Hang Lung boss Ronnie Chan says business environment has never been so tough

Hang Lung Properties, which focuses on investing in shopping malls in Hong Kong and mainland China, says the business environment has never been as tough as at this time and the retail sector will face more challenges ahead.

“US elections, Brexit, terrorism, and China’s slowing economy, these are all problems, I have never seen so much market uncertainty at the same time in my decades of experience,” chairman Ronnie Chan told reporters at the firm’s interim results briefing yesterday.

“We are striving to have some profits in Hong Kong as mainland China is more challenging,” he said.

Regarding the fire at Amoycan Industrial Centre, a Hang Lung property, last month that killed two firemen, Chan said the fire’s cause and the safety of the building are still being investigated. The building’s conversion into hundreds of mini-storage units made the fire hard to put out.

Meanwhile, the developer saw underlying profit rise 29 per cent year on year to HK$3.17 billion in the six months ended June 30, in line with market expectations, thanks to strong sales of its Long Beach residential project during the period.

Revenue was up 37 per cent to HK$6.3 billion.

However, core rental income from mainland China fell 4 per cent to HK$2.04 billion, with operating profit declining 9 per cent as some malls in lower-tier cites struggle amid sluggish demand.

“We have lowered rent for new tenants introduced to Shenyang and Wuxi malls," said executive director HC Ho.

As a result, Hang Lung’s mainland portfolio recorded a revaluation loss of HK$413 million in the first half. The company said it may sell more residential units in Hong Kong to boost income.

“The company is also improving its tenant mix in Hong Kong, which has contributed to retail income growth and eliminated the impact from the mainland,” said Alan Jin, a property analyst at Mizuho Securities.

Chan said the company would not change its luxury positioning or slow the building of new malls on the mainland as he is confident of China’s long-term market potential.

But analysts are not that bullish. “The luxury retail market has not yet bottomed out, and the yuan’s devaluation will absorb all its profit,” said Alfred Lau, a property analyst at Bocom International.

An interim dividend of 17 HK cents was declared, unchanged from a year ago.

Parent Hang Lung Group said core profit increased 24 per cent to HK$1.86 billion in the first half.