Hang Lung Properties Underlying Profit Rises on China Mall Rental Growth

Hang Lung Properties Ltd. (101), the Hong Kong developer of shopping malls in other parts of China, said half-year underlying profit rose 29 percent after reporting higher rents from its Shanghai properties. The stock surged.

Profit excluding revaluation gains and deferred taxes was HK$1.65 billion ($213 million) in the six months ending Dec. 31, compared with HK$1.28 billion a year earlier, Hang Lung said in a filing to Hong Kong’s stock exchange today. That compares with the HK$1.7 billion median estimate of three analysts surveyed by Bloomberg News. Sales rose 22 percent to HK$3.07 billion.

Hang Lung, which has opened four shopping centers outside of Hong Kong, is scheduled to complete at least one mall in China every year until 2015 as Chairman Ronnie Chan seeks to tap spending power among the country’s growing middle class. The shares declined 39 percent in 2011, the worst performer in the seven-member Hang Seng Property Index, on investor concerns about rising competition in China’s retail property market.

“After the correction, valuations appear more attractive at current levels,” Raymond Nagai and Sunny Tam, analysts at Bank of America Corp.’s Merrill Lynch unit, wrote in a report yesterday. “We hope the company can do better for the upcoming malls, and help restore investors’ confidence on their China expansion strategy.”

Shares Climb

Hang Lung’s shares jumped 9.7 percent to HK$26.50 at the 4 p.m. close in Hong Kong after earnings were announced, the biggest increase since April 2, 2009. The gain extended the advance since the start of the year to 20 percent, compared with the 13 percent rise in the property gauge.

Profit from its investment properties in China rose 15 percent to HK$1.07 billion, on rental growth from its two Shanghai malls and contribution from the August opening of the shopping center in the eastern Jinan city. Rents from Hong Kong, including those from the Standard Chartered Building and Hang Lung Centre, increased 8 percent to HK$1.23 billion, the company said today.

Hang Lung plans to open its new mall in Shenyang in the fourth quarter, where rents are expected to be 60 percent higher than its other retail center in the northeastern Chinese city, Chan told reporters in Hong Kong today. He aims for a 7 percent annual return for its next project in the city.

The company said its office building in Shanghai is fully occupied. Shanghai rents should post “double-digit” gains in 2012 and 2013, Chan said, adding that commercial leasing rates in the country haven’t grown as fast as they used to.

‘Very Uncertain’

China’s property industry remains “very uncertain,” Chan said, adding that the real estate market may deteriorate further if the government intensifies its curbs.

Hang Lung, which hasn’t bought land in Hong Kong in at least 10 years as it shifted its focus to other parts of China, has held off selling most of its HK$6 billion of completed residential units, mainly in the West Kowloon district. Chan said the management is patient about the city’s property market, which hasn’t entered its “darkest phase.”

Hong Kong home prices have slid more than 4 percent since June, after gaining more than 70 percent in the previous 2 ½ years on record low mortgage rates and an expanding economy driven by mainland Chinese tourists and corporate finance activities by China companies.

‘Financially Capable’

Hang Lung, the fourth-biggest developer by value in the Hang Seng Property Index (HSP), had cash and deposits with banks of HK$23.7 billion at the end of 2011, compared with HK$24.6 billion six months earlier.

The company, which is investing more than HK$40 billion in China, bought a site in the southwestern Kunming city in September, its first land purchase in the country since May 2009. Chan said, in August, the company is “financially capable” of doubling its initial investment in China to tap the country’s growing luxury spending.

Including gains from the value of real estate held for investment, Hang Lung’s net income fell 26 percent to HK$2.52 billion from HK$3.42 billion a year earlier.

The company, which is changing its financial year end date to Dec. 31, will pay a final dividend of 36 Hong Kong cents for the latest half-year period. It paid an interim dividend of 17 cents for the same period a year earlier. Hang Lung is the first of Hong Kong’s builders to report its earnings in 2012.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net.

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