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SCMP Reporter

CONSTRUCTION firm Sung Foo Kee Holdings has hit a bad patch for the past two years, with earnings tumbling and share price falling sharply.

  But the company expects its fortunes to improve as it diversifies into property development and power plant projects in China.

   It has high hopes that the new operations will put it back on earnings growth and regain the favour of investors.

  ''We are no longer a pure construction play. Construction is only part of our business,'' said managing director Lo Kai-shui, who expects profits from the new businesses to surpass those from construction in the next few years.

  He said the diversification would help smoothen the company's profit growth and cushion it from the swinging cycles of the construction industry.

  Since listing in October 1989, the company recorded profits of $130.51 million for the year ended March 31, 1990, which soared to $180.24 million in 1991. However, they tumbled to $125.57 million in 1992, plunging to just $1.77 million in 1993, reflecting the hard times in the construction business.

  Over the period, the price of the company's shares, floated at $1.53, hit a high of $3.775 and a low of $1.02. It closed last Friday at $1.21.

  Expectations of a construction boom had never materialised as the wrangle between China and Britain over Hong Kong's political reforms stalled the progress of the new airport and affiliated infrastructure projects.

  Reduced profit and bleak outlook were translated into a lower share price.

   Sung Foo Kee was the worst-performing Asian stock in 1992 with its share price plunging 60 per cent from $2.65 in early January to $1.09 at the end of year, according to statistics compiled by Morgan Stanley International.

  There are signs that things have improved, as evident by a stabilised profit margin from construction.

  Mr Lo expects the results for the last fiscal year should reflect the healthy state of the construction industry.

   In addition, it expects to make an exceptional gain from the sale of 10 million shares in Great Eagle Holdings, which is also controlled by the Lo family.

  ''In terms of profit performance and the local construction industry, the company has bottomed out,'' he said.

  During the past year, the company has secured construction contracts worth $1.66 billion in Hong Kong and Singapore.

  To shore up future earnings growth, Sung Foo Kee has taken advantage of China's dire need for energy and has struck deals for three power projects on the mainland. Two are coal-fired generators of 250 megawatts each in Wuhu, Anhui province, and the third is a thermal plant in Dalian, Liaoning province.

  Mr Lo said the projects would prove to be a steady income source in view of China's rapid industrial growth and electricity consumption per capita, which lagged behind Western countries.

  Sung Foo Kee estimated its pay-back period for its investment in the third phase of the Wuhu plant would be only 3.8 years, and not more than six years for the other two.

  The company invested US$25.85 million for a 25 per cent stake in the third phase of the Wuhu plant, which came into operation this year.

  It also owns a half interest in the fourth phase of the plant, which will be built at cost of up to US$100 million.

   Mr Lo said the 260 million yuan (about HK$231.66 million) Dalian plant, in which Sung Foo Kee has a 49 per cent interest, was being built and would contribute to profits in two years.

  As the contracts had been made earlier, Mr Lo said he did not expect them to be affected by the government's plan to cap the rate of return on foreign investment in power projects at 12 to 15 per cent.

  While energy seems a bold foray by the company, its diversification into property development is quite natural, given the Lo family's 40-year exposure to the sector.

  Sung Foo Kee has drawn up a sale schedule for its property projects. It expects to bring in $300 million from the sale of its 50 per cent-owned residential project in Ho Man Tin at the end of the year.

  It also owns a 40 per cent interest in a Lai Chi Kok project which was bought from Leefung-Asco Printers Holdings in March.

     The industrial and commercial property will provide a gross floor area of 220,000 square feet on completion in 1995-96.

   Mr Lo was reluctant to give a figure on the sales, but said a selling price of $5,500 a sq ft was being recorded for similar properties.

  Meanwhile, a retail, office and residential complex with a gross floor area of 500,000 sq ft in Dalian will be finished in 1996-97.

   Mr Lo said the company planned to increase its interest in the project to 85 per cent from 70 per cent.



Construction firm builds hopes on property and power plant projects