Sun Hung Kai Has Slower Profit Growth as Home Sales Fall

Sun Hung Kai Properties Ltd. (16), whose co-chairmen face bribery-related charges, will speed up home sales as the Hong Kong developer expects low interest rates to offset the impact of increased land supply on prices.

The company plans to begin offering homes in at least five projects in the next six to nine months as it targets sales of about HK$28 billion ($3.6 billion) in the city in the year ending June 2013, Deputy Managing Director Victor Lui said after the company reported its full-year earnings yesterday. That compares with HK$32 billion of sales the year earlier. The shares jumped to the highest in more than five months.

Hong Kong developers have sold fewer apartments in the past year after the government tightened mortgage lending and as they awaited clarity on the property polices of new Chief Executive Leung Chun-ying, who promised to boost land supply to tackle soaring prices. Sun Hung Kai, whose billionaire co-chairmen Thomas and Raymond Kwok were arrested in March, is the worst performer in the Hang Seng Property Index this year.

“Investors will be looking for a stronger home sales pipeline from them in the next few months,” said Alfred Lau, a Hong Kong-based analyst at Bocom International Holdings Co. “They will also need rental income and contribution from China to stay strong to support earnings.”

Photographer: Jerome Favre/Bloomberg

Two International Finance Center (IFC), third from right, stands in the central business district of Hong Kong. The IFC is operated by Sun Hung Kai Properties Ltd., Hong Kong's biggest property developer. Close

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Photographer: Jerome Favre/Bloomberg

Two International Finance Center (IFC), third from right, stands in the central business district of Hong Kong. The IFC is operated by Sun Hung Kai Properties Ltd., Hong Kong's biggest property developer.

Sun Hung Kai will begin sales at projects including The Wings in Tseung Kwan O, in the city’s east, and Riva in Yuen Long, in the north, this year, Lui said. The developer, which yesterday said underlying profit was little changed, sold more than half the 107 apartments it offered at its Century Gateway project in the Tuen Mun district this month, he said.

Shares Rally

Shares of Sun Hung Kai, the world’s biggest developer by market value, rose 4.4 percent to HK$111.80, the highest since March 28 at the close of trading in Hong Kong today. They have advanced 15 percent this year, lagging behind the 27 percent gain in the nine-member property gauge.

Analysts at Goldman Sachs Group Inc. Standard Chartered Plc, HSBC Holdings Plc, Macquarie Securities and JPMorgan Chase & Co. raised their price targets for Sun Hung Kai following, citing management’s confidence that home sales will pick up.

Hong Kong’s home prices have now surpassed their peak in October 1997, which marked the start of a 70 percent decline to August 2003, according to an index compiled by Centaline Property Agency Ltd. They have soared 240 percent since that trough nine years ago and have risen more than 85 percent since the beginning of 2009.

Record low mortgage rates, an influx of buyers from other parts of China and a lack of new supply have been underpinning the market, prompting Leung, who was sworn in as chief executive on July 1, to accelerate land sales and give preference to local buyers in some projects.

Fewer Sales

Home prices fell 4 percent in the last three months of 2011, the biggest quarterly drop since the global credit crisis, after Donald Tsang, Leung’s predecessor, increased down-payment requirements last year and as China’s economy began to slow.

“Home prices will continue to benefit from the increase in wages and the ultra-low mortgage rates,” Thomas Kwok said at yesterday’s briefing, adding that the government’s curbs won’t have “too much impact on the market.” Thomas and Raymond Kwok are free on bail.

Profit excluding property revaluations rose to HK$21.7 billion for the financial year ended June 30, compared with HK$21.5 billion a year earlier, it said in a statement to the city’s stock exchange yesterday. That compares with the HK$21 billion mean estimate of 17 analysts surveyed by Bloomberg News.

Imperial Cullinan

Sun Hung Kai sold 479 residential units for HK$10.5 billion in the first half of 2012, behind Sino Land Co. and Cheung Kong (Holdings) Ltd., according to data compiled by Centaline, the city’s biggest closely held realtor.

For the full financial year, the company sold HK$38.2 billion worth of properties in Hong Kong and other parts of China, compared with HK$39.1 billion a year earlier, according to the earnings statement.

The number of home transactions in Hong Kong rose 42 percent in August from a month earlier, the biggest increase since March, according to Land Registry figures.

Profit from property sales fell to HK$13.1 billion last financial year from HK$16.6 billion a year earlier after a one-time gain from the sale of a residential project in Singapore wasn’t repeated, the company said yesterday.

Sun Hung Kai booked sales at projects such as the Imperial Cullinan and Avignon last fiscal year. Hong Kong’s developers begin selling homes while they’re still in construction and book profits upon completion.

October Trial

Rental income at the developer, which owns the International Finance Centre II and the International Commerce Centre, the city’s two tallest buildings, rose to HK$11 billion from HK$9.51 billion, Sun Hung Kai said.

Including property revaluation, net income fell to HK$43.8 billion from HK$48.8 billion a year earlier. The company will pay a final dividend of HK$2.40, unchanged from a year earlier.

The company held 46.6 million square feet of land in its reserves in Hong Kong as of the end of June, Sun Hung Kai said in the statement. Over the last financial year it acquired 5.2 billion square feet in gross floor area to the reserve, almost doubling the amount added a year earlier. It had 83.8 million square feet of land reserves in other parts of China.

Thomas and Raymond Kwok will appear in court on Oct. 12 to stand trial on alleged bribery and public misconduct charges brought by the city’s anti-graft agency.

The brothers and two other men were charged for conspiring to provide Rafael Hui, the city’s former No. 2 official, with free use of two apartments and three unsecured loans for unspecified favors involving Hui’s role as the government’s then chief secretary, the Independent Commission Against Corruption said in July.

The developer has been run by Thomas and Raymond Kwok since the ouster as chairman in 2008 of their elder brother Walter.

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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