(Updates with management comments, headcount target slashed,
company sees "very weak" Q1)
By Alex Frew McMillan
HONG KONG Jan 16 Evergrande Real Estate
Group Ltd, the second-biggest developer in China by
sales value, forecast flat 2012 sales and said the wider
property market would be gloomy in the first quarter, with no
improvement until after the lunar new year.
Evergrande said it would generate sales of 80 billion yuan
($12.69 billion) in 2012, roughly the same as 2011 sales, adding
it was setting a conservative sales target that it hopes to
exceed by a similar amount to last year. But management said the
days of rampant growth are over.
"We have experienced extraordinary growth since 2006, and we
think it is not practical for a company to maintain such high
growth for a very long period of time," Chairman Hui Ka Yan
said. Evergrande are "past the high-growth stage and are
reaching a stable growth stage in our corporate history," he
Hui said he expected a "very weak" first quarter for
property sales in China, and while sales volume may pick up in
the second quarter, it will not be until the second half of 2012
until there is any prospect of a fundamental turnaround.
The conservative forecast comes as the mainland Chinese
property market feels the pinch from the central government's
efforts to lower home prices and restrict property purchases.
The company recorded sales of 80.4 billion yuan in 2011, an
increase of 59 percent over the previous year and beating its
2011 forecast of 70 billion yuan by 15 percent.
On Monday, Evergrande said it was cutting its target
headcount by 30 percent, meaning it is planning to add fewer
workers in its financial plans. The company was responding to
media reports that it would shed 30 percent of its work force.
While the company has said it is cutting the weakest
performers among its new hires after reviewing their progress,
it is still adding to overall employment.
The company had 33,644 employees at the end of 2011, and is
now targeting adding around 5,000, for a total work force of
38,707. Its previous headcount target had been 55,296.
Evergrande is the largest developer of property in China in
terms of total floor area, but its large volume offers thinner
margins than luxury developers such as China Overseas Land &
Evergrande targets second- and third-tier cities, which
haven't seen as serious curbs on purchases in the Tier 1 cities
of Beijing, Shanghai, Guangzhou and Shenzhen. It has only six
projects in Tier 1 cities, out of 187 projects all told.
Despite a slumping property market in China, the developer
started raising prices in October to push sales into 2012. The
company has built up the largest land bank in China but stopped
buying land in July after investors raised a red flag over its
This year, the company plans to buy only enough land to
replenish its land banks, management said. The company instead
aims to use its cash to buy up existing projects as the industry
"We think we will be more proactively looking for strategic
opportunities," CEO Xia Haijun said. "Some small companies may
be in potential distress."
Analysts expect a tough year ahead for Chinese property
developers, some of which failed to hit their full-year targets
in 2011 as the market felt the sting of Beijing's austerity
Evergrande's shares closed down 4.65 percent on Monday,
worse than a 1 percent decline in the Hang Seng index.
In another sign of worsening conditions for mainland
developers, Standard & Poor's on Monday cut its debt rating on
SPG Land, saying the risk of the company breaching its
loan covenant is high for the next six to 12 months. The rating
agency expects the company's financial strength to worsen amid
weak sales. SPG Land shares fell 3.57 percent on Monday.
($1 = 6.3066 Chinese yuan)
(Reporting by Alison Lui; Editing by Chris Lewis and Jon