CK Property Drops as Lower-Margin Sales, Rents Weigh on Profit

Cheung Kong Property Holdings Ltd. fell to the lowest since it was spun off from billionaire Li Ka-shing’s conglomerate in June, as shrinking margins on property sales and slowing rental growth weighed on first-half earnings.

The shares dropped 3.6 percent to HK$50.30, the lowest since June 4, at 11:09 a.m. in Hong Kong. The benchmark Hang Seng Index slid 0.5 percent.

Li combined the real estate assets of Cheung Kong Group and Hutchison Whampoa Ltd. in a restructuring earlier this year. Excluding the contribution from Hutchison’s property portfolio, profit fell 3 percent, according to analysts at Goldman Sachs Group Inc. and BNP Paribas SA.

“This was largely due to weak rental growth of investment properties and hotel operations and lower profit margins of property sales in Hong Kong and China,” BNP Paribas Hong Kong-based analysts Patrick Wong and Wee Liat Lee wrote in a note on Wednesday.

CK Property included the real estate portfolio of Cheung Kong Group for the full six months, but that of Hutchison for only 28 days of the reporting period. Hutchison’s “stub-period profit” was HK$580 million ($75 million), Goldman Sachs analysts including Justin Kwok wrote in a note.

Excluding the new contribution from properties previously owned by Hutchison Group, revenue in rental income only increased 1.1 percent, according to BNP Paribas’s calculation.

BNP Paribas and Goldman Sachs kept a buy recommendation on the stock. Goldman Sachs analysts said that at the current price they weren’t ruling out the possibility of a share buyback or substantial shareholder stake increase.

Future earnings will be supported by HK$33.2 billion of contracted sales in the first half that haven’t yet been recognized, according to the BNP Paribas analysts.

Net income in the six months ended June 30 rose to HK$6.9 billion, or HK$1.79 a share, from HK$5.6 billion, or HK$1.46 a share, a year earlier, CK Property reported on Tuesday. Profit before investment property revaluations climbed to HK$5.5 billion from HK$5.1 billion.

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