Hong Kong company reporting season

Sogo operator’s profit triples on strong investment income

Profit boosted by disposal of the group’s interest in Lifestyle Properties to the tune of HK$420.8 million

PUBLISHED : Monday, 07 August, 2017, 2:53pm
UPDATED : Monday, 07 August, 2017, 10:43pm

Lifestyle International Holdings, which owns Hong Kong’s largest department store, saw its net profit almost triple in the first half of 2017 on the back of strong investment income.

The group, which operates the Sogo chain, reported net profit of HK$1.71 billion, or HK$1.07 per share, up 192.6 per cent from HK$587.0 million in the same period a year earlier. This was well above a Bloomberg analysts’ consensus which forecast profit of HK$1.76 billion for the whole year.

Turnover, however, fell 2.5 per cent to HK$2.22 billion during the period.

“While Hong Kong’s retail market has seen gradual recovery, the near-term outlook for the retail sector still hinges on external uncertainties including the US interest rate upcycle, sustainable economic growth and geopolitical tensions,” said executive director Lau Kam Shim in a statement.

“Management remains prudently optimistic on the retail market outlook for the second half of 2017.”

The company said it is open to new investment opportunities.

It revealed in the statement was details of plans for a plot of land in Kai Tak, which the company won through a government tender for HK$7.4 billion in November 2016.

With a site area of approximately 14,159 square metres, Lifestyle International said the land will be developed into two blocks of commercial buildings to provide space for both retail and office use, with a total gross floor area of about 101,000 square metres.

“We noticed that there was a lot of market attention paid to the Kai Tak project,” said Terry Poon, the company’s CFO at a press conference after the results announcement.

He said construction work is expected to commence in the fourth quarter, costing in the range of HK$13 billion. One of the twin towers to be built on the site will be used as a Sogo department store, while the other will be developed into a building similar to Hysan Square.

The near-term outlook for the retail sector hinges on external uncertainties including the US interest rate, sustainable economic growth and geopolitical tensions
Lau Kam Shim, executive director, Lifestyle International

The surprise surge in profit was primarily the result of a net investment income of HK$328 million

recorded during the period, which compared with a loss of HK$217.6 million in 2016, as well as a revaluation gain of HK$351.5 million from investment properties, according to its statement.

The profit was further pushed up by a one-off gain on disposal of the group’s 59.6 per cent interest in Lifestyle Properties, a subsidiary of the company, to the tune of HK$420.8 million.

This was in line with a profit alert issued in July, which said the company expected to deliver a strong net profit increase of no less than 185 per cent.

The company proposed an interim dividend of 28.9 Hong Kong cents, the same as in 2016.

“With department stores’ sales in Hong Kong staying flattish in the first six months, we would expect Lifestyle to deliver slightly better results, at single-digit growth in terms of its operating income,” said Mariana Kou, head of Hong Kong consumer research at CLSA before the results were released.

“For the second half of the year, we would expect the trend to be similar given the stabilisation of tourist flows into Hong Kong – as it is more a stabilisation rather than a strong rebound.”

The company’s share price was up 2 per cent at HK$11.36 at the close on Monday.