Hang Lung profit falls on China writedowns, weak offices
Hang Lung’s underlying first-half profit fell 10 per cent as mainland property writedowns and weak offices offset record mall rents, underscoring the uneven nature of China's real estate recovery.
Hang Lung reported a 10 per cent decline in underlying net profit to HK$1.44 billion ($184 million) for the six months ended June 30. Net profit attributable to shareholders dropped 17 per cent to HK$758 million. The profit contraction occurred despite a 23 per cent jump in total revenue to HK$6.11 billion.
The divergence between the top and bottom lines highlights the ongoing fragmentation in China's real estate sector. A weak office market and development losses weighed heavily on earnings. The development segment posted a wider operating loss even as revenue from residential sales surged more than sixfold to HK$1.04 billion, propelled by a recovery in Hong Kong’s luxury property market.
The shortfall was driven by HK$124 million in non-cash impairment charges on slow-selling mainland residential projects. Outgoing CEO Weber Lo described the writedowns, which included charges against the Heartland Residences in Wuhan, as a "prudent" accounting approach. This conservative valuation of mainland assets reflects the continued pricing pressure in lower-tier cities.
These development headwinds were partially offset by the company's retail portfolio, which generated record mall rental income. Revenue growth was also bolstered by the handover of residential units at Hong Kong projects, including The Aperture in Ngau Tau Kok. Furthermore, Shanghai’s Plaza 66 is actively working to diversify its revenue streams and grow beyond traditional luxury shopping.
The earnings report arrived alongside a scheduled management transition. A CEO-designate will join on September 7 and succeed Lo on October 1, concluding his eight-year tenure. Chairman Adriel Chan credited Lo with successfully navigating the coronavirus pandemic and the severe, prolonged downturn in mainland property.
For market participants, Hang Lung's results serve as a microcosm of China's uneven economic recovery. Chan noted that consumer spending started the year strongly but lost momentum in the second quarter. Despite the Q2 slowdown, Chan said he remains "cautiously optimistic" that the full-year outlook "won’t be too bad", offering a tempered baseline for investors tracking mainland retail and commercial property sentiment.
