Wharf Has Higher Profit on China Home Sales, Hong Kong Rents

Wharf (Holdings) Ltd., the Hong Kong builder expanding in at least 14 other Chinese cities, said first-half underlying profit rose 49 percent after booking sales from a Shanghai luxury home project and as rental income climbed.

Profit excluding property revaluations and one-time gains advanced to HK$5.43 billion ($699 million) in the six months ended June 30 from HK$3.64 billion a year earlier, Wharf said today in a filing to Hong Kong’s stock exchange. That exceeds the HK$4 billion median estimate of three analysts surveyed by Bloomberg News.

Earnings were boosted by developments including the Xi Yuan project in Shanghai, where sales began before the country’s government stepped up real estate curbs to make housing more affordable. Wharf’s Times Square and Harbour City shopping malls in Hong Kong posted gains as Chinese tourists continued spending in the city even as the nation’s economy slows.

Growth from China is “a reflection of Wharf’s expansion in its China properties in recent years,” Stephen Wan and Mark Webb, analysts at HSBC Holdings Plc, wrote in report this week.

Shares of Wharf, controlled by the family of billionaire Chairman Peter Woo, advanced 4.7 percent to HK$48.90, the highest since February, at the close in Hong Kong today. They have risen 39 percent this year, making it the fourth-best-performing stock in the 49-member Hang Seng Index, which gained 9.2 percent over the same period.

China Sales

Operating profit from property development rose sixfold to HK$3.43 billion, boosted by its projects in China and its One Midtown development in Hong Kong, Wharf said.

Woo said last year he expected projects in China to make up 50 percent of the company’s assets by 2014, as the fourth-biggest Hong Kong-listed real estate company is expanding its property business in other parts of China.

The company invested HK$5.1 billion in June buying shares and convertible bonds in Greentown China Holdings Ltd. Greentown is one of 11 Chinese developers with the weakest liquidity, according to Moody’s Investors Service.

Further tightening of the property market in China will affect the company’s operations, Deputy Chairman Stephen Ng told reporters in Hong Kong today after the earnings. Wharf is confident it will achieve its full-year target of 12.7 billion yuan of property sales in China, same as last year, Ng said.

“The mainland market is policy driven,” he said. “If property controls intensify, we may be affected. At the moment, we conservatively estimate that our second half sales may not be as good as first half.”

Harbour City

China has over the past two years raised down-payment and mortgage requirements, imposed a property tax for the first time in Shanghai and Chongqing, increased building of low-cost social housing, and placed home-purchase restrictions in about 40 cities.

New-home prices rose in 49 of 70 cities tracked by the government in July, the largest number of cities in 14 months after interest-rate cuts and incentives for first-time buyers.

Turnover from the Harbour City shopping mall in Hong Kong gained 15 percent to HK$3.05 billion, while Times Square rose 14 percent to HK$932 million, the company said.

Retail Rents

Doreen Lee, a Wharf executive director, said she was optimistic about Hong Kong’s retail and office property market this year and in the first half of 2013 because industries other than the financial sector are still growing, and international brands are still using the city as a gateway to China.

Hong Kong retail sales and shop rents, which have been driven by increased spending by cashed-up Chinese tourists in the past decade, may gain 12 percent over the next 12 months after increasing 18 percent in the first half, as international brands continue expanding in the city, according to property broker Colliers International.

Martin Cubbon, chief executive officer of Swire Properties Ltd., the biggest commercial landlord in Hong Kong’s Island East and Admiralty districts, said earlier this month there’s still growth potential in retail rents in Hong Kong.

Wharf, which also owns one of Hong Kong’s two biggest pay television providers and an air cargo terminal operator, said net income rose to HK$23.6 billion, or HK$7.81 a share, from HK$14.3 billion, or HK$4.84 a share, a year earlier.

Wharf will pay an interim dividend of 45 Hong Kong cents, compared with 36 Hong Kong cents a year earlier.

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