China Evergrande’s share price surged by as much as 18.7% this week, after the Hong Kong-listed property developer revealed strong results for the first half of the year.
The company reported a net profit of RMB23.13bn (£2.3bn) for the six months to 30 June, up more than 224% on the same period last year. It also posted first-half revenue of RMB187.98bn, more than double the RMB87.5bn it generated in the first half of 2016.
After being targeted by short-sellers this year for its high debt levels, China Evergrande revealed it would shift its development strategy from pursuing “scale” to pursuing “scale and profitability”.
The group said it would move from following its current “three- high, one-low” development model of high debt, high leverage, high turnover and low cost to a “three-low, one-high” model of low debt, low leverage, low cost and high turnover.
It added that it had set a target to reduce its net debt ratio from 240% to 70% by 30 June 2020 and that it aimed to achieve this through a 5% to 10% reduction in land reserves, a third round of strategic investments of RMB30bn to RMB50bn by its subsidiary Hengda Real Estate Group and further profit growth.
“The strategic transition is aimed at seeking growth amid stability, to further implement and deepen the supply-side reform and to capture market opportunities, so that the group can achieve stable growth in scale, meaningful improvement in profitability and significant lower leverage,” the company said.
It did not express concerns over the Chinese government’s recent tightening of capital controls, restricting how much China-based property companies can invest overseas, despite having last year walked away from a deal, valued close to £700m, to buy the UK housebuilder CALA Homes.
Jefferies analyst Mike Prew said that the market’s positive response to the group’s results was down to its more cautious approach.”China Evergrande’s strong profits and degearing message shows the company is more cautious, after having dropped out of discussions to buy CALA Homes in November 2016,” he said.
As Property Week went to press, the group’s shares stood at HK$24.35 (£2.41), 8.2% up on the week’s opening price.