Shanghai developer schedules HK IPO

CIFI Holdings (Group) Co Ltd, a Shanghai-based home builder that is preparing to go public in Hong Kong, targets fundamental demand in tier-1 and tier-2 mainland cities by focusing on low-profit projects.

Estimating that government policies on mainland property sectors will remain tight in the coming years, Lin Zhong, chairman of CIFI, said development of small-to-medium sized apartments to cater to the needs of first-time homebuyers and upgraders on the mainland as well as other fundamental demands are nevertheless encouraged by the central government.

"We are targeting on maintaining a relatively low profit margin from these developments, which, we believe, is a consistent way to realize longer-term growth on the mainland," Lin told the media at a company's IPO briefing in Hong Kong on Monday.

CIFI's gross profit margin stood at 34.2 percent and 26.7 percent for the years of 2011 and 2010, respectively. Core net profit margins that exclude gains from revaluation of investment property were 15.4 percent and 13.7 percent, respectively, during the past two years, according to the prospectus.

In the first six months of this year, gross profit margin and core net profit margin were registered at 28.3 percent and 5.7 percent, respectively, compared with the company's long-term targets of 25 to 30 percent for gross profit and 10 to 15 percent for core net profit, according to its chairman.

CIFI's gross profit margin was "at the middle-to-lower end" among the mainland developers, which still represents the mainstream situation in the market, said Kenny Tang, executive director of AMTD Financial Planning Ltd.

"Mainland developers used to achieve gross profits over 40 percent of the sales, or even higher, but the good times no longer exists these days," Tang told China Daily in a telephone interview.

In the first 10 months of 2012, CIFI's home sales have reached 7.51 billion yuan ($1.21 billion), which was higher than the total contracted sales of 5.4 billion yuan in 2011, according to Lin.

As home prices have probably "bottomed out" on the mainland, and continues to rise these days, Lin expects the upward trend to sustain in the following years without any significant changes of government policies.

CIFI, with a total of 43 property projects in 11 mainland cities across Yangtze River Delta Region, the Bohai Economic Rim and the Central Western Region, is expected to raise approximately HK$1.72 billion yuan from its Hong Kong IPO on Tuesday.