SHKP develops winning strategy

Foresight, sound corporate strategy and a bit of luck are the ingredients that have kept Sun Hung Kai Properties (SHKP) at the top of the pile in corporate Hong Kong. Buying land in Hong Kong prior to a huge surge in property asset growth has been a highly rewarding strategy.

The company topped the polls in 1992, 1995and 1997, and camesecondin 1993 and 1998. However, itwas notably absent from the top five in last yea?s poii, when 1998-99 earnings slumped by 49% — a sign that the financial crisis had hit the property sector hard. HSBC and Swire Pacific have competed closely with SHKP in the Best Managed Companies polls throughout the last decade, with HSBC only a few points behind (20 to SHKP’s 23). Elsewhere, Dairy Farm started well in the early 1 990s, but has faded since, while conglomerate Cheung Kong has made up strong ground in recent years.

SHKP’s performance has been buoyed by the accumulation of its agricultural landbankin the NewTerritories.This type of land comes at lower premiums, securing SHKP higher margins. Raymond Kwok, vice chairman and managing director of SHKP, says: “Over the years, we have been quite successful in maintaining a conservative balance sheet. We have a substantial, high quality low cost landbank, which allows us to keep a tight rein on land costs. . . our landbank is very diverse in terms of location and usage. We have been able to stick with our development strategy despite volatility in the market.”

Astute management has also been a key factor, keeping a tight leash on the company finances. Adrian Ngan, an analyst at BNP Prime Peregrine, comments: “The group’s financial position is prudently managed. It is never over-geared. It delivers quality products and quality services. It’s quite difficult to threaten its position.” SHKP’s net debt was 15% of equity as of May this year. Other attributes include SHKP’s focus on active communication with investors and the utilization of new technologies, internally and externally.

New technology adoption is a sign of the company’s forward thinking— a process that could be given greater urgency by the fact thatproperty’s long-term outlookmay not be as positive. Comments one analyst: “There’s nothing like riding an asset bubble — turning assets in a rising market— it’s pretty easy work. But I don’t think they have coped so well with the market meltdown. It will be very interesting to see what they do. SHKP is probably not geared up for the low margin game.” An e-commerce site handling online auctions and rumours of a stake in the probable Hong Kong Disneyland project are among the new areas SHKP is linked with.