Evergrande Profit Falls 23% as Property Marketing Costs Rise

  • Revenue rose 13% to 87.5 billion yuan as home sales rose
  • Borrowings rise by 28% as Evergrande goes on buying spree

China Evergrande Group, one of China’s most-indebted listed property developers, said first-half profit fell 23 percent as rising sales were offset by higher costs for selling homes and servicing debt.

Core profit, or profit excluding property revaluations and foreign-exchange losses, fell to 7.8 billion yuan ($1.2 billion) from 10.2 billion yuan a year earlier, the company said in a statement to the Hong Kong stock exchange Aug. 30. Revenue rose 13 percent to 87.5 billion yuan.

Evergrande in August raised its pre-sales contract target to 300 billion yuan, the highest goal among mainland builders, amid a turnaround in China’s housing market. The developer said it will work on expanding its land banks in the second half to meet its sales targets, and will also pursue “cost-effective” ways to acquire projects, such as mergers and acquisitions.

Evergrande, controlled by billionaire Hui Ka Yan, embarked on a spending spree in the first half. The firm in April agreed to buy shares in Shengjing Bank Co. and China Calxon Group Co., before making a surprise entry in August into the bidding war for the country’s largest homebuilder, China Vanke Co.

Total borrowings of the Guangzhou-based developer jumped, with debt rising 28 percent to 381.3 billion yuan. Financing costs almost tripled from the year-earlier period.

Sales Surge

Contracted sales surged 63 percent to 141.8 billion yuan in the first half, according to the statement. Marketing costs jumped more than 51 percent as the company said it embarked on a nationwide “brand publicity activities.” Chinese developers typically begin selling properties while they are under construction and book profits upon completion.

Shares of Evergrande rose 1.4 percent to HK$5.76 in Hong Kong on Tuesday. The shares have declined 16 percent this year, compared with the 11 percent increase in the Hang Seng Properties Index.

— With assistance by Emma Dong

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