Hang Lung Group (10) H1 2024 earnings summary

Executive summary

• Revenue for 1H2024 rose 17% year-over-year to HK$6,114 million, mainly driven by property sales of HK$1,228 million, while recurring rental revenue declined 7% to HK$5,151 million due to weaker luxury consumption and RMB depreciation.

• Operating profit decreased by 10% to HK$3,613 million, and underlying net profit attributable to shareholders fell 18% to HK$1,281 million, mainly from lower leasing profits and higher finance costs.

• Net profit attributable to shareholders was HK$888 million, down from HK$1,682 million, reflecting a net revaluation loss on properties of HK$393 million.

• Interim dividend was maintained at HK$0.21 per share, with a scrip dividend arrangement and 63% shareholder participation.

• Management expects 2024 to be a year of reset, focusing on cash preservation, debt reduction, and long-term sustainability amid challenging macroeconomic conditions.

Financial highlights

• Property leasing revenue dropped 7% to HK$5,151 million; property sales revenue surged to HK$1,228 million from HK$2 million.

• Mainland China rental revenue was RMB3,034 million (-3% YoY); Hong Kong rental revenue was HK$1,548 million (-8% YoY).

• Gross margin for leasing was 70% (Mainland China: 67%, Hong Kong: 79%).

• Net debt increased to HK$46.6 billion, with a net gearing ratio of 32.9%.

• Average borrowing cost was 4.3%–4.4%, with interest cover dropping to 3.2x due to higher finance costs.

Outlook and guidance

• Macroeconomic uncertainty and high interest rates are expected to persist, though government stimulus measures have been introduced in both Mainland China and Hong Kong.

• Management hopes for improvement in Q4 or early next year, with a focus on operational flexibility and premium offerings.

• Major projects include Grand Hyatt Kunming opening in 3Q2024 and Westlake 66 in Hangzhou expected in 2H2025.

• CapEx for 2024 is projected at HK$6 billion, with capital commitments of HK$15 billion for ongoing developments.

• Gearing ratio is expected to peak in 2026 due to slower construction and asset disposal progress.