China developers flag worst earnings in years on historic slump
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Among 60 mainland-listed property firms that made profit alerts by a Jan 31 deadline, 60 per cent expected losses for last year.
PHOTO: REUTERS
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BEIJING – China’s unprecedented housing slump and construction halt has led to the worst earnings for real estate developers in at least seven years, according to Bloomberg estimates.
Among 60 mainland-listed property firms that made profit alerts by a Jan 31 deadline, 60 per cent expected losses for 2022, when a credit crunch sent shockwaves through the industry and triggered defaults, Bloomberg calculations based on public data showed.
Only 5 per cent of firms turned profitable in 2022, while another 5 per cent saw net income growing from a year earlier. The rest said profit fell.
The figures shed light on the scale of the property meltdown’s impact on the industry, which is now counting on government measures to ease financing as home sales and prices continue to tumble. They also suggested grim reading at next month’s results for larger players that are only listed in Hong Kong.
“Developers’ earnings took a severe hit from the deep sector downturn and debt defaults,” said China Index Holdings research director Liu Shui. “They will not be confident enough to start making new investments soon.”
As part of a sweeping sector rescue in late 2022, China ended a ban on onshore equity fund raising for property developers and widened a programme to facilitate local bond sales with government guarantees. State banks have also pledged to boost loans to the sector.
In a sign of how the record downturn has hurt bottom lines, defaulted developer Shimao Group Holdings’ main unit onshore is expected to record its first full-year loss in 21 years. While the Hong Kong-listed parent company has not disclosed full-year earnings for 2021, it is likely to report a meaningful loss in 2022.
The heaviest loss was at RiseSun Real Estate Development, which said its red ink probably swelled five times to as much as 25 billion yuan (S$4.9 billion).
The majority of developers that turned profitable last year relied on “random events” instead of business improvements, which is not sustainable, China Index said.
The biggest gainer was China Fortune Land Development, whose offshore debt restructuring plan went effective last week after year-long negotiations with overseas bond holders.
The firm said it swung to a profit of as much as 1.6 billion yuan last year from a loss of up to 39 billion yuan in 2021. Still, it had a non-recurring loss of as much as 17 billion yuan when excluding one-time income stemming from the restructuring, the developer added.
Even some of the biggest state-owned players warned of a sharp profit slide. Poly Developments and Holdings Group, the country’s biggest state developer by sales, said net income likely slid 33 per cent from a year earlier, due mainly to shrinking margins. China Merchants Shekou Industrial Zone Holdings, a top 10 player, flagged a plunge of as much as 63 per cent.
Citigroup analysts advised investors to look through the lacklustre results, forecasting a mild stock retreat in February on earnings downgrades and profit warnings. A Bloomberg Intelligence gauge of Chinese developer stocks has jumped 66 per cent since the end of October.
Major property players listed in Hong Kong are scheduled to post full-year earnings by a March 31 deadline.
Last year’s results were a “sunk cost”, the analysts wrote in a report last week, adding that a sales-driven stock rally may start to emerge in the coming months. BLOOMBERG
