Hongkong Land's H1 profit crashed 64% to US$1.12b

The company blamed the timing of sales completions in mainland China for lower profit.

Hongkong Land’s profit for the first half of 2018 fell by 64% to US$1.12b from $3.11b last year, whilst revenue grew 86% to US$1.52b from US$816m. Underlying profit attributable to shareholders, meanwhile, dipped by 3% to US$455m.

In its financial statement, the company blamed the timing of sales completions in mainland China for lower profit. It was offset by higher contributions from Singapore.

DBS Equity Research analyst Jeff Yau noted that gross rental receipts grew 9% to US$484m driven by increased income from the Central office portfolio. “Vacancy at the Central office portfolio increased slightly to 1.9% in June 2018 from December 2017’s 1.4%. Rental reversion continued to stay positive resulting in average office rents rising 5% YoY to HK$111psf in 1H2018,” he added.

On the other hand, the Central retail portfolio remained fully leased in June 2018 with mildly positive rental reversions. Average retail rent grew by 3% to HK$231psf in 1H2018.

For the Singapore office portfolio, vacancy remained low at 0.1% as of June 2018. “Reversionary growth, albeit negative in 1H2018, is expected to turnaround towards end-2018. Average office rent stood at $9.1psf in 1H2018, unchanged from both 1H2017 and 2H2017,” Yau said.

After the adoption of IFRS15, revenue recognition is now based on percentage of completion method rather than completion method. Overall development profits fell 41% to US$148m, primarily led by fewer sales completions in China during the period.

“This was partially offset by higher contributions from projects in Singapore mainly due to profit recognised on the completion of Sol Acres and the partially completed Lake Grande,” the analyst added.

Additionally, attributable contracted sales in China were down by 7% US$650m. Net order book stood at US$1.5b. Yau said, “Development earnings from China is expected to improve during 2H2018 along with an expected increase in sales completions, particularly from projects in Chongqing.”

“Meanwhile, development earnings from Singapore will likely remain high with the progressive completion of fully-sold Lake Grande and Margaret Ville, which was launched for sale in May 2018,” Yau said. “With a number of development projects scheduled for sales and completion in the upcoming years, residential property sales will become increasingly crucial for the company’s earnings.”

Meanwhile, Hongkong Land remains in an acquisition mode. It bought a commercial site in Nanjing, China and secured an en-bloc acquisition of a freehold residential site known as Tulip Garden in Singapore for redevelopment.

Additionally, the company entered into agreements for the development of three new projects in Bangkok, Jakarta and Manila. Due to the payment for new and previously committed land acquisitions, the company’s net debt edged up to US$3.1b from US$2.5b in December 2017.

Gearing then increased to 8%. Yau concluded, “Despite increased gearing, its financial position remains very sound. The company is well placed to pursue further acquisitions in the region to drive long-term growth.”

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