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Henderson Land: HK home prices to fall 30% at most

Lee Shau-kee, center, chairman of Henderson Land Development, and his two sons.
Lee Shau-kee, center, chairman of Henderson Land Development, and his two sons.

HONG KONG -- Hong Kong's second richest man Lee Shau-kee said the city is already halfway through the property downturn, as his flagship conglomerate Henderson Land Development announced on Monday a near-12% jump in core earnings.

     "Home prices will fall 30% at most from their peaks. Now they have already fallen 15%," Lee, chairman of Henderson Land told reporters, adding that prices would not fall indefinitely due to high construction costs.

     "If prices were to fall further, the government would earn nothing through land sales... Prices should bottom out by the end of next year," he said.

     Lee's optimistic remarks stem from a stronger-than-expected performance in earnings. Net profit rose 27% to 21.34 billion Hong Kong dollars ($2.75 billion) for the 12 months ended in December on higher property sales and rental income.

     Its underlying profits -- a performance indicator typically examined by analysts to exclude the impact of property revaluation rose 12% to HK$11.01 billion.

     The developer proposed to make a bonus issue of one new share for every 10 held. Including the interim dividend of HK$0.38 paid, the total payment for last year would be HK$1.45 per share, up from $1.10 per share in 2014.

     Asked if Henderson Land would expand overseas, Lee said he had a "strong sense of belonging" to Hong Kong and his "roots" were entrenched in the city. "I would not invest overseas because my English is not good enough and I don't like western meals," he joked.

     The developer claims to have more than 90% of its investments in Hong Kong with projects spanning from urban redevelopment to the building of offices and hotels. It also has projects in major mainland cities including Beijing, Shanghai and Guangzhou.

     Lee, 88, has also dismissed proposals to reorganize or privatize his company, adding that it would "make no difference" because he already has a 72.28% controlling stake in it. Buying another 2.72% in the company would enable him to make a general offer to remaining shareholders.

     Lee's streak of share purchases in the company has spurred speculation that he may restructure the conglomerate to pave the way for his succession, like some of his wealthy counterparts have done.

     Hong Kong's richest man Li Ka-shing reorganized group companies last year to create CK Hutchison, which holds all non-property businesses, and Cheung Kong Property Holdings. New World Development, controlled by the family of billionaire Cheng Yu-tung, revived a privatization plan for its China property arm last month, after a similar bid was rejected by shareholders in 2014.

     Alvin Cheung, an associate director at Prudential Brokerage, said privatization is "unlikely" as a heavy capital injection of some HK$40 billion would be required given the size of Henderson Land in terms of market capitalization.

     Another idea is for the developer to distribute shares of utility Hong Kong and China Gas to shareholders, given that Lee's effective holding of the subsidiary rose to more than 30% -- a threshold of dominant control.

     Citigroup analysts said this would allow the separation of two listed companies "without paying a penny," adding that both restructuring scenarios would be positive to the developer. The bank gave Henderson Land a "buy" rating with a target price of HK$61.

     Henderson Land's shares closed 1.04% higher at HK$48.35 on Monday, outperforming the Hang Seng Index's 0.06% rise.

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