Hang Lung Underlying Profit Beats Estimates on Higher Rents

Hang Lung Properties Ltd., the Hong Kong developer that makes more than half of its revenue from mainland China, posted first-half underlying profit that beat estimates on higher-than-expected rental growth in the city.

Earnings excluding revaluation gains and deferred tax fell 23 percent to HK$1.93 billion ($249 million) in the six months ended June 30 from HK$2.52 billion a year earlier, the builder said in a statement to Hong Kong’s stock exchange today. That compares with a HK$1.82 billion median estimate of five analysts surveyed by Bloomberg News.

Hang Lung’s shopping malls in Hong Kong and mainland China posted double-digit growth in rental income even as the Chinese government clamps down on gifts among officials and as competition with local operators intensifies. That partly offset lower property sales in Hong Kong, where real estate transactions are nearing a two-decade low because of government curbs to avoid a bubble.

“As expected, the performance of their China portfolio has been quite strong,” said Cusson Leung, Hong Kong-based analyst at Credit Suisse Group AG. “The real surprise is the rental growth in Hong Kong.”

Hang Lung’s shares rose 0.2 percent to HK$25.15 at the close of trading in Hong Kong. The stock has declined 18 percent this year, the second-worst performer in the nine-member Hang Seng Property Index, which has fallen 6.6 percent in the period.

China Expansion

Chairman Ronnie Chan has been leading Hang Lung to expand in mainland China since the late 1990s, betting that rising consumption by the country’s expanding middle class will fuel demand for high-end shopping malls.

The company’s strategy of selling apartments and commercial properties in the city to help fund expansion in other Chinese regions could be under threat as real estate transactions in Hong Kong slow.

The city’s developers sold the fewest homes in the first half since 2008 after the government imposed extra transaction taxes and tightened mortgage lending in an attempt to curb home prices, according to figures compiled by realtor Centaline Property Agency Ltd.

Hang Lung’s rental profit from China, which includes shopping malls in Shanghai, Jinan and Shenyang, rose 14 percent to HK$1.33 billion in the first half, while in Hong Kong it gained 12 percent to HK$1.31 billion, the company said.

The developer made HK$60 million from apartment sales in Hong Kong during the period, compared with $798 million a year earlier, it said. Hong Kong is the world’s most expensive city to buy a home, according to property broker Savills Plc.

Hang Lung last bought a site in China in February, in Wuhan, a city in Hubei province.

The company will pay an interim dividend of 17 Hong Kong cents, unchanged from a year earlier.

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