March 6, 2018 / 6:30 AM / 17 days ago

Industry consolidation boon: China developer Sunac flags strong 2017 profit

HONG KONG (Reuters) - Joining a raft of real estate developers brimming with strong earnings, Sunac China forecast net profit to surge over 240 percent in 2017 in a sign of how consolidation in the industry is boosting market share and income.

Sunac China Holdings Ltd logo is seen during a exhibition in Hangzhou, Zhejiang province, China, May 25, 2015. China Daily/via REUTERS/Files

In the last two months at least seven Chinese developers listed in Hong Kong have issued positive earnings forecasts, including top company by sales, Country Garden.

Sunac, the country’s fourth largest property developer by sales, is expecting last year’s revenue to surge over 80 percent from a year ago. In a release late on Monday it also said gross profit margin is forecast to climb about 7 percent, based on unaudited accounts.

The booming earnings were driven by an industry consolidation as authorities have continued to clamp down on riskier lending practices, with China’s large developers tightening their hold on the country’s real estate sector and capturing an ever-larger market share.

Investors cheered the Sunac news, sending its shares up as much as 5.4 pct in early trading on Tuesday. They were up 2.5 percent by the noon break, while the broader market gained 1.4 percent.

“Government data undervalued many home prices in the first and second-tier cities, which actually performed well last year,” CRIC Hong Kong head of research David Hong said. “Sunac has many developments in major cities, and so do most of the Chinese developers in listed Hong Kong.”

Sunac, due to report 2017 results late this month, said the impairment provision made for its investments in loss-making video-streaming firm Leshi Internet, as well as increase in gains from business acquired, have been taken into consideration in its forecast.

Sunac bought 91 percent of 13 tourism projects in July from conglomerate Dalian Wanda Group for $6.5 billion, and expects its investments will be earnings accretive through 2019.

In a separate statement on sales on Monday, Sunac said its February contracted sales were up 88 percent from a year ago.

CRIC’s Hong expected listed developers to continue their strong sales performance in 2018 given the ongoing consolidation.

Last week, Guangzhou-based Times China reported a 36.4 percent rise in 2017 net profit.

Country Garden, Future Land, Aoyuan Property, China Jinmao and Beijing North Star have previously said they expected profits last year to soar 60-100 percent.

Reporting by Clare Jim; Editing by Shri Navaratnam

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