Interim result first take : better than expected
- Earnings boosted by warehouse disposal gains
- Interim DPS remained flat
- Strong net order book
Kerry Properties’ 1H22 underlying profit came in 18% higher, at HK$2.79bn, including HK$877m in gains from the disposal of two warehouses in Chai Wan and Shatin. The result is above expectations. The discrepancy mainly stemmed from a gain of HK$410m from share of associate results, which represents the inter-group profits previously eliminated and now released back upon disposing the warehouses to China Resources Logistics in 2022.
Interim DPS remained flat at HK$0.40 (1H21: HK$0.40).
Gross profit from Hong Kong property development fell 41% to HK$452m, which stemmed mainly from continued sales at Mont Rouge, Matin Heights, and The Bloomsway. Gross margin was stable at 33% (1H21: 38%). As of Jun 22, 35 units at Mont Rouge were sold for HK$5.65bn or c.HK$61,000psf. This represented 78% of total units.
Contribution from China property development plunged 71% to HK$173m (1H21: HK$589m), dragged by fewer project completions. Major contributors were Arcadia Height in Shenyang, Lake Grandeur in Hangzhou, and Habitat in Qinhuangdao. Margin on China development properties was lower at 49% in 1H22 compared to 64% in 1H21.
In 1H22, Kerry Properties achieved contracted sales of HK$3.1bn, which represented 44% of its HK$7bn full-year target. In Hong Kong, the company attained contracted sales of HK$2.3bn, which stemmed primarily from continued sales at Mont Rouge, 10 LaSalle, and La Marina. In China, contracted sales tumbled 87% to HK$800m, given weak sentiment led by the COVID restrictions.
As of Jun 22, the net order book stood at HK$18.05bn, which included HK$10.8bn from Hong Kong and HK$7.25bn from China. Of this, 35% should be recognised in 2HFY22.
Including those from associates and joint ventures, gross rental income posted a 6% decline, as pandemic-led lockdowns impacted mall operations in China, along with rental relief granted to tenants. This was despite increased contributions from the newly built Qianhai Kerry Centre Ph 1. The hotel segment also witnessed a 92% drop in gross profit amidst the sporadic COVID outbreaks.
Due to the acquisition of the Huangpu site and To Kwa Wan URA project, Kerry Properties’ net debt doubled to HK$40.6bn in Jun 22 from Dec 21’s HK$20bn. Despite the disposal proceeds from two warehouses in Hong Kong, this put its gearing at 36% (Dec 21: 17%). However, the company’s financial risk remains manageable in our view.
YTD, Kerry Properties has repurchased 916,000 units for HK$18.3m or HK$19.93/sh.