SHKP banking on ‘one country, two systems’ after reporting lower profit

Hong Kong’s biggest developer by market capitalisation reported a lower profit for the year ending in June, but said the city continued to offer long-term development opportunities thanks to “one country, two systems”.

Sun Hung Kai Properties (SHKP) reported an underlying profit of HK$23.88 billion (US$3.04 billion), a drop of about 17 per cent from a year ago, according to a filing with the Hong Kong stock exchange on Thursday.

The lower profit was attributed mainly to “a decline in profit generated from property sales”, which fell by about 29 per cent to HK$11.29 billion in its latest financial year, SHKP said. Its net rental income also slipped by 4 per cent to HK$18.46 billion.

The developer expects Hong Kong’s economic recovery to be affected by an uncertain global outlook. “The previous year posed significant challenges for the global economy, as businesses grappled with geopolitical risks, trade frictions and high inflation in the West,” Raymond Kwok, SHKP’s chairman and managing director, said in a separate statement.

Moreover, Kwok said, “mainland economy is facing difficulties arising from a grim and complex external environment, insufficient domestic demand and supply-demand issues in the real estate market”.

SHKP’s lower profit came after Hong Kong last year recorded its lowest number of property transactions since 1997, according to data compiled by Midland Realty.

The city saw 59,619 property transactions, including those of new and lived-in homes, commercial buildings and car parks, in 2022. Only 10,243 new homes were sold last year, significantly lower than the annual average of 16,000 new units recorded between 2017 and 2021.

As of Wednesday, only 8,160 new homes have been sold in Hong Kong this year, Midland data shows.

Hong Kong, however, continues to offer abundant long-term development opportunities. “Despite uncertainties in the external environment, Hong Kong retains its unique advantages of ‘one country, two systems’, and benefits from the strong support of the motherland while maintaining close connections with the world,” Kwok said.

“In the long run, the group’s recurrent income base will be further strengthened with the completion of major integrated projects.” Kwok said.

One such project is a mega-commercial development in Mong Kok. The site was acquired during the year and the project is scheduled for completion in 2030.

Kwok said the group’s sales targets for the current year for Hong Kong and mainland China were HK$33 billion and HK$5 billion, respectively. SHKP’s contracted sales on the mainland amounted to about 4 billion yuan (US$615 million) in the previous year.

In the rest of this financial year, SHKP will launch five new projects in Hong Kong: Yoho West and Yoho Hub II in Yuen Long, the third phase of Novo Land in Tuen Mun, and the first phases of Cullinan Sky and Cullinan Harbour in Kai Tak. A joint-venture project in Ho Man Tin is also set to be launched, Kwok said.

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On the mainland, SHKP will launch the Shanghai Arch and new batches of joint-venture developments, such as Hangzhou IFC and Oriental Bund in Foshan.

“The group will selectively replenish its land bank, exercise strict control over capital expenditure, promptly launch new projects for sale upon completion and speed up the sale of unsold completed units and noncore properties to generate a consistent cash flow,” Kwok said.

SHKP declared a dividend of HK$3.70 per share, which will be payable on November 16. Its shares lost about 1 per cent on Thursday and were trading at HK$88.30 each.