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Property investment

Chinese Estates profit tumbles 42pc after former chairman’s asset sell-offs

Developer sold rental income generating properties in Hong Kong, Shenzhen and Shanghai as part of the restructuring 

PUBLISHED : Thursday, 22 February, 2018, 2:40pm
UPDATED : Thursday, 22 February, 2018, 11:08pm

Chinese Estates Holdings, the Hong Kong property developer, on Thursday reported a 42 per cent plunge in full-year net profit for 2017 following a series of asset disposals, after a major share restructuring prompted by former chairman Joseph Lau Luen-hung’s recent failing health. 

The company’s shares ended 5.07 per cent lower at HK$12.72 following the results announcement, compared to a 1.48 per cent drop in the Hang Seng Index.

For the year to December, net profit was HK$3.70 billion (US$473 million), down from HK$6.36 billion in 2016, according to a company filing with the Hong Kong stock exchange, two weeks after it issued a profit warning.

Revenue fell 59.5 per cent to HK$1.51 billion, while net rental income tumbled 34.7 per cent to HK$588.3 million. Profit from property sales fell 55.2 per cent to HK$454.2 million.

“The substantial decline in revenue was mainly due to the decrease in sales of trading properties and gross rental income,” said chairman Lau Ming-wai, son of Joseph Lau.

The rental income decline was mainly attributed to the disposals by various subsidiaries owning shop units in Lo Wu Commercial Plaza in Shenzhen, Evergo Tower in Shanghai, and Windsor House in Causeway Bay.

The board declared a final dividend of 10 HK cents per share. 

During the year, its investment in the UK amounted to £878.3 million (HK$9.5 billion), up 27 per cent from £690.7 million in 2016.

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“It is hard for the company to improve its rental income in the short term after it sold down its investment property portfolio last year even though it increased investments in stocks and bonds,” said Ivan Cheung, head of research at SinoPac Securities (Asia).

The company said it owned a portfolio of listed securities investments and treasury products totalling HK$33.84 billion at the end of December 2017, up 74 per cent from a year earlier. Its equity investments alone stood at HK$23.1 billion, representing 60.4 per cent of total assets compared with 42.6 per cent in 2016.

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In 2017, Chinese Estates poured HK$13.7 billion into securities investments, of which HK$13.2 billion went on acquiring 857.54 million shares in Guangzhou-based developer China Evergrande. It said its equity investments recorded an unrealised gain of HK$9.93 billion from China Evergrande.

In March 2017, Joseph Lau distributed his 74.99 per cent stake in Chinese Estates to his wife and children due to what was then described as his “very unstable health”.

After the share restructuring, his son and current chairman Lau Ming-wai now holds 24.97 per cent of its stock, with 50.02 per cent held by his wife Kimbie Chan Hoi-wan, as a trustee for her children Lau Chung-hook and Lau Sau-wah.

In January 2017, before the share restructuring, Chinese Estates also sold a residential site at No 12 Shui Fai Terrace in Mid-Levels East for HK$1.05 billion to Chan Hoi-wan, and a number of commercial retail outlets at Lo Wu Commercial Plaza in Shenzhen to Lau Ming-wai for HK$500 million.

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