5.

It’s hard to predict the performance of home prices this year, Xiao said. Home prices in February posted the biggest decline in 19 months, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner.

Land Acquisitions

Vanke has more than 30 million square meters of land reserves and will continue to look for land acquisition opportunities, Xiao said.

The company had 32 billion yuan of cash as of the end of December, Xiao said. The developer is the first among China’s biggest builders to report full-year earnings.

Vanke realized booked area of 5.6 million square meters in 2011, up 24 percent, and revenue booked increased 42 percent to 67.7 billion. Chinese developers begin selling homes while they are under construction and book profits upon completion.

It sold, though not yet booked, 10.85 million square meters, with a contract amount of 122.2 billion yuan at the end of 2011.

“Vanke stood out among Chinese developers because of its quick sales strategy amid the government curbs,” said Xiao Jian, a Beijing-based analyst at Southwest Securities Co., before the earnings were announced. “It was also cautious with acquisitions and expansion. That helped a lot.”

China’s home sales declined 25 percent in the first two months of the year, according to the statistics bureau, as the government pledged to maintain its housing curbs.

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