Cheung Kong development profit increased 22% to HK$4.7b in 1H14

Analysis, Slider 06 Aug 2014
Cheung Kong development profit increased 22% to HK$4.7b in 1H14

Cheung Kong development has seen a substantial increase in profit, meanwhile Its net rentals have decreased.

In1H14, Cheung Kong’s development profit rose 22% y/y to HK$4.7bn but was lower than the estimated HK$5.2bn.Of the HK$4.7bn development profit, HK$2bn was from Kennedy Park at Central, HK$1.3bn from the Beaumont with The Rise and Regency Park in Shanghai each contributing HK$500mn.Although Cheung Kong’s enjoyed development margin of 37% inthe1H, up from 31% last year, the margin for The Rise was lower than our expectation.This and the reduced booking from China property sales resulted in the HK$569mn development profit shortfall against estimates.Meanwhile, due to the disposal of Kingswood Ginza last year, Cheung Kong net rental income (including joint ventures) declined by 5% y/y to HK$1,015mn.According to a report by Barclays:

While net rentals were higher than our forecast, this was offset by softer hotel contributions as hotel earnings fell 3% y/y.

On a net basis, net rental and hotel earnings were down 4% y/y to HK$1,613mn but were HK$88mn higher than our forecast.

Perhaps more importantly was the increased significance of Cheung Kong’s infrastructure business.

In 1H13, contributions from the infrastructure business rose by 24% y/y to HK$908mn.

Revaluations and cap rates – Investment properties only revalued up by 1.9% – Net revaluation gains for Cheung Kong were HK$519mn in 1H14 (versus HK$1,816mn in 1H13).

This comprised of HK$560mn at the subsidiary level and –HK$41mn at the joint venture level.

Expressed as a percentage of Cheung Kong’s investment properties, the HK$560mn gain represent an increase of 1.9%.

Although revaluation gain was small, helped by strong earnings contribution from Hutchison, Cheung Kong was able to enjoy BVPS growth of 5.0% in 1H 2014 to HK$163.45/share.

Change in net debt – Net debt and gearing down to HK$6.5bn and 1.7% – Similar to the December year end period, Cheung Kong’s balance sheet has continued to strengthen.

Its net debt was further reduced from HK$8.7bn as at December 2013 to HK$6.5bn as at June 2014, putting its net-debt-to-equity ratio at only 1.7%.

Dividends and outlook – Playing it close to the chest – Excluding the HK$7.00 special dividend that was declared back in March 2014, Cheung Kong raised its interim dividend by 10% to HK$0.638/share, slightly higher than our estimated HK$0.63/share.

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