China Vanke Net Profit Dips 11.7% in 2021 1H as Margins Decline, Development Slows

China Vanke’s net profit for the first half of 2021 fell 11.7 percent year-on-year to RMB 11 billion ($1.7 billion in current terms), compared with 6 percent growth in the year-earlier period, as margins on booked development projects declined and the government’s anti-speculation curbs chilled the mainland housing market.

Revenue at China’s biggest property firm by market value rose 14.2 percent year-on-year to RMB 167.1 billion in the first six months, the developer said in a filing with the Hong Kong stock exchange. That level of growth was achieved while Vanke brought itself within the Chinese government’s “green threshold” as all indicators met the requirements of the capital monitoring and financing management rules — the so-called Three Red Lines — for key real estate enterprises.

Shenzhen-based Vanke’s net gearing ratio stood at 20.2 percent at the end of the reporting period, with monetary funds of RMB 195.2 billion against total interest-bearing liabilities due within one year of RMB 84.3 billion. No interim dividend was announced by the group.

“The real estate sector is undergoing transformation with profound effect,” Vanke said in the filing, adding that the group is committed to implementing a strategy of placing equal emphasis on property development, operation and services, keeping pace with urban development and customer needs, while accelerating the transformation of the company and seeking long-term maximisation of market value.

Market Less Frothy

Broken down by business segments, Vanke’s first-half operating revenue from property development and related asset operations was RMB 157.5 billion, accounting for 94.3 percent of the total, while revenue derived from property services amounted to RMB 8.6 billion, or 5.1 percent.

Booked revenue from the firm’s property development business during the period reached RMB 144.3 billion, or 86.4 percent of the total. Operating income jumped 14.2 year-on-year to RMB 167.1 billion.

Assessing the overall market, Vanke noted that investment in property development nationwide in the first half rose by 15 percent year-on-year. But the area of new construction projects rose by just 3.8 percent and still stood 4 percent lower than the level for the same period in 2019, the group said.

Influenced by the lower base in the pandemic-hit first half of 2020, the area of non-subsidised housing sold nationwide from January through June was 886 million square metres (more than 9.5 billion square feet), which was an increase of 27.7 percent over last year. During the same period, the value of non-subsidised housing sold came to RMB 9.2 trillion, which was an increase of 38.9 percent over the first six months of 2020, Vanke said, citing data from China’s National Bureau of Statistics.

Central bank data showed that the balance of real estate loans from major financial institutions across the country grew by 9.5 percent year-on-year in the first half, slowing 2.2 percentage points compared with the full year of 2020, as developers scaled back borrowing under the government’s stricter credit policies.

Growth Within the Lines

Vanke, which ranked third among mainland developers in terms of sales last year, watched last week as two other builders among China’s top 10 declared their earnings and reported profit upticks.

China Overseas Land & Investment, which was the mainland’s sixth-largest developer last year, said its net profit rose 1.2 percent year-on-year to RMB 20.78 billion for the January-June period as the mainland’s economic growth accelerated.

Country Garden Holdings, which ranked second among mainland developers in 2020, said net profit climbed 2.3 percent year-on-year to RMB 22.42 billion, with indicators pointing to stable performance of the real estate sector and robust growth in property sales.

While all three of these mainland developers showed slower growth, China Evergrande, which topped China’s largest developers last year with RMB 669 billion in sales, issued a warning last week that the group’s first-half net profit would plunge 29-39 percent to between RMB 9 billion and RMB 10.5 billion.

At a press conference in Hong Kong on Monday, Vanke chief executive Zhu Jiu Sheng said the company had been in talks with Evergrande regarding potential cooperation, but no decision had been reached, according to an account by Reuters.