Even as the government clamped down on the property market following a six-year boom, China Vanke’s profits grew 59% year-on-year in the first half of 2006 as higher incomes and economic growth drove up demand.
Regional diversification, with operations in China’s strongest regions, enables the Shenzhen-based developer to chase favorable market conditions. It did this to good effect in 2005, shifting resources from the relatively stable Pearl River region to take advantage of rising property prices in the Yangtze River Delta.
But even as the government moves to tighten credit, Vanke said in July it had received a US$630 million credit line from Bank of China. It also announced plans to sell as much as US$530 million of new shares to finance apartment construction.
The company is prepared to look offshore for alternative financing as it sets about acquiring 10 million square meters of land in 2006 for approximately US$1.5 billion, doubling its current holdings.
Due to its brand strength, Vanke has attracted a US$36 million investment from a subsidiary of Singapore-based GIC Real Estate, one of the world’s top 10 real estate investment companies, to develop apartments in Shenyang and Wuxi.
Meanwhile, a property development fund has been launched with Citic Capital. US real estate giant GE Real Estate chose the fund for its first foray into the mainland property market, investing US$20 million to be the sole strategic investor.
As the government moves ahead with measures to cool the rampant real estate sector, the company’s strong fundamentals could see it become a big winner in a consolidating sector that increasingly rewards only the best-performing and most innovative developers.
ENERGY
Sichuan Changhong Electric 600839.SH
It’s been a lean couple of years for electronics maker Changhong after a series of bad debts and poor investment decisions sent its share price plummeting.
The company’s troubles started in 2004 when its US distributor, Apex Digital, allegedly defaulted on debts totaling US$467.5 million. This kicked off a long-running and highly controversial legal dispute that reached all the way to Premier Wen Jiabao, and almost sunk the company.
When China Southern Securities went belly up in 2004, Changhong lost a further US$22 million.
In all, the company lost US$468 million in 2004, after posting US$25 million earnings the previous year. Had it not been for the involvement of Wen, who ordered state banks to provide emergency financing of nearly US$1 billion, the company might not have pulled through.
Through the turmoil, Changhong’s share price fell from just over US$1 in 2003 to US$0.44 in 2004, but its underlying fundamentals remained strong. Thanks to an operations overhaul, it has now bounced back, posting a US$35.5 million net profit in 2005, with revenues up 30.53% to US$1.88 billion.
In November 2005 it reached a cooperation agreement with China Telecom to jointly promote Changhong’s IPTV products across the fixed-line giant’s Internet network, giving it access to a huge customer base. It has also opened up a second front in home entertainment, bundling its family entertainment system with interactive entertainment provider Shanda’s EZ Pod home entertainment console.
The company has expanded its offshore operations in the face of increasing competition at home. Its flagship offshore operation is a US$300 million production base in the Czech Republic, boasting five flat-panel TV production lines.
Based at the heart of the expanded EU, the new base will help the company avoid a new European Union 44.6% anti-dumping tax, giving it the edge over its domestic TV exporting competitors.