Hong Kong's Largest Property Developer Sees 57% Profit Surge

(Bloomberg) -- Sun Hung Kai Properties Ltd., Hong Kong's largest developer by market value, said half-year underlying earnings rose 57 percent, as sales benefited from a surging home market.

Profit excluding property revaluations climbed to HK$14.6 billion ($1.9 billion) in the six months ended Dec. 31, compared with HK$9.3 billion a year earlier, the firm said in a statement to the Hong Kong stock exchange on Tuesday. Sun Hug Kai's shares rose 1 percent to HK$114.60 at 9:45 a.m. in Hong Kong trading.

Sun Hung Kai's earnings were buoyed by resurgent demand in Hong Kong's housing market, where existing home prices this month reached an all-time high and builders bid up prices for land plots, including a record purchase last week. Sun Hung Kai was one of the most aggressive of local major developers in wooing new buyers during a brief correction last year, offering discounts and mortgages valued at more than a home's value.

“The strong earnings were mainly underpinned by a surge in their Hong Kong residential projects,” Raymond Cheng, Hong Kong-based analyst at CIMB Securities Ltd., said by phone. Cheng forecasts a 5 percent to 10 percent growth in Sun Hung Kai's full-year underlying earnings, helped by a pipeline of eight projects estimated at HK$50 billion.

Sun Hung Kai's shares have advanced 17 percent this year, compared with a 15 percent gain in the Hang Seng Property Index.

“Hong Kong's primary residential market has become active again since the beginning of 2017 with new launches well received by end users,” Sun Hung Kai said in the statement accompanying its earnings. “This is in contrast to a quiet market in the last two months of 2016 with low transaction volumes as a result of new stamp duty measures and interest rate hikes.”

Resilient Demand

Looking forward, despite “more stringent” home-buying restrictions and an expected increase in mortgage rates, the firm anticipates that buyers' demand will be resilient, according to its statement.

Profit generated from property sales surged to HK$8.3 billion in the first half, more than tripling from a year earlier, Sun Hung Kai said. Revenue at the developer increased to HK$46.3 billion from HK$34.9 billion a year ago, according to the statement.

Sun Hung Kai has the strongest residential project pipeline this year among Hong Kong developers, Deutsche Bank AG analysts Jason Ching and Iris Poon wrote in a Feb. 20 report. It has 4,282 residential units available for sale, followed by rival Henderson Land Development Co., which has 3,550 units, the report said.

The developer expects to complete more than 3 million square feet of residential projects for sale annually in the next few years, sustaining a sizable residential production “in the medium-to-long term,” it said in the statement.

Land Bidding

Sun Hung Kai has been “working hard” to replenish land banks, but will exercise financial discipline, Chairman Raymond Kwok said at an earnings conference on Tuesday, referring to record-high land prices driven by aggressive mainland Chinese rivals.

“We submit bids every time, and hopefully we could get one in future,” Kwok said. “But we do the math beforehand, and will only submit bids for those plots set to turn profitable.”

Chinese developers Logan Property Holdings Co. and KWG Property Holding Ltd. last week outbid 13 other bidders including Sun Hung Kai and Cheung Kong Property Holdings Ltd. with an record-high HK$16.9 billion offer for a site off Hong Kong island.

Sun Hung Kai has other channels to acquire land apart from government tenders, including converting farmland into residential use, Kwok said. The firm is in discussions with the government on projects involving the conversion of land usage, he said.

Land banking through farmland conversion is a “new possibility” for the firm, Morgan Stanley analysts led by Praveen Choudhary wrote in a Feb. 28 note. Three farmland sites could soon be converted into development use, the analysts wrote.

--With assistance from Moxy Ying and Lisa Pham

To contact Bloomberg News staff for this story: Emma Dong in Shanghai at edong10@bloomberg.net.

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Russell Ward

With assistance from Emma Dong