Swire First-Half Underlying Profit More Than Doubles on One-Time Gains
Aug. 5 (Bloomberg) -- Peter Churchouse, chairman of Hong Kong-based property investment firm Portwood Capital, talks with Bloomberg's Susan Li about the outlook for property markets in China and Hong Kong. China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said. (Source: Bloomberg)
Swire Pacific Ltd., the Hong Kong office landlord and owner of the city’s biggest airline, said first-half underlying profit more than doubled on higher rental income and earnings from Cathay Pacific Airways Ltd.
Profit excluding revaluations was HK$8.91 billion ($1.15 billion), or HK$5.92 a share, from HK$3.8 billion, or HK$2.52 a share, a year earlier, Swire said in a stock exchange statement today. That beat the median HK$4.89 billion estimate of three analysts surveyed by Bloomberg News.
The landlord to Societe Generale and Time Warner Inc. in Hong Kong increased rents as companies resumed expansion in the city after the financial crisis amid an economic recovery. Cathay, 42 percent-owned by Swire, yesterday said profit surged more than eightfold, helped by the sale of a stake in a maintenance provider and increased passenger numbers.
“You’ll start to see the office market kicking back into earnings in the second half of this year and the first half of next year,” Peter Churchouse, chairman of Hong Kong-based property investment firm Portwood Capital, said in a Bloomberg Television interview today before the Swire earnings were announced. “That’ll be a significant kicker for Swire going forward as well as the earnings from the airline.”
Swire’s shares have gained 4.3 percent this year, compared with the 1.1 percent loss in the Hang Seng Property Index, which doesn’t include Swire. The stock dropped 0.1 percent to HK$98 at the 4 p.m. close in Hong Kong.
‘Relatively Optimistic’
Excluding one-time gains, underlying profit was HK$4.92 billion, HK$1.16 billion more than a year earlier.
Including property revaluations and deferred tax, net income more than quadrupled to HK$13.9 billion, or HK$9.27 a share, from HK$3.23 billion, or HK$2.15 a share, a year earlier, according to the statement. Sales rose to HK$12.8 billion from HK$11.9 billion.
“The group is relatively optimistic about its prospect in the second half of the year,” Chairman Christopher Pratt said in today’s statement. “If present trends continue, Cathay Pacific expects its financial results to continue to be strong in the second half.”
Swire Properties Ltd. today said profit rose to HK$7.18 billion from HK$1.28 billion a year earlier, mainly because of a HK$4.8 billion gain in the revaluation of its investment properties. The value of prime office space in Hong Kong rose 12.1 percent in the first half from a year earlier, according to property broker Jones Lang LaSalle Inc.
“The Hong Kong office and retail markets are expected to remain strong in the second half,” Pratt said in today’s statement.
Landlord
Gross rental income from offices rose 7 percent to HK$2.12 billion while those for shopping malls increased 10 percent to HK$1.64 billion on “strong demand in the office and retail market,” according to the company.
The property unit, the biggest landlord and developer in eastern Hong Kong Island, built and operates complexes such as Tai Koo Shing residential district and the Pacific Place commercial complexes in the Admiralty district. Tenants also include Deloitte & Touche LLP.
Rents for offices in the Central and Admiralty districts rose 20 percent to HK$79 a square foot in May from a year earlier as companies expanded headcount, property broker Colliers International Ltd. said in a report. Island East rents rose 7.9 percent during the same period, it said.
Hong Kong’s economy expanded 8.2 percent in the first quarter, the fastest pace in four years, on higher exports and retail spending. Full-year growth will probably be between 4 percent and 5 percent, according to government forecasts.
Haeco
Swire said in May that the company hasn’t decided whether to proceed with an IPO of its property unit that was shelved as concerns about the government-debt crisis in Europe battered global equity markets.
“We have no immediate plan to revisit the IPO plan,” Pratt said in a webcast analyst briefing today. Swire Property “may do when the market is stabilized.”
Swire’s earnings also were boosted by a HK$2.55 billion gain after it increased its stake in Hong Kong Aircraft Engineering Co., a plane-maintenance provider.
The company’s stake in the maintenance unit was raised to 76 percent after Cathay sold its 15 percent in Haeco at Swire’s offer price of HK$105 a share. Swire last month scrapped plans to buy out Haeco for HK$9.4 billion after failing to get enough support from shareholders of the maintenance unit.
Swire, which also bottles Coca-Cola in China and operates offshore vessels, will pay an interim dividend of HK$1 per ‘A’ share, compared with 60 Hong Kong cents last year.
To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net
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