China’s Country Garden Issues Profit Warning Amidst Property Sector Turmoil

By Mario Marroquin

The board of Chinese property developer Country Garden Holdings Company issued a profit warning last week and stated net earnings may have plunged by as much as 70% in the first half of the year. The board of the property developer cited numerous factors afflicting the sector and leading it to issue the warning, including the COVID-19 pandemic, a decrease in gross profit margin for the real estate sector in light of lower gross profit recognition, an increase in property impairment, and losses due to foreign currency exchange fluctuations.   

According to the Financial Times, Country Garden has not defaulted on its outstanding debt, but the developer lost its investment-grade rating earlier in the week after Fitch downgraded it to junk bond status on Tuesday.

The board said that based on the information available to management for the first six months of 2022, “the group is expected to record a core net profit ranging from RMB 4,500 million [US$ 657 million] to 5,000 million [US$ 730 million] and the net profit attributable to shareholders ranging from approximately RMB 200 million [US$ 29 million] to RMB 1,000 million [US$ 146 million] for the half-year ended 30 June 2022.”

Country Garden’s core net profit and net profit attributable to shareholders for the first six months of 2021 were RMB 15,200 million [US $2.22 billion] and RMB15,000 million [US$2.2 billion], respectively.

Fitch Ratings said Country Garden’s sales in July dropped 40% year-over-year to CNY 215 billion [US$ $31.4 billion]. Country Garden’s sales were down 13% on a month-to-month basis in July after two months of growth in May and June, according to the credit rating agency.

According to the Official Monetary and Financial Institutions Forum (OMFIF), new apartment sales declined by 35% year-over-year for the first five months of 2022, while housing prices declined in more than two-thirds of the 70 largest and medium-sized Chinese cities monitored by the National Bureau of Statistics.

Housing construction starts declined 45% year-over-year by the end of June, according to OMFIF.

Country Garden is set to release H1 2022 results in late August.  

Photo Credit: Jimmy Chan/ Pexels