Ma On Shan delay to bite at Li profits
CHEUNG Kong (Holdings) and Hutchison Whampoa share prices climbed in early trading in London overnight on the back of the companies' strong results announced yesterday.
Cheung Kong climbed 62 cents to $38.22 while Hutchison gained 38 cents to $38.08 after analysts went through the balance sheets and gave a general thumbs up.
Analysts thought Cheung Kong, the holding company for tycoon Li Ka-shing's diverse business empire, was now well on course to post bumper profits for this year, but some were worried Mr Li may falter next year.
Mr Li, chairman of both companies, surprised the market by revealing one major property development scheduled for completion next year might be delayed until 1997.
This could put a sizeable hole in Cheung Kong's projected profits for next year.
A possible delay of completion of a major residential project at Ma On Shan was revealed by Mr Li at yesterday's announcement of his group's interim results.
Cheung Kong announced a higher-than-expected earnings growth of 33 per cent to $5.95 billion for the first six months to June 30.
The results were mainly attributable to development income, which accounted for 60 per cent of the company's net profits, and a $2.42 billion profit contribution from its 44 per cent-owned Hutchison Whampoa.
The sale of 37 million shares in Hutchison in June generated more than $700 million in profit for Cheung Kong.
Mr Li said: 'The development in Ma On Shan may be completed by the end of 1996, or even later, because there are some problems in the foundation work.' The Ma On Shan development, with a total gross floor area of about 872,000 square feet, is a joint venture with Pacific Concord Holdings.
It had been expected to be one of Cheung Kong's largest income contributors for next year, providing more than $2 billion in development earnings.
Kleinwort Benson Research property analyst Walter Chang said: 'The company's earnings outlook in 1996 might be seriously hit if the Ma On Shan project cannot be booked in next year.' He predicted the development would account for more than 30 per cent of the group's total development gains or 17 per cent of its net profits next year.
The market's consensus forecast for Cheung Kong's 1996 earnings was $11.52 billion, depending mainly on a contribution from Hutchison, and the development income from the Ma On Shan project and the Kingswood Villas development in Tin Shui Wai, New Territories.
Some analysts took a more optimistic view.
UBS Securities property analyst Terry Ip said if the entire development was not completed next year, some pre-sale profits could be booked.
'Sales earnings can be booked into the account once they get the occupation permit,' Mr Ip said.
He said if Cheung Kong obtained an occupation permit for Ma On Shan next year, pre-sale earnings from the project could fill the hole in Cheung Kong's projected earnings.
The sales earnings from University Heights also helped the financial results.
The west Mid-Levels project was originally scheduled to be booked this year.
Mr Li said: 'It will be booked next year because we do not want to book so many projects in the same year.' The 444-unit development is expected to bring between $300 million and $400 million in pre-tax earnings.
Analysts said Cheung Kong could achieve a 10 to 16 per cent growth in net earnings this year on the strong interim results.
