(Bloomberg) — China Vanke Co. and China Overseas Land & Investment Ltd. should continue to paint a pessimistic picture of China’s property sector when they report earnings, showing the limits of the government’s stimulus efforts.
A shortage of liquidity and surplus of unbuilt homes have plagued developers. The country’s rescue package that included a 300 billion-yuan ($42 billion) relending program has done little to stem the rout. New home residential sales slumped further in July by almost 20%.
Vanke said in July that it expects to post a first-half net loss of 7 billion yuan ($980 million) to 9 billion yuan as it resorted to discounts to reduce inventory and boost cash flow.
“Vanke’s huge net loss for the first-half reflects widespread pressure on developers’ margins and write-off of housing inventories,” said Morningstar analyst Jeff Zhang. He expects China Overseas Land to be more resilient given its bigger presence in wealthier Chinese cities.
Chinese lenders including Bank of China Ltd., Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., which are also due to report, remain exposed to the property crisis and stagnant consumption, Francis Chan at Bloomberg Intelligence said.
“Home sales see no path to recovery, and most bank funding is unlikely to wind up at distressed private developers,” Chan added. “Against that backdrop, risks remain for lenders’ balance sheets.”
Highlights to look out for:
Wednesday: China Overseas Land & Investment (688 HK) first-half core profit may be pressured by a tighter margin and declining property sales. BI said. Sales of properties in the first seven months of this year were about 16% lower than a year earlier. The developer’s leverage ratio might have remained steady, BI added.
- Meituan (3690 HK) likely saw second-quarter revenue rise 18%, powering through macroeconomic headwinds and intensifying competition in China’s food delivery sector. Key themes on the earnings call will include delivery trends and overall consumer sentiment across different segments, Jefferies said.
- BYD’s (1211 HK) earnings growth will have been fueled by a 40% surge in new-energy vehicles sales to a record 986,720 units, BI said. Watch out for any comments on its overseas strategy after the EU said plans to levy a 17% tariff on the automaker.
- Li Auto’s (LI US) second-quarter adjusted net income likely dropped 33% because of lower average selling prices and restructuring. Quarterly shipment surged 26% from a year earlier, driven by its new and cheaper L6 SUV model, which BI said could pave the way for a second-half recovery. Price cuts and a less favorable product mix may have lowered its gross margin to 19%.
- Maybank’s (MAY MK) second-quarter profit growth may have slowed as operating expenses rose and margin were pressured, BI said. That may be partially offset by strong lending.
Thursday: Bank of China (3988 HK) may see subdued lending margins and loan growth. It may have less capacity to reduce credit costs than peers because of its relatively lower coverage for non-performing loans, BI said.
- Qantas Airways (QAN AU) may report an 18% drop in full-year adjusted net income. That’s as the carrier is navigating its way out of a reputational crisis, including a surge in cancellations and lost bags, accusations that it sold tickets on flights it had already scrubbed from schedules and that it illegally fired about 1,700 ground staff. A review, which partly blamed board and management issues for the crisis, led to a decision earlier this month to dock former CEO Alan Joyce’s final payout.
Friday: China Vanke (2202 HK) could see a further decline in contracted sales, as homebuyers remain concerned over noncompletion of pre-sold projects from private developers, BI said. Lower average selling prices are expected to weigh on its gross margin, while asset disposals at losses may hurt its earnings further, BI added.
- ICBC (1398 HK), AgBank (1288 HK) and China Construction Bank (939 HK) will see margins in focus as the lenders navigate sluggish credit demand. While the Chinese central bank is in a rate-cutting cycle, the continued decline of bank margins is one of the main reasons rate cuts have become challenging to implement, said Nomura. On the upside, BI said regulatory data showed improved asset quality for the sector in the second quarter.
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