UPDATE 1-China Overseas Land raises sales forecast after H1 profit rise

Fri Aug 10, 2012 1:21am EDT

Related Topics

* H1 core profit HK$6.4 bln vs HK$6.7 bln street view

* Raises sales target for yr by 25 pct to HK$100 bln

* Shares up 39 pct so far in 2012, outperform broad mkt (Updates with detail on earnings, analyst comments)

By Alex Frew McMillan

HONG KONG, Aug 10 (Reuters) - China Overseas Land & Investment Ltd, the mainland's largest home builder by market value, reported on Friday a 9.3 percent rise in first-half core profit, a little lower than expected, but booked stronger sales than its peers amid a property slowdown.

The luxury home builder also increased its sales target for the year by 25 percent, to HK$100 billion.

Property is a key sector of the world's second-largest economy, but developers have been struggling after more than two years of efforts by Chinese authorities restricting how many homes Chinese people can buy, in a bid to bring prices under control.

During the sales slowdown, industry leaders such as China Overseas and mass-market producer China Vanke have been gaining business from their competitors, with buyers focusing on brands to avoid purchasing a home made by a company that might run into financial trouble.

China Overseas, which focuses on mid- to high-end property, posted core profit of HK$6.36 billion for the period. Four analysts surveyed by Reuters forecast an average 16.3 percent rise in interim core profit to HK$6.71 billion.

Its net profit for the period was HK$8.38 billion ($1.08 billion), and earnings per share stood at HK$1.026.

Before the results, 31 analysts forecast on average full-year earnings per share of HK$1.83, according to Thomson Reuters I/B/E/S.

First-half revenue totalled HK$25.3 billion, with the company benefiting from customers gravitating towards developers with better-brand names during the industry slowdown.

It declared a dividend of 15 cents per share, up 15 percent, and a special dividend of 2 cents per share to celebrate the 20th anniversary of its stock listing.

China Overseas has not had to cut prices as much as its competitors to win business.

"Their prices have been holding up pretty firmly, so margin compression should be less of an issue for COLI," Alan Jin, an analyst with Mizuho Securities, said ahead of the results.

Companies such as Evergrande Real Estate and Agile Property, that are focused on lower-priced homes, have cut prices around 10 percent, eating into their margins, Jin said.

WELL-OILED SALES SYSTEM

The China Overseas results come after China Vanke, the country's largest property developer by sales, reported a 25.1 percent rise in first-half net profit on Monday. Vanke saw profit margins narrow as it cut prices to win business in the market slowdown.

China Overseas, a unit of state-run China State Construction Engineering Corp Ltd, achieved strong pre-sales of HK$65 billion in the first half of the year, up 25 percent compared with the same time in 2011.

"The sales so far this year have been amazing," Sylvia Wong, an analyst with UOB Kay Hian, said ahead of the results, noting that the company's management has designed a well-oiled sales system.

That means the company holds stock on its books for shorter periods than its peers. It also cut prices to attract business in the downturn.

"They have got a good brand and everyone knows them," Wong said. "They've been good at making sure things are running smoothly, and they don't hold onto things unnaturally long."

The company is increasing a focus on developing property in Hong Kong, home to some of the highest residential prices in the world. Though the city was China Overseas's first market when the company launched, Wong feels it has a better edge on the mainland, where its rivals are less robust.

"Hong Kong is extremely competitive," Wong said. "If they hope to come into Hong Kong and make good money, no way."

China Overseas Land shares closed the morning session up 1.3 percent ahead of results, which came in during the lunch-time break in trade in Hong Kong.

They are up 39 percent so far in 2012, with investors buoyed by a rebound in home sales and prices in China. That's well ahead of the 10 percent increase in the benchmark Hang Seng index, while the Hang Seng Properties index has risen 19.2 percent in 2012.

($1 = 7.7556 Hong Kong dollars) (Editing by Muralikumar Anantharaman)

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