Hong Kong property developer Hang Lung Properties Ltd. is concerned that the renminbi depreciation brought about by the recent U.S.-China trade war will negatively impact its full-year performance, following a 22% year-over-year increase in its net profit in the first half.
Hang Lung, which focuses on shopping mall development and management in mainland China and Hong Kong, saw its rental income from mainland China grow a significant 11% year over year to 2.17 billion yuan during the period.
However, during an interim results briefing July 30, chairman Ronnie Chan Chi-chung said the result was mainly due to foreign exchange rates, as a stronger renminbi in the first half helped the company to log more positive results when converting figures into Hong Kong dollars on its balance sheet.
But the recent volatility of the renminbi owing to the escalating U.S.-China tensions could adversely hit its rental income performance in the second half, Chan said.
"Bear in mind that 9% out of our 11% rental income growth was from the renminbi appreciation [in the first half]. But the renminbi has fallen so quickly in the past three months, declining around 8% [in value against the U.S. dollar] ... So our rental income [in the second half] will really depend on the exchange rate from now until the end of the year," he said.
"It's hard to predict what the external environment will be like, but we are closely monitoring the exchange rate against the renminbi."
The renminbi slumped to a 13-month low of about 6.8369 yuan being equivalent to US$1, according to a July 27 Reuters forex report. S&P Global Market Intelligence data shows a very slight rebound in the renminbi as of July 30, with 6.81 yuan being equivalent to US$1. The Hong Kong dollar did not demonstrate such a depreciation as it is pegged to the U.S. dollar.
To hedge its currency risks, Hang Lung Properties' new CEO Weber Lo Wai-pak told reporters the company will try its best to tap renminbi-denominated debt to finance property projects in China.
Hang Lung issued July 16 1.00 billion yuan of three-year panda bonds for the construction of some of its commercial properties in China. The issuance marked the first time any Hong Kong developer has utilized the relatively new financing channel of renminbi-denominated debt issued by offshore borrowers.
Setting aside the impact of currency, Chan expects the organic income growth of its mainland Chinese leasing portfolio for the second half, including eight shopping malls, would outperform the first six months of 2018.
On a positive note, the weaker renminbi will mean more Chinese consumers will choose to purchase goods locally rather than overseas, which will help boost the domestic consumption market and benefit Hang Lung's shopping malls, according to Chan.
Meanwhile, Hang Lung's underlying net profit for the first six months of 2018, excluding revaluation gains on investment property, fell 24% year over year to HK$2.32 billion due to lower completed sales of residential units.
Going forward, Chan said the company would accelerate the sales of its remaining residential projects in Hong Kong, most of which are luxury apartments. The total value of these unsold homes weighs in at more than HK$4.00 billion, the company said.
As of July 30, US$1 was equivalent to 6.81 yuan.