Sunac reports big growth in profit

Sunac said in a filing with the Hong Kong Stock Exchange that revenue increased by 25 percent year-on-year in the first half of 2017, and gross profit soared 80 percent. [Photo/Agencies]

Hong Kong-listed developer says revenue up 25%

Hong Kong-listed property developer Sunac China Holdings Ltd said on Monday that it expected its net profit in the first half of 2017 to surge 15 times year-on-year as a result of acquiring property projects and an expanding gross profit margin.

Sunac said in a filing with the Hong Kong Stock Exchange that revenue increased by 25 percent year-on-year in the first half of 2017, and gross profit soared 80 percent.

Sunac said in August that it would buy 91 percent equity in Dalian Wanda's 13 tourism projects for 43.8 billion yuan ($6.56 billion).

The transaction will add on 50 million square meters of sellable gross floor area to Sunac's land reserves.

Sunac has been acquiring land vigorously since last year, buying the majority of equity of an unfinished luxury housing project in Tianjin in May, and acquiring equities of other development projects across China, spending more than 120 billion yuan on acquisitions in total in the past 24 months.

According to a report by Xinhua News Agency, some 90 percent of Sunac's new land reserves this year were added through acquisitions.

Brokerages said they have been studying Sunac's fast growing debt-to-asset ratio, which was more than 100 percent by the end of June.

Wang Deyong, a real estate analyst at CITIC Securities, said in earlier research that real estate developers' cash flow is mainly supported by property sales, and their financing relies highly on borrowing from financial institutions and bond issuance.

"Now, with tightened policy over the housing market to prevent real estate bubbles in real estate market, growth of both sales of properties and financing are much slower than before. So if developers continue to expand borrowing and increase debt-to-asset ratio, they may face challenges and need to handle cash flow pressure," Wang said.

"Sunac is not short of cash", said Sun Hongbin, chairman of Sunac, at a recent meeting with investors and media, adding that the company is enjoying steady and stable revenue from project sales.

Intensive acquisitions with reasonable prices, according to Sun, is a measure of fast scaling up.

The strong forecast sent Sunac's share price to HK$19.18 ($2.45) on Monday, a 6.91 percent gain and the highest since mid-August.

The company's price-earning ratio is 28.61, and its capitalization is HK$79.26 billion.

Sunac is scheduled to publish its interim results at the end of the month.