Hang Lung Properties’ New Chairman: Our Business Model is Unique and FundamentallySound
HONG KONG, Sept. 12, 2024 – Hang Lung Properties, a leading developer of premium commercial properties in mainland China and Hong Kong, has reported a decline in its first-half profitsdespite a rise in revenue. The company’s new chairman, Chan Wen-po, attributed the decline to a challenging operating environment, particularly the impact ofa weakened Chinese yuan and a surge in outbound tourism, which has led to a drop in luxury goods sales at its mainland shopping malls.
In his first letter to shareholders since assuming the chairmanship, Chan acknowledged the most challenging operating environmentin recent years, highlighting the impact of a never-before-seen set of challenges. He pointed out that while rental income reduction was a primary factor in the decline of net profit, increased interest expenses also played a significant role.
Hang Lung Group’s total revenue for the first half of 2024 reached approximately HK$6.38 billion, representing a 15% year-on-year increase. However, the company’s net profit attributable to shareholders fell by 47.21% to HK$8.88 billion. Hang Lung Properties, the group’s property arm, saw a similar trend, with total revenue rising by 17% to HK$6.11 billion, but net profit dropping by 55.68% to HK$10.61 billion.
The company’sperformance was particularly affected by a decline in tenant sales, especially at its Shanghai malls. Chan revealed that tenant sales at Hang Lung’s Shanghai malls dropped by over 20%, while those outside Shanghai saw a low single-digit decline. He attributed this to the weakening Japanese yen, which made luxury goods purchases moreattractive in Japan, leading to a surge in Chinese tourists traveling to Japan.
The biggest factor affecting our luxury goods sales in the past six months has been the depreciation of the Japanese yen, Chan explained. This has prompted luxury goods tenants to shift their sales to Japan. In the first half of 2024, the Japanese yen depreciated by 15% to 20% against the Chinese yuan compared to the same period in 2023, making shopping in Japan significantly cheaper than in mainland China. Taking tax refunds into account, the price difference between the two locations widens to about 30%. This is partly why the number of Chinese tourists visiting Japan in May 2024 increased by over 300% compared to May 2023.
Chan also highlighted the impact of a general lack of consumer confidence, citing it as a contributing factor to the 4% decline in tenant salesat Hang Lung’s shopping malls outside Shanghai. He acknowledged that the economic uncertainty and tightening budgets have led to a reduction in disposable income for households.
Despite the challenges, Chan expressed optimism about the future, stating that the worst is likely over. He emphasized that the current onshore luxury consumption share remains over 70% compared to pre-pandemic levels, indicating a strong underlying demand. He believes that Chinese consumers will continue to seek a higher quality of life, which will drive demand for premium products and services, a sector where Hang Lung excels.
Chan also addressed concerns about the company’s stock price performance, which has beenrelatively weak in recent years. He attributed this to several factors, including capital outflow from China and China-related businesses, the overall poor performance of the real estate sector, and the lack of comparable companies or competitors.
Our business model is quite unique, and I am confident that it is fundamentally sound, Chan stated. While the Chinese consumer market has slowed recently, I don’t believe consumers will suddenly stop buying luxury goods or visiting our shopping malls without reason. In fact, if we look at future trends, Chinese consumers will continue to pursue a better quality of life, and one way to achieve this is by purchasing higher-quality productsand services, which is exactly what our business specializes in.
Hang Lung Properties remains committed to its long-term strategy of developing and managing premium commercial properties in key cities across mainland China and Hong Kong. The company is confident that its unique business model, coupled with its strong track record and experienced management team, will enable it tonavigate the current challenges and emerge stronger in the long run.
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