Hong Kong company reporting season

Hong Kong’s Sun Hung Kai Properties records 36pc interim profit jump

City’s second-largest developer by market value beats analysts’ forecast to earn US$2.5 billion in core profit for July to December period

PUBLISHED : Tuesday, 27 February, 2018, 6:02pm
UPDATED : Tuesday, 27 February, 2018, 11:51pm

Sun Hung Kai Properties, Hong Kong’s second-largest developer by market capitalisation, urged the government to increase the supply of land to contain soaring land prices, after it reported on Tuesday that its underlying profit for the July to December period had climbed to a 10-year high.

Its core profit, excluding revaluation gains on investment properties, jumped by 36.7 per cent to HK$19.97 billion (US$2.5 billion) for the July to December period, driven by an upwards spiral in home prices and strong sales. Net profit, including property revaluation gains, was up by 59.9 per cent to HK$33 billion.

Its core earnings beat the HK$17.5 billion and HK$18 billion forecast by Morgan Stanley and CIMB Securities, respectively.

“The earnings growth driver is Hong Kong property sales,” Praveen Choudhary, a Morgan Stanley equity analyst, said in a research note.

Sun Hung Kai Properties shares closed down 0.61 per cent at HK$129.80 on Tuesday, before the results were announced.

During the six months under review, profit generated from property sales stood at HK$13.9 billion, compared with HK$8.3 billion over the same period last year.

The substantial increase was mainly down to the fact that most of the current financial year’s development projects in Hong Kong were completed in the first half of the year.

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The developer, which has a diversified portfolio of apartments, retail and office space in Hong Kong and mainland China, increased its interim dividend by 9 per cent to HK$1.20 per share.

Revenue for the six-month period rose by 19 per cent to HK$55.17 billion.

“Land prices will be stable once more sites are put up for government tenders,” Raymond Kwok Ping-luen, the Sun Hung Kai Properties chairman, said after the result was announced.

Hong Kong is set to reap a surplus close to HK$160 billion this year, largely because of a windfall from land sales and stamp duty revenue in a booming property market. Its fiscal reserve had ballooned to HK$1.7 trillion by December 31.

“The government should not worry about the huge surplus as it will not be repeated every year,” said Kwok.

When asked if Sun Hung Kai Properties was interested in buying the remaining two plots owned by Chinese conglomerate HNA Group, Kwok said: “ We will build up our land bank through various channels.”

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Two weeks ago, HNA Group sold two of four residential lots at the site of Hong Kong’s former airport in Kai Tak to Henderson Land Development for HK$16 billion.

Sun Hung Kai Properties has accumulated 21 million sq ft of residential land, which will be available for development over the next five to six years.

The earnings growth driver is Hong Kong property sales
Praveen Choudhary, equity analyst, Morgan Stanley

“Such a residential land bank is the largest holding we have ever seen in the past 10 years,” he said.

Including completed properties ready for sale, the group held a total of 64.7 million sq ft in attributable gross floor area as of December.

With gearing as low as 8.5 per cent, he said Sun Hung Kai Properties would actively replenish its land bank, and that its medium-term target for annual property sales in Hong Kong was HK$40 billion.

The group generated contract sales worth HK$51.3 billion in 2017, according to data provider dataelement. CK Assets Holdings, the property company owned by Hong Kong’s richest man, Li Ka-shing, said it had pulled in HK$53 billion, a record for the city.

Sun Hung Kai Properties made a conservative forecast for Hong Kong home prices in 2018 after a 15 per cent increase last year.

Deputy managing director Victor Lui said he expected home prices would rise by 5 per cent this year.

“Home seekers will have more choices as the apartment supply continues to increase over the next two years,” he said. Home buying had remained solid as lending rates remained low despite the US Federate Reserve raising its interest rates, he added.