HONG KONG -- Chinese property developer New World Development, chaired by Hong Kong tycoon Henry Cheng Kar-shun, saw earnings decline sharply for the year ended June as property sales slowed. But optimism surrounding a strong project pipeline has buoyed its stock price.
The Hong Kong-based developer, which also runs hotels, malls, offices and infrastructure projects in mainland China, reported that net profit fell 54.66% on the year to 8.67 billion Hong Kong dollars ($1.12 billion), or 95 Hong Kong cents per share. Revenue rose 7.2% to HK$59.75 billion.
The main drag came from a 9%-plus drop in residential project sales in both Hong Kong and mainland China, which together accounted for more than 52% of the group's total revenue, as well as massive foreign exchange losses that ballooned to HK$4.08 billion amid the depreciation of the yuan.
The decline in property revaluation to HK$307.3 million from the year-earlier HK$3.17 billion also dealt a blow, as did a marked deterioration in hotel operations to a HK$203.2 million net loss from a HK$244.7 million net profit.
Such losses were due largely to the decreased contribution from the Grand Hyatt, Renaissance Harbour View and Hyatt Regency hotels in Hong Kong, in which a 50% equity interest had been sold to the Abu Dhabi Investment Authority sovereign wealth fund in June of last year.
The only bright spot was property investment, as resilient occupancy in offices across Hong Kong's central business district and in shopping malls offset weak rental income from street shops wrestling with the city's feeble retail environment. The company reported a 6% year-on-year rise in gross rental income in Hong Kong to HK$1.57 billion.
New World Development blamed the setback in its housing sales on the cautious attitude of Hong Kong homebuyers in the first half, as they were anxious about the U.S. Federal Reserve's policy stance since last year's interest rate hike. Against a sluggish market that recorded a 35% decrease in transaction volume, according to government figures, the company only managed to book HK$6.6 billion in contracted sales for the year -- far less than its HK$10 billion target.
But the recent rebound in Hong Kong's housing market has given Cheng some confidence to push more projects into the market. "Hong Kong's housing market has seen some growth in the past few months," he told reporters Wednesday. "This, I believe, has to do with the underlying demand."
Cheng sees current demand for residential units in Hong Kong far exceeding supply, possibly helping to keep the market tight, though at the expense of affordability. The likely persistence of a low-rate environment will also be an incentive to buy, given that the Fed is not expected to hike interest rates at a dramatic pace, he said.
Maintaining its target of HK$10 billion in contracted sales for this fiscal year, the company plans to launch six projects in the city during the period, of which two will come from inventory. Together, they will supply 2,506 extra units for sale.
Its contracted-sales target in mainland China for this fiscal year was set at 20 billion yuan ($3 billion). This compares to the 22.9 billion yuan booked for last year as the company was looking to reorient its focus toward tier 1 cities. 54% of its total sales proceeds last year came from such Guangdong Province cities as Guangzhou, Shenzhen and Foshan.
But the company said it had no immediate plans to further offload assets, as it needs to focus on integrating with New World China Land, a wholly owned subsidiary taken private in August. Last year, it sold three projects in Wuhan City in central China that totaled 13.5 billion yuan to leading mainland property developer Evergrande Real Estate, as well as disposing of a 2 billion yuan project in Chengdu and a 5.3 billion yuan one in Guiyang.
Apart from the strong product pipeline, analysts now anticipate the completion of the New World Centre, a 278,709-sq.-meter complex on the harbor front, which comprises grade-A offices, a prime shopping mall, and hotel and serviced apartments, to provide new impetus to New World Development's future growth.
The leasing of the New World Centre is "a key upcoming catalyst," a Deutsche Bank analyst wrote in a report, reiterating its "buy" rating. The analyst estimated that the New World Centre would contribute HK$2.3 billion in rental revenue in 2018, with the group's total rental revenue surging 72%.
New World Development Executive Vice Chairman Adrian Cheng Chi-kong said 40% of the office tower at the New World Center has already been leased, with a multinational bank as a major tenant.
New World Development closed up 0.39% at 10.3 Hong Kong dollars here after the results announcement Wednesday. Rebounding from a three-year low since early February, it has gained 34.46% so far this year to outperform the benchmark Hang Seng Index, which has added 13.03%.