Hysan Development

Hysan’s 2015 profit result likely to show modest growth

Retail, office landlord to report steady 2015 profit thanks to buoyant office leasing market, analysts say

PUBLISHED : Sunday, 06 March, 2016, 6:12pm
UPDATED : Sunday, 06 March, 2016, 6:12pm

Hysan Development, one the largest landlords of commercial properties in Causeway Bay, is expected to report steady underlying profit growth when the company announces its 2015 financial results on Tuesday.

But analysts said challenges lie ahead in the wake of slowing retail sales and an uncertain economic outlook in Hong Kong.

Consensus analyst expectations are for the developer to grow underlying earnings by 5 to 10 per cent on year, thanks in part to a strong rental portfolio.

However, Hysan, like other Hong Kong retail landlords face growing headwinds, according to analysts.

“[Hysan] will likely face ongoing operating challenges in the near term, resulting from slowing retail sales in Hong Kong which we believe could potentially be further weighed by dampened local consumption in 2016 amid macro uncertainties,” HSBC said in a research report released last month.

HSBC expects the company to report underlying earnings, excluding revaluation gains, of HK$2.31 billion, up 7 per cent from a year earlier. Consensus analyst expectations are for underlying profit of HK$2.3 billion. Hysan will announce its results on Tuesday (March 8).

Goldman Sachs expects Hysan’s earnings before interest, taxes, depreciation and amortisation to print at HK$2.64 billion, compared to HK$2.62 billion in 2014. Goldman however forecasts a tougher operating environment ahead, with Hysan’s profit like to cool to HK$2.55 billion in 2016 and HK$2.4 billion in 2017 .

Hysan’s earnings per share are forecast at HK$ 2.11, according to Goldman. Earnings per share are expect to trend lower, easing to HK$2.01 in 2017 and HK$1.8 in 2018, according to Goldman.

Analysts are mostly cautious about the outlook for Hong Kong retail landlords, as the city’s market is undergoes a structural change amid falling mainland tourism visits.

Hong Kong retails sales for the month of January, are provisionally estimated at HK$43.6 billion, representing a drop of 6.5 per cent year on year. Monthly retail sales fell 8.5 per cent on year in December, and 7.8 per cent on year in November.

HSBC said it expects Hysan’s bottom line will reflect the city’s tight vacancy rate for office space, even as the retail side has been hit by the sudden downturn in visitor spending.

The occupancy rate of Hysan’s office portfolio reached 100 per cent in the first half.

In December, BNP Paribas downgraded Hysan to “hold” taking in account its large retail property portfolio.

BNP forecast rents in prime retail malls in the city will contract 8 per cent in 2016 and 5 per cent in 2017.