Hang Lung Properties China woes hit developer’s 2015 earnings
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China’s slowing economy has claimed another victim, as Hang Lung Properties reported on Thursday a 56% fall in 2015 net profit from a year ago.
The property developer said its net income declined to 5.09 billion Hong Kong dollars ($653 million) for the financial year ended on Dec. 31. Total revenue shrank by 47% to HK$8.94 billion from a year ago. Property sales in Hong Kong fell 88% to HK$1.2 billion.
Over the year, only 63 apartments and a few car parks were sold — a dramatic downturn from 2014’s sales of 412 residential units that generated a turnover of HK$9.81 billion.
Although the company’s rental income from commercial properties in both Hong Kong and the mainland rose by 7%, total operating profit of its mainland China portfolio — comprising eight shopping malls and three office towers — dipped 3% year-on-year to HK$2.72 billion. Overall rental margin fell by 7 percentage points to 65%.
“The [property] market in mainland China is in the doldrums, if not deteriorating,” said Hang Lung Chairman Ronnie Chan. He said that turnover in the second half of the year typically outperformed the first half, but that was not the case in 2015. “I can’t see how it is going to improve in the short run,” said Chan.
Such distress was most palpably felt in cities outside of Shanghai. Occupancy rates in Hang Lung’s malls in Shenyang and Wuxi fell 87% and 72% respectively, while retail sales, excluding autos, dropped 3%.
“The [property] market in mainland China is in the doldrums, if not deteriorating,”
“If the market is not there, we may have no choice but to lower rent,” said Chan, adding that negative rent reversion is a pressure.
Hang Lung’s commercial and office complexes are built for the high-end, premium market. But China’s slowing economic growth is eroding sentiment and demand for luxury goods in Hong Kong. International brands are worried about opening in China and Hong Kong.
Hang Lung said the weakness in retail supply, rental growth and high-end spending will continue in 2016. But Chan said the company had no plans to refashion its establishments for the mid-market, or to suspend construction projects in China, given their still bullish outlook for China in the long run.
“It is the only country that can maintain a higher-than-6% GDP growth in the next few years,” said Chan.
In line with its lackluster annual results, dividend payout for the year will be slightly trimmed to HK$0.75 per share. “The cut is less about maintaining cashflow, but a reflection of our bearish outlook on the [property] market strained by China’s slowing economy. I don’t have a clue when spring will return,” said Chan, adding that the company is still holding plenty of cash at around HK$31.3 billion.
Hang Lung’s shares have shed 17.8% to HK$21.25 year-to-date. Citibank analysts see no upside for the stock.
Questions & Answers
Q.What was the main financial impact of China's economic slowdown on Hang Lung Properties in 2015?
What was the main financial impact of China's economic slowdown on Hang Lung Properties in 2015?
Hang Lung Properties reported a 56% fall in net profit to HK$5.09 billion and total revenue shrank by 47% to HK$8.94 billion. Property sales in Hong Kong also saw a significant 88% decline.
Q.Did Hang Lung's commercial rental properties perform well despite the overall decline in profit?
Did Hang Lung's commercial rental properties perform well despite the overall decline in profit?
Rental income from commercial properties in Hong Kong and mainland China rose by 7%. However, the total operating profit of its mainland portfolio still dipped 3% year-on-year, and the overall rental margin fell by 7 percentage points.
Q.How is Hang Lung Properties adapting its strategy in response to the current market conditions?
How is Hang Lung Properties adapting its strategy in response to the current market conditions?
The company has no plans to refashion its establishments for the mid-market or suspend construction projects in China. They still hold a bullish long-term outlook for China's economy.
Q.What is the reason for the slightly trimmed dividend payout, given the company's cash reserves?
What is the reason for the slightly trimmed dividend payout, given the company's cash reserves?
The dividend cut is less about maintaining cashflow, as the company holds HK$31.3 billion in cash. Instead, it reflects a bearish outlook on the property market due to China's slowing economy.
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