Sunac China has declared an increase in annual profit of more than 57 percent, as the Tianjin-based developer capitalized on credit made available by Beijing to grow during an economic downturn.
In a report on Friday to the Hong Kong stock exchange, Sunac said its profit attributable to owners in 2019 was RMB 26.03 billion ($3.7 billion) — an expansion of 57.1 percent from the previous year. Sunac also reported that its revenue jumped 35.7 percent year on year, to RMB 169.32 billion, while gross profit increased by 33 percent to RMB 41.41 billion.
“Most of the Group’s revenue came from sales of residential and commercial properties, with a small proportion of revenue from cultural and tourism city construction and operation, property management and others,” the report said.
Sunac, which is China’s fourth-largest developer in terms of contracted sales, said contracted sales of the group and its joint ventures and associates reached RMB 556.21 billion, approximately 21 percent more than 2018. It said its cash balance as of 31 December was RMB 125.73 billion.
Borrowing for Growth
The company, which is known for its willingness to maximise its access to financing to purchase projects from competitors with more limited resources, prospered during the 2019 slowdown thanks to its ability to pile more debt onto its balance sheet.
“Sunac’s 2019 results were strong, perhaps surprisingly so,” said Brock Silvers, managing director of Adamas Asset Management.
“One significant driver was ironically China’s dramatic economic slowdown. Last year, prior to any viral contagion, China already recorded the slowest GDP growth in 30 years. Beijing’s response was to increase credit availability, and Sunac took full advantage as long-term debt increased from RMB 137 billion to RMB 187 billion. That increase is unlikely to be repeated in 2020.”
Eyeing Opportunities Ahead
The year-end report said Sunac expects its saleable resources to reach RMB 820 billion by the end of 2020, as the company follows through on projects in its pipeline.
The report said: “In 2019, supported by sufficient high-quality saleable resources and industry-leading high-quality product capacities, the Group’s sales grew steadily, with annual contracted sales [in the] amount of approximately RMB 556.21 billion, representing a year-on-year increase of approximately 20.7%, ranking fourth in the industry.”
The developer has the raw materials necessary to keep that pipeline going, with Sunac declaring in the report, as at 31 December, together with its joint ventures and associates, the company had a total land bank of approximately 234 million square metres (2.5 billion square feet) and an attributable land bank of approximately 150 million square metres.
The company, which is owned by billionaire developer Sun Hongbin, said that it sees more opportunities this year to buy quality land at reasonable prices in the core tier 1 and 2 cities.
While Sunac looks forward to opportunities to continue its expansion, Silvers added a note of caution about the impact of the COVID-19 outbreak.
“The 2019 results pre-date the coronavirus,” he said. “The first quarter of 2020 has been difficult for developers, and 2Q doesn’t look better. Thus, although SUNAC’s results were positive, they also provide for little forward-looking optimism.”