Developers expected to report weaker earnings

Analysts put blame on lack of revenue from new residential projects

PUBLISHED : Monday, 24 February, 2014, 4:32am
UPDATED : Monday, 24 February, 2014, 4:32am

Falling profits are expected to mark Hong Kong developers' contribution to the reporting season that gets under way this week.

Analysts are pencilling in declines in underlying earnings of as much as 49 per cent from the year-earlier periods - in the case of Sino Land - for developers announcing their interim results.

They attributed most of the blame to a lack of revenue booked from new residential projects.

However, earnings in the second half to June were expected to recover, in line with booked sales from new projects, they said. Moreover, the main impact of the slowdown in the property market would be reflected in their books for the next financial year.

Aside from Sino Land, other developers presenting their results this week for the six months to December include New World Development and Sun Hung Kai Properties.

Cheung Kong, with its financial year-end in December, will announce its full-year results on Friday. Credit Suisse expects Cheung Kong, with a 13 per cent rise in contribution from associate Hutchison Whampoa, to deliver core earnings of HK$26.2 billion, a drop of 4 per cent drop.

Cheung Kong made contracted sales of only about HK$4.6 billion in the year against its target of HK$30 billion. Just HK$2 billion in contracted sales were made in the second half.

BNP Paribas expects New World Development to report a 22 per cent drop in its underlying interim profit to HK$3.2 billion.

Its forecast for Sino Land was for a 49 per cent drop to HK$2.3 billion.

Sun Hung Kai Properties would announce an interim underlying profit of HK$10 billion, a drop of 13 per cent, it said.

Joyce Kwock, an analyst with Credit Suisse, said that for the industry as a whole, "we expect a year-on-year decline in profits, as Hong Kong residential completions amounted to only 8,300 units, an 18 per cent decline".

However, the bank expects profits to rebound significantly in the second half, with about 15,800 units scheduled for completion, citing forecasts from the Rating and Valuation Department and Centaline.

"Property sales plunged in the first three quarters of last year but rebounded in the fourth quarter," Kwock said.

BNP Paribas said that despite the recent price cuts at new projects, it expected little impact on developers' operating margins in the upcoming results.

It said they would report an average margin of about 30 per cent - against 33 per cent in the previous first half - with most of the revenue from the recent launches to be booked in the next financial year.

Margins were also expected to fall to 20 to 25 per cent.