Guangzhou R&F Properties eyes mainland listing

It posts 7.1% drop in 2009 profit as higher expenses erode revenue gain

Guangzhou R&F Properties Co, the biggest real estate company in the southern Chinese city, said that it is looking out for a mainland share sale after reporting a 7.1 per cent drop in 2009 profit.

A listing in China would help R&F cut its leverage, which has ‘remained high’ in 2009, the company said yesterday in a statement to the Hong Kong stock exchange. It is ‘well prepared to grasp’ opportunities for an initial public offering (IPO) in China, it added.

R&F’s leverage is its ‘key bottleneck’, Nicole Wong, a Hong Kong-based analyst at CLSA Ltd, said before the developer’s announcement. ‘A high leverage will restrict their ability to acquire new projects for future growth,’ she said.

The company reported lower profit as higher expenses, including finance costs, eroded a gain in revenue, according to yesterday’s filing. It is targeting contracted sales of 30 billion yuan (S$6.2 billion) this year, 25 per cent more than 2009, which was a record, it said.

Net income in 2009 declined to 2.9 billion yuan, or 0.90 yuan per share, from a restated 3.12 billion yuan, or 0.97 yuan, a year earlier, the company said. That beat the average 2.78 billion yuan estimate of nine analysts compiled by Bloomberg.

Net income may rise 20 per cent this year, as most of the impact of R&F’s cost controls and higher sales prices should be reflected when the company delivers homes to the buyers, chairman Li Sze Lim told reporters here yesterday.

The company also plans to lower its leverage to 80 per cent in 2010 from 97 per cent, and forecasts net cashflow to range between six billion yuan and seven billion yuan this year, Mr Li said.

Sales rose 18 per cent to 18.2 billion yuan. The company raised its total planned dividend payment by 29 per cent to 0.36 yuan a share from 0.28 yuan.

R&F shares dropped 11 per cent this year, after a 60 per cent gain in 2009. The stock fell 0.5 per cent to close at HK$12.22 yesterday, compared with a 0.3 per cent gain before its earnings announcement.

Property prices in Guangzhou fell on an annual basis from January to July last year, and started rising in August, according to government data.

Profit from property development rose 18 per cent to 2.69 billion yuan as it achieved record sales, R&F said.

Prices of new residential apartments in Guangzhou rose 1.9 per cent in February from a year earlier, and gained 0.2 per cent from January, data from the National Development and Reform Commission, China’s top economic planning agency, show.

R&F will focus on increasing its land bank this year, particularly in the cities of Guangzhou, Beijing, Tianjin and Hainan, Mr Li said.

‘The best time for us to buy land may be in the third quarter, as land prices will drop because of the government’s measures,’ he added. ‘Some state- owned developers have already gradually withdrawn from taking part in land auctions. When land prices fall, home prices are likely to follow.’

The Ministry of Land and Resources said earlier this month that buyers must put a 50 per cent down payment on land acquisitions within a month of signing the contract. They must also pay a deposit, equal to 20 per cent of the minimum price for the land, when taking part in auctions, the ministry said in a March 10 statement.

Source : Business Times – 25 Mar 2010