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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% year-on-year in the first half of 2017, and gross profit soared 80%.
Sunac said in August that it would buy 91% equity in Dalian Wanda's 13 tourism projects for 43.8 billion yuan (6.56 billion US dollars).
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 the 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% 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% by the end of June.
Wang Deyong, a real estate analyst at CITIC Securities, said in an 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, the 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 a steady revenue growth 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 19.18 Hong Kong dollars (2.45 US dollars) on Monday, a 6.91% gain and the highest since mid-August.
The company's price-earning ratio is 28.61, and its capitalization is 79.26 billion Hong Kong dollars.
Sunac is scheduled to publish its interim results at the end of the month.
(CGTN)
