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Josephine Ma

Kenneth Ko

AS fears over property price trends drove share prices down hard again yesterday, broking firms continued to downgrade their forecasts of developers' earnings.

   Recent sluggish sales and price cuts have meant grim revisions to earnings forecasts, not only for this year, but into next year.

  Brokers sliced between five and 10 per cent from their estimates of future earnings by developers.

  Whether or not the pessimism will prove justified in the long run, the bearish sentiment was being strongly reflected in the plunging Hang Seng Index.

  The stock market continued to react to the weakening trend in prices, shown up by falls in home prices announced earlier this week, and the index took a 235.13-point fall to 7,683.25.

   Cheung Kong (Holdings), Sun Hung Kai Properties, Henderson Land Development Co and Sino Land Co, with heavy reliance on development profit, were targeted as most vulnerable to the property correction.

    Some analysts are prepared for further downgrades in anticipation of continuing falls in property prices.

  Morgan Grenfell's analyst Sylvia Wong was one of those in a pessimistic mood, having downgraded her forecasts by five per cent for developers' earnings for the 1995 financial year.

  She pinpointed Cheung Kong and revised her forecast of its earnings down by about 10 per cent.

  Analysts previously projected a 20 per cent increase in profit for Cheung Kong this year, to about $13.2 billion, according to the December edition of the Estimate Directory.

  For the 1996 financial year, Ms Wong said it would not be surprising to see developers register zero profit growth, or even declines in earnings.

   Some companies might have to rely on exceptional income from sale of investment property to support earnings growth.

  Desmond Cheung, analyst for Vickers Ballas, downgraded earnings forecasts for Cheung Kong and Sun Hung Kai Properties.

  Analysts previously had forecast Sun Hung Kai would see a 24 per cent leap in annual profits for the year to June, to about $10.9 billion, according to the Estimate Directory.

  Mr Cheung's revision for Cheung Kong was as much as 13 per cent down from his original forecast for the 1996 financial year.

  He said his earnings forecasts for New World Development Co, Henderson Land and Sino Land also would be revised downwards.

  Credit Lyonnais Securities revised its 1995 forecasts downwards by more than 10 per cent for Cheung Kong and Sino Land, and by three to four per cent for Sun Hung Kai and Henderson Land.

  Sino Land and Henderson Land previously were tipped to achieve a 32 per cent rise in annual profits for the year to June, to about $1.9 billion and $7.9 billion respectively, according to the Estimate Directory.

  Winnie Chiu, analyst at DBS Securities, was less pessimistic, having made just minor revisions on her previous forecasts.

  She said there still was a healthy housing demand despite the market's sluggishness.

  Jenny Ting, senior analyst of Mansion House Securities, said her earnings forecasts for developers were conservative enough already, so she would not revise the figures for the time being.

  Developers including Cheung Kong, Sun Hung Kai and Henderson Land have cut prices to promote sales of their residential projects this month.

  Privately-run Nan Fung Development cut 15 to 23 per cent from prices for its four residential developments.

  Cheng Yu-tung, chairman of New World, said yesterday there was no property price war and New World had no intention of starting one.

  'Property developers are just following the market trend and there is no such thing as dumping,' he said.

  'The price cut of Nan Fung is just for those [units] left after previous sales.'   Mr Cheng said his group would not follow Nan Fung's drastic cuts for its flats at Discovery Bay Phase 4A.

  He said the selling price of that project was being finalised. He did not rule out the possibility of minor cuts in prices.

   Mr Cheng said he was confident the property market would be more stable this year and expected interest rates to top out and ease in the second half of the year.

  'Whether prices will continue to drop depends on the location of individual projects,' he said.

  'The prices of flats in Tai Po and Ma On Shan plunged just because of too much supply there,' he said.



Brokers slash profit estimates for major developers