China’s second-largest private property developer Longfor Group on Friday (Aug 18) posted a 0.6 per cent rise in first-half core profit, and said it would strive to boost profitability and return to positive cash flow this year.

Shares of Longfor closed down 3.8 per cent, versus a 2.1 per cent decline in the Hang Seng Mainland Properties Index after it reported a 35 per cent drop in revenue from a year earlier and its net gearing ratio rose 2 percentage points to 57 per cent.

Core profit, which excludes fair value exchanges, rose to 6.6 billion yuan (S$1.22 billion).

China’s property market is under the spotlight with a string of property developers defaulting on their debt obligations since mid-2021, leaving unfinished homes, plunging sales and shattering investor confidence in a blow to the world’s second-largest economy.

Beijing-based Longfor was one of the developers included in a meeting with top regulators this month and said it felt the support from top policymakers to meet their “reasonable financing needs” and there could be a “change” in the market when new policies roll out.

“But market confidence will need time to restore,” Senior Vice President Zhang Xuzhong told an earnings conference, adding the property market this year had not performed as well as it had expected at the beginning of year.

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Longfor chairman Chen Xuping said in the conference the firm is aiming for its investment property operation and property services businesses to account for more than half of its profitability from 20 per cent now. It said it will not take on more interest-bearing debt.

The developer plans the early repayment of the remainder of a HK$8 billion (S$1.38 billion) syndicated loan due in January by the end of this year, after which it would have almost no offshore debt.

JPMorgan said in a note that Longfor’s balance sheet remains solid, but the drop in revenue and margin were both worse than expected.

The developer also recorded a big decline in cash coverage on short-term debt to 1.27 times, though the ratio is still in line with most state-owned players, the note said.

Asked about an IPO of its services arm, chief financial officer Zhao Yi said it is not in a hurry, as weak capital market sentiment towards the real estate sector now does not make it a good time.

It is also preparing for the future issuance of real estate investment trusts (Reits) onshore, by selling residential units in integrated developments and increasing the returns in those projects. REUTERS