Hopewell sees profits balloon
Land conversion gain in Wan Chai pushes up firm's profits, but cuts to road tolls on the mainland see fall in expressway revenue
Hopewell Holdings, the property and infrastructure firm chaired by Gordon Wu Ying-sheung, saw interim net profits rise almost sixfold, helped by its Hopewell Centre II project in Wan Chai.
Excluding those gains, however, the company's earnings before interest and tax fell 9 per cent due to the mainland government's policy to cut road tolls.
The Hong Kong-listed firm's net profit jumped 471 per cent to HK$10.43 billion in the six months ending December 31, mainly due to a HK$2.15 billion land conversion gain on the commercial portion of Hopewell Centre II, plus an increase in fair value gains of completed investment properties. The 55-floor tower, due to open in 2019, will have a total gross floor area of 1.1 million square feet.
Hopewell's managing director, Thomas Jefferson Wu, Gordon Wu's son, said: "Hopewell Centre II unlocked land value of HK$4.3 billion. It will enhance Hopewell's recurrent income base. Hopewell Centre II is expected to be one of the largest conference hotels in Hong Kong."
For the first time since 2003, Hopewell slipped into net debt, mainly because of a payment of a HK$3.73 billion land premium for Hopewell Centre II. At the end of last year, Hopewell's net debt was HK$2.38 billion and its gearing ratio was 7 per cent.
Hopewell Centre II will be injected into Hopewell HK Properties, a Hong Kong property firm which Hopewell plans to spin off and list on the main board of the Hong Kong stock exchange. The stock exchange approved this listing plan on February 6.
A report from the investment bank JP Morgan said: "Such divestment is a slight positive to Hopewell, as it could unlock the value of Hopewell's Hong Kong property portfolio."
JP Morgan expects the proceeds of the listing will fund new property projects, including commercial property in Kowloon East and residential/commercial property in Wan Chai and Tsuen Wan.
The increases in earnings before interest and tax were partly offset by a fall in the company's GS Superhighway's toll revenue due to a tariff cut, Wu said.
GS Superhighway is the main toll expressway operated by Hopewell Highway Infrastructure (HHI), a Hong Kong-listed subsidiary of Hopewell Holdings. GS Superhighway, connecting Guangzhou with Shenzhen, suffered a 15 per cent drop in toll revenue in the six months ended December 31. Hopewell Holdings' share of revenue from HHI's toll expressways fell 9 per cent to HK$1.11 billion during this period, while HHI's net profit plunged 34 per cent to 310 million yuan (HK$382.26 million).
Guangdong cut road tolls on June 1, 2012. Moreover, the central government launched a policy on October 1, waiving highway tolls for cars with seven or fewer seats on 20 annual holidays.