Country Garden, Vanke to expose extent of China’s property crisis

Earnings from Country Garden Holdings Co. and China Vanke Co this week should indicate the extent to which China’s property woes are hurting the world’s second-largest economy.

Country Garden’s cash crunch is getting worse as sales plunge. Its crisis entered a new chapter last month when a Hong Kong court received a creditor’s petition to wind up the company.

The troubles at Vanke threaten to spill over to other developers as China’s housing market stagnates. Vanke’s credit rating was cut to junk territory by Fitch Ratings on Friday, the second such move this month as the firm faced weakened sales and limited funding access. Earlier, the real estate company secured a 1.4 billion-yuan ($195 million) loan from Industrial Bank Co, an incremental step in efforts to stave off its first-ever default.

Property stimulus from rate cuts, reduced down-payment ratios and relaxed home-purchase curbs will probably fail to revive new-home sales amid faltering confidence, Bloomberg Intelligence analyst Kristy Hung said.

Earnings from Bank of China, Agricultural Bank of China, Industrial & Commercial Bank of China, and China Construction Bank Corp should also shed light on where the property crisis is heading. They maintained benchmark lending rates last Wednesday after the central bank kept rates unchanged. That’s after loans grew at the slowest pace on record in February, despite earlier monetary and fiscal easing steps.

Banks might become “victims” of the government’s property-rescue measures, BI analysts Francis Chan and Nicholas Ng said, after China pledged to refine real estate policies following proposals outlined to the National People’s Congress earlier this month.

Highlights to look out for:

Monday: China Resources Land’s (1109 HK) property leasing business should have boosted 2023 profit, while higher total rental income may offset a shrinking gross margin in the property development business, BI said. Management may discuss spinning off more assets into commercial REITs.

Tuesday: BYD (1211 HK) expects 2023 net income to have grown as much as 86%, the EV maker said in a preliminary earnings report, as sales for new energy vehicles reached a record. With competition in the Chinese EV sector heating up, BI expects BYD to focus on market share expansion and volume considering its mass market lineup. Profitability may remain solid against price cuts, supported by exports and premium brands, they added.

• Nongfu Spring’s (9633 HK) annual adjusted net income likely expanded 26%, estimates show. The firm is set to capitalise on Chinese consumers shifting toward healthy living. It should post robust earnings growth in the medium term, as stabilising input costs help margins, BI said. At the same time, it faces a boycott call from Chinese nationalists online criticising several aspects of the brand, including suggestions that its packaging can be associated with Japan.
• Anta Sports (2020 HK) full-year earnings will have been supported by higher contributions from all segments, estimates show. The Chinese sportswear maker’s sales growth indicates its current model should help it capture market share from rival Li Ning, BI said. Analysts at Citi said consensus estimates for 2024 and 2025 will probably be trimmed after its 46%-owned unit Amer posted a worse-than-expected fourth-quarter loss.

Wednesday: Industrial & Commercial Bank of China (1398 HK) profit was little changed in 2023 as a stagnant economy and real estate troubles persisted. Central bank efforts to keep borrowing costs low likely helped loan growth, but at the cost of lending margins. Lenders including ICBC will be at the forefront of funding industries such as electric vehicles, batteries, semiconductors and artificial intelligence, BI said.

Thursday: Country Garden (2007 HK) will see its full-year loss deepen. That’s right after missing a coupon payment on a yuan bond for the first time earlier this month. The developer, which faces a lawsuit seeking its liquidation, saw its biggest sales decline in at least seven years in February. Sluggish sales also threaten its ability to complete construction projects, BI said.

• China Vanke’s (2202 HK) annual adjusted net income may slide 18%, estimates show, showing mounting liquidity pressure as lenders turned cautious on non-state-owned developers. Contracted sales dropped 43% in the first two months of 2024, dragged down by exposure to low-tier and weaker tier-2 cities, BI said. Slowing contracted sales and a priority on property completions may put more strain on its cash flow.
• Bank of China (3988 HK) and Agricultural Bank of China (1288 HK) both probably saw low-single digit growth in adjusted net income as lending to businesses grew just 1.7% last year. Bad loan ratios are projected to be lower in 2023 and 2024. While the Chinese banking sector has seen some share price gains this year, the big lenders still trade below half of their book value.

© 2024 Bloomberg