Cheung Kong First-Half Profit Beats Analyst Estimate on Rent

Cheung Kong (Holdings) Ltd. (1), the Hong Kong developer controlled by billionaire Li Ka-shing, posted first-half profit that beat analyst estimates as rental income and the value of its investment properties increased.

Net income of HK$15.5 billion ($2 billion) compared with the median HK$11 billion estimate of five analysts surveyed by Bloomberg News, as gains from investment property revaluations jumped 52 percent from a year earlier. Profit fell 54 percent from the first half of 2011, when earnings were boosted by a HK$18.6 billion one-time gain, Cheung Kong said in a statement.

Hong Kong’s second-biggest developer sold a total of 1,408 units for HK$12.5 billion in the first half, the second most among all Hong Kong builders, according to figures compiled by Centaline Property Agency Ltd. Higher rents pushed up the value of its investment properties, the company said in the Hong Kong stock exchange filing today.

“Judging from the pace of sales in the first half, Cheung Kong will probably be doing fine for the full year,” David Ng, a Hong Kong-based analyst at Macquarie Securities Ltd., said before the earnings were announced.

Profit before taking into account the contribution of unit Hutchison Whampoa Ltd. rose 2 percent to HK$10.4 billion, the company said. The developer posted HK$18.6 billion in one-time gains from asset sales in the first half of 2011.

Property sales slowed as the city’s new Chief Executive Leung Chun-ying pledged to increase housing supply to curb prices that have gained more than 80 percent since early 2009. Profit from property sales fell to HK$6 billion from HK$7 billion.

Property Revaluation

Earnings from property rentals for Cheung Kong, landlord to Goldman Sachs Group Inc. and Barclays Plc in the city, increased to HK$982 million from HK$919 million. Investment property revaluation, net of tax, jumped 52 percent from a year earlier to HK$2.8 billion, it said.

“A significant increase in the fair value of investment properties was recorded during the period reflecting the growth in rentals,” Chairman Li wrote in the statement. “With close proximity to the Mainland, Hong Kong is poised to benefit from the many opportunities arising from China’s continued development.”

Li, 84, has in the past two years said that if buyers need to borrow too much, they shouldn’t buy properties. He also warned property speculators and signaled his concerns the surge in Hong Kong home prices may not be sustainable.

Hong Kong home prices have risen 10 percent this year on low mortgage rates, even as property transactions slowed. The city’s new chief executive, who took over on July 1, has pledged to increase housing supply to curb prices.

Shares Underperform

Cheung Kong’s shares have risen 11 percent this year, the second least in the seven-member Hang Seng Property Index, which gained 13 percent. It only outperformed Sun Hung Kai Properties Ltd. (16), the developer whose co-chairmen have been charged by the city’s anti-graft agency for bribery.

The stock lost 1.1 percent to HK$102.30 at the 4 p.m. close today, before the earnings were announced.

Cheung Kong last year made about 30 percent of its sales in mainland China, the second-highest among Hong Kong’s five biggest builders.

Hutchison Whampoa Ltd. (13), Li’s biggest company, posted first- half profit that beat analysts’ estimates after boosting earnings from U.K. utilities, phone services in Europe and retail stores in China. Net income was HK$10.2 billion, beating the HK$9.55 billion median of five analysts’ estimates in a Bloomberg News survey. Profit fell from HK$46.3 billion a year earlier, when Hutchison booked one-time gains from a spinoff of ports assets in Hong Kong and China.

Superman

Nicknamed “superman” by the local media for his investing prowess, Li forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices. The Shanghai Composite Index lost 65 percent in 2008, the most among the world’s 10 biggest stock markets. percent.

Li, who opened a plastic flower factory after World War II, began investing in Hong Kong real estate in 1967 after riots from China’s Cultural Revolution depressed prices to build Cheung Kong into a company with a market value of $30.5 billion.

Cheung Kong will pay an interim dividend of 53 Hong Kong cents a share, the same as a year earlier.

Helping Richard

Li, who’s 14th on the Bloomberg Billionaire Index with a net worth of $24.1 billion, last month transferred a one-third stake in a family trust that controls both Cheung Kong and Hutchison Whampoa from son Richard to elder brother Victor, as he seeks to consolidate succession planning.

Hong Kong’s richest man said in May and reiterated today that he will offer financial support to allow Richard Li to build businesses outside of the family’s Cheung Kong Group of companies.

Richard Li is in talks with “several sizeable enterprises” for possible acquisitions, the elder Li said at the time, without identifying the targets. Li Ka-shing said he has set aside funding for Richard Li that is “multiple times” his son’s current assets.

To contact the reporter 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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