Sun Hung Kai Has Slower Profit Growth as Home Sales Fall

Sun Hung Kai Properties Ltd. (16), the Hong Kong developer whose co-chairmen face bribery-related charges, reported a slowdown in full-year profit growth after higher down payments and concerns over tougher government measures curbed apartment sales.

Profit excluding property revaluations rose to HK$21.7 billion ($2.8 billion) for the 12 months ended June 30, compared with HK$21.5 billion a year earlier, the world’s biggest developer by market value said in a statement to the city’s stock exchange today. That compares with the HK$21 billion mean estimate of 17 analysts surveyed by Bloomberg News.

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 had promised to boost land supply ahead of his swearing in on July 1. 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.”

Demand, Supply

Sun Hung Kai shares have advanced 10 percent this year, lagging the 23 percent gain in the nine-member property gauge. The shares rose 0.8 percent to HK$107.10 at the close of trading in Hong Kong today, before earnings were announced.

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 the Leung to accelerate land sales and give preference to local buyers in some projects.

The measures “should help improve the demand and supply balance of residential properties over the medium to long term,” Sun Hung Kai said in today’s statement.

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.

Fewer Sales

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 homes, compared with HK$39.1 billion a year earlier, according to the statement.

The developer sold 50 percent of the 107 apartments it offered at its Century Gateway project in the Tuen Mun district at an average price of HK$11,000 a square foot, the South China Morning Posted reported yesterday.

The company will begin selling the second phase of The Wings in Tseung Kwan O and Riva in Yuen Long this year, it said in today’s 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.

Rental Income

Profit from property sales fell to HK$13.1 billion last financial year from HK$16.64 billion a year earlier after a one- time gain from the sale of a residential project in Singapore wasn’t repeated, the company said today.

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.

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

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.

October Trial

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 today’s 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, the company said. It has 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.

Sun Hung Kai in July promoted two executives to deputy managing directors to assist the co-chairmen, who are retaining their roles at the company. The developer also named Adam Kwok, a son of Thomas, and Edward Kwok, a son of Raymond, as alternative directors to their fathers.

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

The late Kwok Tak Seng and Lee Shau-kee, chairman of Henderson Land Development Co. and the Hong Kong’s second- richest man, were among three co-founders of the developer in 1962.

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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