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UPDATE 1-Evergrande forecast paints dim China property picture
January 16, 2012 / 11:41 AM / 6 years ago

UPDATE 1-Evergrande forecast paints dim China property picture

(Updates with management comments, headcount target slashed, company sees “very weak” Q1)

By Alex Frew McMillan

HONG KONG, Jan 16 (Reuters) - 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 added.

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 & Investment.

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 gearing ratio.

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 consolidates.

“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 measures.

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 Loades-Carter)

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