Shui On Land Books 14 Percent Profit Growth Last Year Thanks to Asset Light Strategy
Yicai Global
/SOURCE : yicai
Shui On Land Books 14 Percent Profit Growth Last Year Thanks to Asset Light Strategy

(Yicai Global) March 22 -- Net profit at Shui On Land grew by an eye-catching 14 percent last year to CNY1.9 billion (USD285.3 million) thanks to the Chinese real estate developer's Asset Light Strategy. Net gearing ratio also fell to 40 percent in 2018 from 87 percent in 2015, significantly better than most firms in the sector.

Founded in 2004, Shanghai-based Shui On is the flagship property unit of Hong Kong's Shui On Group. It mainly works on major real estate projects for the parent company in China's mainland. Revenue grew by 35% to CNY24.8 billion (USD3.7 billion), according to its earnings report.

Last year represented a milestone for the implementation of Shui On's Asset Light Strategy. The company successfully transformed into a leading commercial sector focused developer, owner and asset manager after three years of hard work. Management fees, development and trading profits as well as rentals generated from its three major business segments contribute to revenue, including CNY7 billion and CNY15 billion accrued from general property sales and other asset disposals, respectively.

The company currently holds and manages a total of 1.67 million sq.m. of leasable and saleable GFA in Shanghai. "Our existing office/commercial portfolio is amongst one of the largest in Shanghai," said Shui On Land Chairman Vincent Lo Hong-shui at a press conference yesterday.

The developer also penned a deal with Manulife Financial and China Life Trustee last December to jointly establish the Core-Plus Office Investment Platform, which aims to invest in office property in Shanghai and other first-tier Chinese cities. The platform has a targeted total capital commitment of USD1 billion.

Setting up the platform is part of firm's Asset Light Strategy, Chief Financial Officer Douglas Sung He Hau explained, adding that growth may be slower if it only depends on its own investment and spending since real estate developers need to invest lots of money in projects in China's mainland, especially those in first-tier cities, where a single office building or property can cost billions of yuan.

While implementing the Asset Light Strategy, Shui On has also increased investments in Chinese mainland's first-tier cities. The company made a return to the Shanghai market in conjunction with China Pacific Insurance and Shanghai Yongye Enterprise by winning the land use rights for the CNY13.6 billion Taipingqiao project, one of the largest commercial plots available in the eastern city's downtown area. 

Construction is expected to start before the end of the year for completion of phases in 2022 and 2023 successively, Stephanie Lo Bo-yue, the daughter of Vincent Lo Hong-shui, executive director of Shui On Land. "We may introduce some office buildings first, with commercial ones coming later," she added.

Shui On still booked strong sales last year with those of contracted residential properties reaching CNY14.12 billion, under a tightened policy environment amid macroeconomic regulation and control over the market. House buyers snapped up all apartments at various projects in Shanghai and Wuhan on the first day that they came on the market.

"We don't feel that way for now." Vincent Lo Hong-shui said in response to a question on how he viewed the sluggish Shanghai property market.

Shui On Land believes the market in Shanghai is relatively stable, though price caps and other measures are still available, CFO Sung added. However, these steps may be eased or lifted in the short-term, while supply in the city generally small so sales are not a problem. Sung stated he wasn't worried about the future situation facing the market.

"Shui On Land will only focus on China's mainland while real estate in Hong Kong is a possibility later if opportunities arise," Lo said. "I'm a little worried about the global situation right now, so we're not even thinking about investing in foreign countries."

The chairman believes that house prices in Hong Kong are too high and not affordable for common people. However, he also believes that the special administrative region faces an adjustment and changes terms of position and function, and Shui On Land may consider entering the market as they emerge.

Looking into the future, Shui On will follow the economic cycle and seize investment opportunities to invest first-tier cities and core tier one-ready urban areas for high-quality commercial properties. Specifically, the firm will continue to focus on the Shanghai market, expand in first-tier cities such as Guangzhou and Shenzhen and pay close attention to markets in other urban hubs like Wuhan, Nanjing, Hangzhou and Suzhou as well as the Chengdu-Chongqing metropolitan area.

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Keywords: Shui On Land , Asset Light Strategy , Earnings Report