UPDATE 1-Evergrande paints upbeat picture of China property

HONG KONG, March 31 Mon Mar 31, 2014 6:47am EDT

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HONG KONG, March 31 (Reuters) - Executives from Evergrande Real Estate Group painted a rosier picture of China's real estate market than their peers after the company posted a 49 percent rise in net profit and outpaced analyst estimates for core profit.

Hong Kong-listed Evergrande's strong earnings come as investors are becoming increasingly jittery about softening prices and defaults in the sector.

Earlier this month government officials told Reuters that Zhejiang Xingrun Real Estate Co was on the brink of bankruptcy. Though Zhejiang Xingrun is a smaller, local developer, investors are worried that it could signal cracks in the Chinese debt market.

Evergrande, whose net profit rose last year by 49.3 percent to 13.7 billion yuan and whose core profit rose 66.3 percent to 10.3 billion yuan, seemed to allay at least some of those fears. The core profit beat a median analyst forecast of 8.8 billion yuan, according to a poll by Thomson Reuters Smart Estimates.

That view was reinforced by management. "The property market in the first quarter was not totally bad, and it will get better," Chairman Hui Ka Yan told an earnings conference on Monday.

Evergrande's traditional markets in third and fourth tier cities have seen some of the biggest declines in property prices. But Hui and Chief Executive Xia Haijun said on Monday that they would continue to invest.

"Future development has to be in third tiers because urbanisation is a major national policy," Xia said. He said Evergrande is also investing in top tier cities and is aiming to have half of its sales come from first and second tier cities and half come from third and fourth tier cities.

First tier cities, such as Beijing, Shanghai and Nanjing, accounted for 17.6 percent of sales in the first two months of 2014, up from 1.4 percent in the whole of last year, the company said.

Evergrande spent 22.4 billion yuan ($3.61 billion) in the last six months of 2013 acquiring a total of nine plots of land in the top tier cities.

The Guangzhou-based property developer managed to cut its gearing ratio by 14.5 percentage points to 69.5 percent by disposing of some investment properties. It said such a ratio was "healthy".

Evergrande is scheduled for two coupon payments this year, with $1.5 billion notes due on April 30 and $1.35 billion notes due on July 27.

The yield rate on the $1.5 billion five-year notes , which will mature in Oct 2018, hiked by over 2.0 percentage points to 10.72 percent since the start of the year, compared to a coupon rate of 8.76 percent, reflecting investor concern in a tight liquidity market.

Evergrande's contracted sales gained 8.8 percent to 100.4 billion yuan, making it one of seven Chinese developers to recorded annual sales of over 100 billion yuan last year.

The company said it was targeting 2014 sales of 110 billion yuan, up 10 percent.

"We like the company's strategy change of moving up to first and second tier-cities because those are the cities we feel upbeat about," said Haitong International analyst Jason Huang.

"We're not worried about its gearing; it's not too high compared to the industry average of 60 to 70 percent." ($1 = 6.2122 Chinese Yuan)

(Editing by Jeremy Laurence)

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