Mar 30, 2023
China’s Largest Developer Posts First Loss Since 2007 Listing
(Bloomberg) -- Country Garden Holdings Co., China’s largest property developer, reported a first full-year loss since its 2007 listing in Hong Kong and signaled it would pivot away from its expansion in smaller cities.
The Foshan-based company posted a net loss of about 6.1 billion yuan ($885 million) in 2022, compared with a profit of 27 billion yuan a year earlier. The developer warned of the loss earlier this month.
For more detail on the earnings, click here
The result underscores how a slump in China’s real estate sector is weighing on some of the strongest private builders that have avoided a default so far. Once considered a safer investment among developers, Country Garden has become a proxy for financial contagion in an industry that accounts for about a quarter of the country’s gross domestic product.
While early signs of a housing-market stabilization have finally emerged, the turnaround remains tenuous. A chunk of Country Garden’s land bank is in smaller cities, which usually have higher inventory and weaker housing demand.
In reaction, Country Garden vowed to change its traditional push to expand in lower-tier cities. It plans to increase its landbank in “tier-1 and tier-2 cities to about half of the total by value” in three to five years, President Mo Bin said in a post-earnings presser.
Some smaller tier-3 and tier-4 cities see “evident deterioration” in supply and demand, which has led to sharper fluctuation in prices, Vice Executive President George Cheng said.
Currently, only about 40% of Country Garden’s landbank are in tier-1 and tier-2 cities, according to the company. The developer has recently started to bid regularly in government land auctions, but has been largely losing out to competitors, he added.
The developer may “lag behind peers in the sector’s sales recovery,” Bloomberg Intelligence property analysts Kristy Hung and Patrick Wong wrote in a preview before the earnings release. “This could cast a shadow on Country Garden’s 2023 earnings recovery.”
Broadly, China’s housing market may hold steady or slightly decline this year, Mo said. His forecast stands in contrast with smaller rival Greenland Holdings Corp, whose chairman foresees the home market to slump again this year.
Country Garden’s loss last year mainly stems from erosion of profitability, as adjusted gross margin plunged 10 percentage points to 7.6%, a record low.
The firm “had to make a concession” in profitability amid a downturn in “a year like no other” in order to reach its core target to ensure repayment of its bonds due in 2022, the developer said in filing.
Revenue stood at 430 billion yuan, roughly in line with the 427 billion yuan estimate compiled by Bloomberg. Core net profit, which adjusts for items including property revaluation, reached 2.6 billion yuan.
(Updates with management comments from the fifth paragraph)
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