Metallurgical Corporation of China Ltd (MCC), a metallurgical engineering contractor, plans to rapidly expand its real estate development business - particularly affordable housing projects - as it hopes to add a new earnings growth driver.

The company reported a 20.2 percent gain in 2010 net profit to 5.32 billion yuan for the year ended December 31 driven by a significant increase in its real estate business. Revenue of the company climbed by 24.7 percent to 206.8 billion yuan from a year earlier, 75 percent of which was contributed by its core engineering and construction business, compared with 82.1 percent the previous year.

According to President Shen Heting, the company is expecting its non-metallurgical businesses - mainly resources development and real estate development - to further expand to account for 70 percent of its annual revenue by 2015 from 58.8 percent currently.

Resources development and real estate development, the only two segments that recorded profit margin growth in 2010 compared with 2009, are expected to constitute a combined 40 percent of the company's annual revenue by 2015, up from 17.1 percent currently, Shen noted.

"Resources development and real estate development are going to be the main revenue contributors of the company going forward," He said at a media briefing Friday.

Driven by fast-growing downstream industries such as automobiles, home appliance and electronics, domestic demand for resources has seen sustained expansion in the past few years, with a compound average growth rate of more than 10 percent for major minerals consumption from 2006 and 2010. The past year has seen the company's revenue from resources development rise 43 percent to 10.9 billion yuan on increased production capacity and widening margins.

But among the company's various business segments, property development registered the strongest top-line growth, with revenue up 1.65 times to 24.9 billion yuan from 2009. Gross profit margin for the segment further improved to 18.7 percent from 15.2 percent the previous year.

As the largest social welfare housing developer in China, MCC had received 45 billion yuan in credit facilities from banks by end-2010 for the development of affordable housing projects. The company invested a total of 176 billion yuan in 2010 to develop its real estate business.

Alongside social welfare housing, commercial property development with fatter margins will also remain a top priority of the company going forward. Of the 24.9 billion yuan revenue recorded for real estate business as a whole in 2010, commercial properties made up 53.8 percent, up from 42.6 percent in 2009. The share of social welfare housing, however, tumbled to 20.5 percent from 34 percent a year earlier.

Mathew Kwok, China division vice-president at Taifook Securities Ltd, said the growth in real estate business may help boost the company's share price, which shrank around 30 percent from a year ago. How well MCC will fare ahead remains to be seen, but the fact that the real estate business growth has been able to make up for the lackluster progress in other segments will "likely give investors some hope", Kwok noted.

The company' shares closed trading Friday in Hong Kong at HK3.35, up 3.4 percent.

China Daily

(HK Edition 04/02/2011 page3)