Vanke Drops After Profit Decline Due to China Policy Curbs

China Vanke Co., the nation’s largest listed residential developer, tumbled after reporting a fall in profit in the first half due to lower margin on projects and industrywide regulatory curbs. 

The company’s shares slid as much as 7.6% in Hong Kong, the most in a month. Net income in the six months ended June 30 declined 12% to 11 billion yuan ($1.7 billion), the Shenzhen-based company said in a statement Sunday. That compares with 6% growth a year earlier. Revenue increased 14% to 167.1 billion yuan.  

Sliding gross margin from property sales has been a concern for Vanke. The company is focusing on so-called tier-1 and tier-2 cities, where margins are thinning due to rising land prices. Chairman Yu Liang said in March that it has become clear that the higher-than-average profitability in China’s residential industry will fall.

“Gross margin has been sliding relatively faster,” President Zhu Jiusheng said at a Monday briefing, without providing a clear outlook on recovery. “Sales growth hasn’t been enough to offset declining margins.”

Vanke last year expected the pandemic to have a “real big” impact on its business up to 2021, prompting it to cut dividend payouts to retain cash. The gross margin from its main property business shrank to 28% last year from 35% in 2019. 

The property sector has changed profoundly, and Vanke is diverting away from a sole focus on real estate developments, adding real estate management and service business into its focus, it said in a statement Sunday.

Vanke has no material cooperation with China Evergrande Group, although it has been in touch with the developer in recent months, Zhu said during the call. He didn’t elaborate on what was discussed. 

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