Cheung Kong (Holdings) is expected to post a 41 per cent decline in net profit for last year, plagued by expected lower investment and finance income and a fall in Hutchison Whampoa's earnings. It is likely to post net earnings of HK$1.63 billion, compared with HK$2.76 billion in 2007, according to an analyst forecast by Thomson Reuters Mean Estimates. However, its core business - property development - may see a significant increase in earnings if it books the contribution from the Capitol in Tseung Kwan O this year. Cheung Kong, the largest developer in terms of land bank, will announce full-year results on Thursday. Credit Suisse expects contributions from Hutchison to fall 53.3 per cent this year to HK$7.14 billion and income from finance and investment to plunge 85.4 per cent to HK$719 million. It said sales of the property earnings could rise 21 per cent to HK$6.82 billion if Cheung Kong booked profits (estimated at HK$1.5 billion) derived from the Capitol. 'However, the company may not book 100 per cent of the profit, as some of the purchasers are on stage payments, in which case the company may choose not to book profits until the units are actually handed over,' Credit Suisse analyst Cusson Leung said in a report. Cheung Kong has already booked HK$3.5 billion of development profit from Hong Kong in the first half of this year. Mr Leung said Cheung Kong was a top pick among the developers as it had a huge land bank through which volume was expected to continue. Meanwhile, an earnings recovery at Hutchison should supplement group's property earnings as well. Macquarie Research described Cheung Kong as the best play on a good start this year in Hong Kong's mass residential market, which has shown signs of stabilising. 'Mass residential takes up 11 per cent of Cheung Kong's net asset value, the highest among Hong Kong developers,' it said, adding that the three major projects to be sold are also oriented to the mass market. Eva Lee, a property analyst at Macquarie, said Cheung Kong had locked in about 63 per cent of this year's earnings. 'Given its strong line-up of new units for launch, we may see further upside in its 2009 financial year earnings.' Cheung Kong targets about HK$10 billion in contracted sales from flats in Central Park Towers II, Tai Wai Station and Lohas Park phase two development, according to Ms Lee. The University of Hong Kong Real Estate Index Series shows the all-residential price index increased 2.7 per cent month on month to 112.4 at the end of January. On the sub-district level, the Kowloon residential price index witnessed the strongest rise of 5.1 per cent month on month to 116.3. However, not everyone is optimistic about the market outlook. Colliers International said without signs of recovery in the external environment in the near term, the local residential market would continue to see sustained weakness in demand. It said both rental and capital values were expected to post double-digit declines in the near to medium term. Meanwhile, Nomura International said there could be overhangs for Cheung Kong at its projects the Capitol in Tseung Kwan O and Celestial Heights in Ho Man Tin. Since the Capitol and Celestial Heights were launched last year, secondary prices have corrected about 21 per cent and, counting the 20 to 25 per cent drop in the primary-secondary pricing premium, many of the Capitol and Celestial Heights buyers should be in negative equity. Stage-payment buyers will have until the handover of the flats in the second half of the year to decide whether to complete their purchases. Only a fraction of buyers defaulted during the down cycle of 1998 to 2003. But until units in the Capitol and Celestial Heights were handed over this year, the overhang of how much of the HK$20 billion sales proceeds might actually materialise would remain, Nomura said.