23 September 2018

Agile’s growth formula doesn’t work anymore

A focus on mid- to high-end housing within its home region for larger profit margins. That was the business model that shot Agile Property Holdings Ltd. (03383.HK) to fame not too many years ago, helping the Guangzhou-based firm amass more than 30 billion yuan (US$4.92 billion) in annual sales and earn itself a place among China’s top-tier developers in 2010.

But the once well-trodden success formula has lost its potency now, making Agile a visible and distant laggard. At a time when rival Evergrande Real Estate Group Ltd. (03333.HK) was well on the way to nearing the 100 billion yuan mark in contracted sales, Agile had a paltry sales volume of 33 billion yuan last year.

And, other competitors have also consolidated their position. Shimao Property Holdings Ltd. 00813.HK) and Country Garden Holdings Co. Ltd. (02007.HK) comfortably rode the property wave to notch new highs in sales — both firms reaped nearly 50 billion yuan last year.

Agile boldly set this year’s sales target at 42 billion yuan, a 27 percent surge from last year’s level, but sadly the lofty goal now appears to be out of reach. The company sold 25.46 billion yuan worth of property in the first three quarters, or just 61 percent of the annual target, according to a recent regulatory filing.

There are several reasons for the dismal performance.

Agile’s profitability still hinges heavily on just a few projects in southern China rather than a dynamic allocation of assets across the nation. Clearwater Bay, one of the company’s signature developments in Hainan province, contributed almost one fourth of its entire sales in the past three years, according to the firm’s annual reports.

A report from Guotai Junan Securities also points out that more than 80 percent of Agile’s land reserve is within the Pearl River Delta and the neighboring provinces including Hainan and Yunnan, leaving the company in a vulnerable position at a time when Guangzhou, Shenzhen and other key cities in the region are firing on all cylinders to contain realty price surges and Hainan and Yunnan are constantly faced with oversupply and demand fatigue.

Also, more than just a longer turnover period, Agile’s portfolio focused on deluxe flats and townhouses means that the impact from policy curbs targeting large homes can be devastating. Its land shopping spree with expensive winning bids in the past years may also add further woes.

Agile’s share price has tumbled more than 22 percent in year to date and is now more than 50 percent below its all-time high.

Analysts say Agile is likely to repeat the fate of Hopson Development Holdings Ltd. (00754.HK), once a behemoth in the country’s realty sector. Lackluster sales and low occupancy rates at Hopson’s mega villa and townhouse developments in Guangdong province have dragged the firm into a downslide and the company is still struggling despite the upbeat sales boom at other developers. Agile may find itself in a similar boat.

– Contact the writer at [email protected]


EJ Insight writer

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