China Vanke First-Half Profit Gains 25% After Price Cuts

China Vanke Co., the biggest developer by market value traded on the nation’s exchanges, said first-half profit climbed 25 percent as the company cut prices to boost sales amid government controls.

Net income increased to 3.73 billion yuan ($585 million), or 0.34 yuan a share, from 2.98 billion yuan, or 0.27 yuan, a year earlier, the company said in a Shenzhen stock exchange filing yesterday. Revenue gained 54 percent to 30.72 billion yuan. The shares rose.

“Big companies such as Vanke tend to do better in downturns because they’re better at marketing,” Jack Gong, a Hong Kong-based property analyst at Jefferies Group Inc., said before the earnings announcement. “The general outlook for the property market is still tightening with some room for fine-tuning of policies.”

Chinese developers have been cutting prices to boost sales volumes amid curbs the government has maintained for more than two years to cool the real estate market. They include raising down-payment and mortgage requirements, imposing property taxes for the first time in Shanghai and Chongqing, increasing building of low-cost social housing, and implementing home-purchase restrictions in about 40 cities.

Gross Margin

The stock rose 0.8 percent to 8.83 yuan at the close of trading in Shenzhen. That was compared with a 0.1 percent gain in the CSI 300 Index, which tracks the 300 most valuable stocks listed in Shanghai and Shenzhen.

“Although the earnings were up, it’s lagging behind the revenue growth,” Jinsong Du, a Credit Suisse Group AG property analyst, said in a Bloomberg Television interview in Shanghai today. “That means the margins have come down. The market probably took it as a surprise.”

Gross margin fell by 5.6 percentage points to 26.5 percent in the first half from the same period last year, the company reported yesterday.

Average prices for Vanke’s homes fell 10.6 percent to 10,380 yuan in the first half from last year, the company said in a separate e-mailed statement yesterday.

The developer’s contracted sales this year will exceed last year because it will start selling more projects in the fourth quarter, Board Secretary Tan Huajie said in the statement.

Contracted Sales

The company’s contracted sales value, based on bookings of apartments before they are built, fell 1.6 percent to 72.9 billion yuan in the first seven months from a year earlier. Sales volume rose 9.6 percent from the same period last year to 7 million square meters (75 million square feet).

“We launched fewer projects in the first half than a year ago, but with reasonable sales strategy, the company still held up rising sales volume,” Tan said in the statement.

Vanke said in May that it will pay HK$1.08 billion ($139 million) for a 74 percent stake in Hong Kong-traded Winsor Properties Holdings Ltd. to expand overseas.

The main purpose of the purchase is “a trial for global expansion, a long-term direction of growth” for Vanke, the company said at the time. It will set up a foreign-business unit in Hong Kong in the second half, according to a posting on June 15 on its official microblog, citing President Yu Liang.

Vanke, the first among China’s biggest developers to report first-half earnings, had 47 billion yuan of cash by the end of June, up 37 percent from the beginning of the year.

“Vanke will closely monitor the opportunities in the land market in the second half, but we’ll not relax our investment standard,” Tan said.

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