Hong Kong’s Sun Hung Kai Sees More Headwinds Amid Pandemic

(Bloomberg) -- Sun Hung Kai Properties Ltd., Hong Kong’s biggest developer, reported earnings that missed analysts’ estimates and said it sees more economic headwinds from the pandemic and rising U.S.-China tensions.

Underlying earnings, which exclude property revaluations, dropped 9% to HK$29.4 billion ($3.8 billion) for the year ended June 30, Sun Hung Kai said in a filing Thursday. That missed the average estimate of HK$30.2 billion from 11 analysts surveyed by Bloomberg.

Sun Hung Kai, part of the billionaire Kwok family property empire, said the results reflect the economic slowdown in the city, driven by the pandemic along with rising trade tensions and pro-democracy protests. The developer sees more challenges ahead as travel restrictions hamper its hotel and retail businesses.

“The local economy will continue to face internal and external headwinds,” the company said in the statement. “The operating environment for tourism remains tough, causing continued severe disruptions to travel-related businesses.”

The firm said its medium-term earnings prospects are expected to be “uncertain,” depending on the development of the pandemic and easing of restrictions.

“Global economic activities are expected to remain subdued in the short to medium term as containment measures are likely to linger for a while,” the company said. “This, together with intensified Sino-US tensions, increased trade protectionism and continued geopolitical risks, will pose further challenges.”

Despite the gloomy economic outlook, Sun Hung Kai remains optimistic about Hong Kong’s future, even amid growing concerns that a security clampdown by China may erode the city’s status as a financial hub for Asia.

“The group firmly believes that Sun Hung Kai Properties as well as Hong Kong have a solid foundation and good long-term prospects,” it said in the statement. “Our economy and society will prosper as in the past on the back of the enduring success and unique strength of ‘One Country, Two Systems.”’

Key Insights

• Sun Hung Kai recorded a decline in contracted sales in the period. Property sales from Hong Kong and China represent almost half of the company’s total revenue
• This has been one of the toughest years for Sun Hung Kai and its counterparts, especially on the leasing side with retailers struggling and office tenants consider surrendering space due to home office arrangements. Rental income declined 3%
• Leverage for the developer remains low at 14.1%, enabling it to withstand the deteriorating economic environment

Market Reaction

• Sun Hung Kai shares rose 0.3% on Friday, compared with a 0.8% increase for the benchmark Hang Seng Index. The stock is down 16% this year.

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• Full-year net income plunged to HK$23.5 billion, from HK$44.9 billion
• Profit before tax stood at HK$30.5 billion
• Final dividend per share was HK$3.7

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