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Wheelock says H1 core profit slide caused by new accounting standards

Hong Kong property developer Wheelock and Co. Ltd. said the decline in its first-half core profit, which bore a striking contrast to its record residential sales, was largely due to the adoption of new accounting standards, making the impact a "one-off".

Riding the property boom in the city, Wheelock's first-half contracted residential sales surged 131% from a year ago to hit a new high of HK$23.4 billion, dramatically eclipsing the company's full-year sales for 2017. However, its core profit, excluding revaluation gains, for the first six months of 2018 fell 6% year over year to HK$5.16 billion.

The implementation of a new accounting rule named HKFRS 15, which requires developers to recognize property sales revenue only when the customer has the ability to direct the use of the property, has delayed some of its sales recognition, leading to only HK$2.00 billion of sales being logged in the first half, Wheelock Director and Group Financial Controller Horace Lee told reporters during an Aug. 14 earnings briefing.

The company has a record net order book valued at HK$30.2 billion, mainly owing to the launch of a series of new property developments, including Malibu, Grand Oasis Kai Tak and Grand Monterey. Lee expects the HK$30.2 billion in sales to be recognized in the next six to 24 months and the change in accounting standards to only affect Hong Kong developers' 2018 balance sheets, with no impact on results from 2019 onward.

Despite its robust first-half sales growth, the company warned of increasing uncertainties in the market going forward.

The further rise in interest rates in the second half and the rising supply of new flats in Hong Kong, coupled with the ongoing U.S.-China trade war, will "add pressure on the property market," said Douglas Woo, the company's chairman and managing director. "The trade conflict is unlikely to be resolved in one or two years."

The company said it will take a more cautious approach toward land acquisitions in the second half because of the challenging external environment. But it added it has no plans to slow down the sales launches of its developments or lower sales prices.

In terms of Wheelock's S$2.5 billion buyout bid for Wheelock Properties (Singapore) Ltd., Lee said the company can't comment further beyond what has been revealed in the offer document. When Lee was asked about whether the company would raise its offer price, he added that the company could technically alter its offer levels, but it would depend largely on shareholder response.