HONG KONG (Nikkei Markets) -- China Evergrande Group and China Vanke, two of the country's largest property developers, on Tuesday underlined the need to strengthen the foundation in their core business even as they appeared to diverge in their approach to new growth drivers.
The top management of Evergrande said they plan to lower debt and costs while chasing a higher scale of operations and more profitability in their real estate business. They, however, signaled an intention to accelerate expansion in the relatively new business areas of tourism, healthcare and new energy vehicles.
Vanke, on the other hand, appeared more cautious as it reiterated that the "golden age" for Chinese property developers had been replaced by a "silver age," which is punctuated by more intensive competition among the larger industry players. Chairman Yu Liang told reporters in Hong Kong on Tuesday that while there was a need for a "transformation," the company wants to first strengthen its "fundamentals."
In a letter to shareholders accompanying the company's annual results, which were released late on Monday, Yu quoted Sun Tzu's Art of War to underscore the need to consolidate on the company's foundation for a transformation. He didn't say what the transformation entailed.
Both Vanke and Evergrande highlighted increasing competitive pressures in China as many of the larger industry players seek faster growth, sparking industry consolidation. The market share of the top 100 real estate companies in the country climbed to 58.1% last year, up 10.6 percentage points from the year before, according to Evergrande.
Evergrande, which ranked 230th on the 2018 list of Fortune 500 companies, on Tuesday reported a 53.4% increase to 37.39 billion yuan ($5.57 billion) in last year's net profit as it controlled costs and as its sales growth was accompanied by wider gross profit margins. Contracted sales grew more than 10% to 551.34 billion, while its net gearing ratio decreased by 31.8 percentage points from the end of 2017 to 151.9%.
Evergrande had said in January that it is targeting contracted sales of 600 billion yuan in 2019.
The company, which was set up in Guangzhou in 1996, before shifting its headquarters to Shenzhen, aims to be included in the Fortune Global 100 list by the end of 2020, with annual sales of 800 billion yuan, according to its website.
Chairman Hui Ka Yan said on Tuesday that the company has identified its new businesses after exploring different options over the last nine years, during which the company also entered and exited the agricultural industry.
After years of "trial and error, we have now picked the right industries that are big enough to diversify," Hui said. "In the next five years, we won't enter any major new industry."
Evergrande has a presence in tourism through Evergrande Tourism Group, and in healthcare and new energy cars through its Hong Kong-listed unit Evergrande Health Industry Group. The latter aims to be one of the largest new energy vehicle brand names globally within three to five years, company officials said last week.
Vanke, meanwhile, is keen to strengthen its position as a city and town development and service provider. While the company has in recent years been expanding its presence in rental housing, property services, logistics and ski resorts, they are all closely allied to its core business of property development.
"For now, we should be a leader" in the industries where the company is present, Chairman Yu said on Tuesday, although he added that the road ahead was "long."
"If we do not transform when the industry is still quite good, we won't be able to do it in the bronze age," he added.
Late on Monday, the company reported a more than 20% increase in its 2018 net profit to 33.77 billion yuan, while revenue grew 25% to 297.08 billion yuan. It was ranked 332nd on last year's list of Fortune 500 companies.
Vanke, also headquartered in the southern Chinese city of Shenzhen, was as recently as 2016 the subject of a rare hostile takeover attempt in China, by insurance company Baoneng Group. Baoneng had at one point acquired more than 25% in the property developer.
Baoneng trimmed its stake after Shenzhen government controlled entity Shenzhen Metro Group, in a show of support to Vanke, acquired a more than 33% of the company's Shenzhen-listed A-shares. Shenzhen Metro Group is currently the single-largest shareholder in Vanke.
Shares of Evergrande closed 1.3% lower at HK$27.05 in Hong Kong on Tuesday before its results were declared, while Vanke slid 3.1% to HK$30.15 following its results.
-- Benny Kung and Amy Lam
