Sun Hung Kai Properties (SHKP), Hong Kong's biggest property developer in terms of market value, is expected to post a low single-digit annual growth in core earnings because of lower property sales.

The developer is scheduled to announce its annual result for the year ended June on Thursday. According to the estimates of six brokerages or investment banks, the underlying profit forecasts will range between HK$11.2 billion and HK$12.95 billion, an average of HK$11.82 billion, up slightly by 2.8 percent compared with HK$11.495 billion a year earlier.

Macquarie, who bets a 2.5 percent fall in core earnings year-on-year, expects SHKP's second-half core earning to fall by 19 percent to HK$5 billion.

Meanwhile, Credit Suisse predicted a moderate growth of 6 percent in underlying profits, and the rental income is expected to increase by 14 percent. But the consolidated development earnings will fall by 35 percent to HK$3.71 billion.

No major property was launched during the reporting period. The main source of developments is expected to be from sale of inventory in Manhattan Hill in Mei Foo, Noble Hill in Sheung Shui, Kowloon Station project The Arch, Olympic Station's Harbour Green and Severn 8. The sale of the 50 percent-owned project Harbour Place in Hung Hom is also expected to contribute to the associated line.

Credit Suisse said the earnings shortfall is expected to be made up by disposal of non-core properties such as Hillsborough in the Peak and Pacific View in Southern district.

Analysts, however, keep an eye on the property launches that are in the pipeline in 2009. "The market focus is likely to be on whether there will be any slippage in the sale of Kowloon Station project The Cullinan, which is expected to be one of the key earnings drivers in 2009 and 2010," Credit Suisse's analysts said in a research note.

Deutsch Bank estimates the SHKP earnings will be flat, projecting the development profits on a subsidiary level to drop 31 percent year-on-year to HK$4 billion. The developer is likely to launch new property sales in the next 12 months.

The highly profitable project The Cullinan is scheduled to be launched in the fourth quarter of this year. Also, SHKP may launch Shatin Peak One and The Vineyard Phase 2, Deutsch Bank said in a research note.

However, Credit Suisse is concerned about the increasing risk of further drop in property prices in 2009. "With the growth becoming the major risk for both the mainland and Hong Kong property economies and the potential bottoming out of the employment rate, we believe there could be further downside risks for property price in 2009," the analysts said.

But the brokerage maintains SHKP rating as "outperform" due to the company's large amount of quality investment portfolio.

(HK Edition 09/10/2008 page2)