Chinese developer Country Garden retreats from smaller cities

By Clare Jim

HONG KONG (Reuters) -China's top property developer Country Garden Holdings said it would reduce its presence in smaller cities and suspend side businesses other than contract construction and construction robots as it strives to transform into a high-tech enterprise.

The company reported on Thursday a 90% drop in core profit for 2022 and a record net loss, hurt by a sluggish property market and a debt crisis in the sector.

Country Garden said core profit, which excludes changes in the value of assets and financial instruments and foreign exchange, was 2.6 billion yuan ($377.4 million), down from 26.9 billion yuan the previous year.

It posted a net loss of 6.1 billion yuan, versus a 26.8 billion yuan net profit in 2021.

Country Garden had flagged weak results earlier this month, citing a drop in gross profit margin, a rise in provisions for impairments on property projects and net foreign exchange losses.

Property firms in China have struggled to complete projects and sell new houses in a sector hit by a debt crisis since mid-2021.

Many Chinese developers have so far posted a drop in core profit or a loss for 2022, while a few state-backed peers fared better and recorded a rise.

Chairperson Yang Huiyan, at the first earnings conference since her father Yeung Kwok Keung retired early this month, said the firm aimed to increase its land bank in tier one and two cities to 50%, from 40% now, as those markets bottom out.

It will also focus on its contact construction business to build projects for other companies as it is asset-light and high margin, as well as its construction robot business to boost efficiency and lower costs.

Home sales in lower-tier cities have underperformed in a generally sluggish property market in the past couple years and Country Garden expects them to remain weak this year.

The developer set up a tech construction group in June and had 33 types of robot that have been commercialized and put to work as of end of the January.

All other new businesses previously set up will be closed down or suspended, company president Mo Bin said.

Shares of Country Garden reversed losses after the results, closing up 5.1%. The Hang Seng Mainland Properties Index rose 2.6%.

The company's total interest-bearing debts fell 15% to 271.3 billion yuan and its net gearing ratio was 40%, down 5.4 percentage points from end-2021.

($1 = 6.8900 Chinese yuan renminbi)

(Reporting by Clare Jim; Editing by Jamie Freed and Mark Potter)