Sun Hung Kai’s Lower Target Underscores Slowing H.K. Market

Sun Hung Kai’s Lower Target Underscores Slowing Market
Buildings sit on the Kowloon side of Victoria Harbour in Hong Kong. Home sales in Hong Kong have slowed amid a global equity rout and as concerns grow that the city will slip into a recession. Photographer: Jerome Favre/Bloomberg

Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, said it expects reduced home sales in Hong Kong this fiscal year, an indication that the city’s property market is slowing.

The developer seeks to sell about 3,000 units for HK$28 billion ($3.6 billion) in the fiscal year that began July 1, Eric Chow, an executive director at the company’s agency arm, said yesterday. That compares with almost HK$37 billion the previous year, and HK$21 billion two years ago.

Home sales in Hong Kong have slowed amid a global equity rout and as concerns grow that the city will slip into a recession. Prices have risen more than 70 percent since the beginning of 2009 on record low mortgage rates, an influx of buyers from other parts of China and a lack of new supply.

“Earnings might have peaked,” said Lee Wee Liat, a Hong Kong-based analyst at Samsung Securities Ltd. “They’ve done very well in the past year but going forward the economic environment will be challenging. Sentiment is also weakening.”

The group has sold HK$13 billion of homes since July in projects including the Cullinan in the city’s West Kowloon district, Chow said.

Shares of Sun Hung Kai, with a market capitalization of about $35 billion, have declined 17 percent this year, compared with the 18 percent drop in the Hang Seng Property Index, which tracks the city’s seven biggest developers, including the company. The shares advanced 0.8 percent to HK$103.20 at the close of Hong Kong trading, after rising as much as 5.6 percent.

Chairmen Appointment

Sun Hung Kai yesterday said full-year underlying profit rose 55 percent to HK$21.5 billion, a record high, after home sales and rental income increased. That was above the HK$19 billion median estimate of seven analysts in a Bloomberg News survey.

Thomas Kwok and Raymond Kwok will be appointed as joint chairmen of the developer after Chairwoman Kwong Siu-hing, wife of late founder Kwok Tak Seng, will retire at the shareholders meeting to be held on Dec. 8, according to a separate statement. The brothers took over running Sun Hung Kai in May 2008 after ousting elder brother Walter Kwok from the chairmanship.

Volatile Market

Concerns that real estate prices are overheating prompted Hong Kong’s government to raise mortgage down-payment requirements and accelerate land sales. Sun Hung Kai spent more than HK$11 billion buying sites from the city this year as the government put more land on sale. Rival Cheung Kong Holdings Ltd., the city’s second-biggest builder, has spent more than HK$22 billion on six sites over the same period.

“The market has been quite volatile lately,” Sun Hung Kai Vice-Chairman Thomas Kwok said yesterday. “In spite of that, our financial condition is still very stable so our strategy remains the same. We’ll keep acquiring land as long as we are able to continue selling homes.”

Hong Kong’s home prices fell for the first time in seven months in July, according to data from the city’s Rating and Valuation Department. Three sites sold by the government since August were below analyst estimates.

“A good set of results, but a tougher operating environment going forward appears to be the message,” Andrew Lawrence, a Hong Kong-based analyst at Barclays Capital, wrote in a note to clients after the earnings. Barclays maintained its “overweight” recommendation on the stock and a 12-month price target of HK$132.65.

Sales, Rental Income

Profit from apartment sales rose to HK$16.64 billion from HK$6.62 billion, the company said. Hong Kong’s developers begin selling homes while they’re still in construction and book profits upon completion.

Sun Hung Kai, which owns the International Finance Centre II and the International Commerce Centre, the city’s two tallest buildings, posted increased rental earnings, as expansion by Hong Kong companies pushed up office rents. Overall prime office rental in the city jumped 40 percent in the second quarter from a year earlier, according to Colliers International.

Sun Hung Kai’s rental income rose to HK$9.51 billion from HK$8.31 billion a year earlier. Growth may slow this year as companies pull back on expansion plans, Samsung’s Lee said.

Including property revaluation, net income rose to HK$48.1 billion, or HK$18.71 a share, from a restated HK$30 billion, or HK$11.71 a share, a year earlier, the company said yesterday.

The Kwok family’s combined wealth of $20 billion is second on Forbes Magazine’s list of Hong Kong’s richest.

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