Property provisions, investment losses trim earnings

PUBLISHED : Monday, 08 March, 1999, 12:00am
UPDATED : Monday, 08 March, 1999, 12:00am

Hysan Development, one of the largest property investors in Hong Kong, is expected to announce flat earnings growth for last year due to higher than expected losses from securities investments and provisions for property projects, according to analysts.

The losses, estimated at about $1 billion, are likely to offset the exceptional gains from the company's sales of two luxury Hong Kong projects.

Full-year earnings are estimated at about $1.18 billion, against 1997's $1.17 billion.

Analysts said the company could experience a profit decline if rentals and development incomes booked in the year were less than expected. According to analysts who recently met the management of Hysan, the firm has trimmed its listed investment portfolio, which includes China Telecom shares, from $3 billion to $1.5 billion.

Total losses on securities are estimated at between $680 million and $750 million.

The amount, which was higher than analysts' original forecast, included the $450 million provisions made in the first half of last year.

In September, Hysan Development unveiled an 80.1 per cent plunge in interim earnings to $171.97 million. The figure was worse than expected.

In its property portfolio, Hysan is expected to announce provisions of more than $200 million for its projects in Shanghai and Singapore, reflecting the plunge in property prices in the region last year.

Merrill Lynch said in a recent report that Hysan could make provisions of $91 million for Peace Garden, a multi-block residential development in Shanghai.

Other provisions are expected to include its three property projects in Singapore, which were bought more than two years ago when the market was at its peak.

Analysts said the losses would wipe off a major portion of the property income from the disposal of two luxury properties - No 3 Garden Terrace in Mid-Levels and Broadwood Park in Happy Valley.

More than $1 billion development income from the two projects is expected to be booked in last year's report with the balance in the following year.

Analysts said rental income growth for Hysan last year would remain flat compared with 1997's figures but they said Hysan would suffer from the downturn in the rental market in the next two years.

Hysan's major assets are in commercial properties in Causeway Bay. It also has a prime Central property, Entertainment Building, bought in 1996 from Chinese Estates (Holdings) for $3.64 billion.

A glut of office supply coming on stream coupled with the downturn of retail property sector, meant the outlook for Hysan in the medium-term was not encouraging, analysts said.