China Vanke Falls Most in a Month as Income Misses Estimates

China Vanke Co., the country’s biggest developer by sales, fell by the most in a month in Hong Kong trading after third-quarter profit missed some analyst estimates as price cuts hurt margins.

The shares dropped by 3.3 percent, the most since Sept. 26, to HK$13.98 at the close. The company reported 0.15 yuan earnings per share yesterday, compared to a 0.18 yuan estimate by Guotai Junan Securities Co. Credit Suisse Group AG cut forecasts for the year and lowered Vanke’s price target, citing a 1.1 percentage point decline in gross margin from a year earlier.

China’s new-home prices fell in all but one city monitored by the government last month amid tight credit that saw unsold homes jump by 29 percent as of Sept. 30 from a year earlier. Vanke said it stuck to a “proactive” sales strategy in the third quarter, managing to keep its inventories at a similar level to the start of the period.

The lower margins were “achieved by cutting prices,” Credit Suisse Hong Kong-based analyst Jinsong Du wrote in a report today. “We expect further downside to its gross margin” in the fourth quarter. Credit Suisse cut its revenue and earnings per share for Vanke.

Vanke’s net income in the third quarter rose 2.8 percent to 1.65 billion yuan ($270 million), while revenue climbed 0.7 percent, according to a company filing to the Shenzhen Stock Exchange.

Policy Easing

New-home sales slumped 11 percent in the first nine months, according to the statistics bureau. Prices dropped in 69 of the 70 cities in September from August, the most since January 2011 when the government changed the way it compiles the data.

The market downturn prompted the central bank to ease mortgage policies for some homebuyers on Sept. 30. All but five of the 46 cities that imposed limits on home ownership since 2010 have also removed or relaxed such restrictions amid the property downturn that dented local revenues from land sales.

Developers will keep prices attractive as they open more projects toward the end of the year to meet sales targets, boosting supply and increasing competition, Ping An Securities Co. Shenzhen-based analyst Yang Kan wrote in an Oct. 14 report.

Vanke’s share-price drop is partly because the recovery in home sales hasn’t been as strong as investors anticipated after the policy easing, according to Wan Zhi, a Beijing-based analyst at Essence Securities Co.

— With assistance by Dingmin Zhang

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