Henderson Land Development Co., controlled by billionaire Lee Shau-kee, will probably report lower first-half profit tomorrow after a HK$734 million ($94 million) charge from 20 failed luxury apartment sales.
Profit, excluding revaluation gains, may decline to HK$1.71 billion in the six months to June 30 from HK$2.11 billion a year earlier, Credit Suisse Group AG Hong Kong-based analyst Cusson Leung said in an interview. Leung derived both figures from Henderson’s earnings last year as the company changed its financial year to December from June in 2009.
The developer, Hong Kong’s fifth biggest by value, in June said HK$2.67 billion worth of sales at its 39 Conduit Road project had fallen through, sparking a probe by authorities and prompting the government to order developers to improve sales tactics and better disclose transactions. The company has denied any wrongdoing and Lee, 82, hasn’t spoken publicly since.
“First-half earnings will mainly be about profits from the sale of inventories at various projects,” said Leung, who has a “neutral” rating on the stock and forecasts it will rise to HK$52.60 over 12 months. “We’ll look out for their expectation of second-half sales.”
Henderson’s shares have fallen 19 percent this year, the worst performer in the seven-member Hang Seng Property Index, which declined 4.3 percent during the period. Henderson fell 0.4 percent to HK$47.25 at the 4 p.m. close in Hong Kong today.
Henderson said this month it sold two houses at a Headland Road luxury project in Hong Kong’s Island South district for a total of more than HK$1 billion. It also restarted sales at 39 Conduit Road, with one apartment being offered for HK$186 million. The units are not part of the collapsed sales.
“The prices achieved at Headland Road are somewhat out of our expectation” given current market conditions, said Credit Suisse’s Leung. “Investors will also pay attention to sales at 39 Conduit Road as these will be the main contributors for second-half profit.”
The city’s government this month raised down-payment ratios and said it will increase land supply to curb a 45 percent jump in housing prices since the start of 2009. Four days after the announcement, Cheung Kong (Holdings) Ltd., controlled by Li Ka-shing, Hong Kong’s richest man, paid more than estimated for two buildings sites in a government auction.
Henderson will book profits in the first half from projects including 39 Conduit Road, Green Lodge and 8 Royal Green, Raymond Ngai, a Hong Kong-based analyst at JPMorgan Chase & Co., wrote in a Aug. 23 report. The company may book three units sold at 39 Conduit Road during the period to bring in HK$349 million in revenue.
The developer will report underlying profit of HK$1.3 billion, down 39 percent from a year earlier, according to Ngai. Excluding charges from the failed sales, profit may rise 4 percent from 2009 to HK$2 billion, Ngai said.
One of the sales that fell through was an apartment Henderson said it was selling for a world-record HK$88,000 a square foot.
Hong Kong developers sell apartments as they’re being built and book profits upon completion.
Police seized documents from Henderson last month as part of its investigation into the failed sales. The developer has repeatedly denied any wrongdoing in the way it handled the transactions as the government has sought details on the sale agreements at the project in the Mid-Levels district on Hong Kong Island.
The company declined to attend a July 12 special session in parliament, called by lawmakers to discuss the transactions.
Founded by Lee in 1973, Henderson has been buying land outside of government auctions, the main source of development plots in Hong Kong, to build a 40 million-square-foot (3.7 million-square-meter) landbank in the rural New Territories, the most among local developers.
Henderson plans to build 45,000 units across the city, most of them small to medium size, Lee said June 1 without giving a timeframe.
“The main thing to watch for is an update on its purchase of old buildings for redevelopments and farmland conversion,” wrote JPMorgan’s Ngai.
Lee, with a fortune Forbes magazine estimated at $18.5 billion in March, is Hong Kong’s second-richest man.
The developer’s landmark properties include the International Financial Center, co-developed with Sun Hung Kai Properties Ltd., and luxury residential projects such as the Grand Promenade in the Eastern district of Hong Kong Island and the Grand Waterfront in East Kowloon.
Among major developers, Cheung Kong and Hang Lung Properties Ltd. have reported earnings. Sun Hung Kai, the world’s biggest builder by market value, will post full-year earnings on Sept. 20.