Legend Holdings Ekes Out Small Profit Increase After Divesting Real Estate Businesses

Wu Fengheng / Yicai

2017-03-30

(Yicai Global) March 30 -- Legend Holdings Corp. [HKG:3396] eked out a small net profit increase after divesting real estate businesses.

The Beijing-based group’s total income last year was CNY307 billion (USD44.5 billion), down 1 percent from 2015’s CNY309.8 billion (USD44.9 billion), per the company’s earnings report for the year, which was released yesterday. Profit attributable to shareholders was around CNY4.9 billion (USD710 million), up four percent year-on-year.

The situation at the investment holding firm is not as optimistic as the modest net profit increase suggest. The company sold stakes in its 41 real estate subsidiaries to Sunac China Holdings Ltd. [HKG:1918] for CNY13.8 billion and divested several properties including Lenovo Research Institute buildings in Beijing.

Information technology brings in the most revenue for Legend Holdings, and the company’s IT businesses are operated by Lenovo Group, of which it holds 31.48 percent. Lenovo did not perform well last year, causing Legend Holdings’ IT earnings to decrease to CNY282.6 billion from CNY293.2 billion in 2015. The divestiture of real estate operations allowed the company to report a net profit of CNY4.2 billion after the previous year’s loss of CNY1.3 billion.

Legend Holdings’ personal computer segment saw tentative signs of a recovery, but the smartphone business poses the biggest challenge, particularly in the Chinese market.

Its PC and smart device businesses achieved positive year-on-year growth in the fourth quarter, ending a seven-quarter losing streak. Its share on the PC market improved, and the company’s position as the No. 1 market player was further solidified. Legend Holdings plans to develop more innovative products to drive growth, focusing on quickly expanding market segments and verticals.

Its smartphone business suffered a continued decline in global market share, from 5.1 percent to 3.5 percent in the fourth quarter last year. Competition on the Chinese market was the main factor contributing to the downward trend.

Legend’s smartphone sales slumped by 79 percent last year, the largest fall among all manufacturers, a report published by market research agency Counterpoint shows. However, Lenovo’s sales maintained strong growth momentum in foreign markets, especially in Europe, the Middle East, Africa and Latin America.

The decline in domestic sales is “mainly because we focused on high-end products,” Legend Holdings stated. Mid-market and high-end products were the main growth drivers in the smartphone market last year, as attested by explosive growth in the sales of smartphones priced between CNY2,500 and CNY3,000. This led to the rise of two new Chinese smartphone brands, Oppo Electronics Corp. and Vivo Electronics Corp., but Legend apparently did not benefit from these opportunities.

“Going forward, we’ll strengthen our market development capability, innovate distribution models by focusing on terminal retail capability building, optimize cooperation with operators and integrate online and offline sales activities,” said Qiao Jian, vice president of Lenovo Group and co-president of the mobile business, in an internal email.

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