HK Slides Into Recession

Source : The Business Times, November 15, 2008

(Hong Kong) HONG Kong slipped into recession in the third quarter as exports were hit by weakening global demand and consumption was hurt by a drop in asset prices and concern about the economic outlook.

Third-quarter gross domestic product (GDP) shrank 0.5 per cent, seasonally adjusted, from the previous quarter.

Compared with a year earlier, GDP grew 1.7 per cent, well below an expected 2.6 per cent increase, and the government slashed its full-year growth forecast to between 3 and 3.5 per cent from a range of 4 per cent to 5 per cent.

The economy's performance in July-September was the weakest since the Sars outbreak hammered consumer and business confidence in the spring of 2003 and highlights Asia's vulnerability to a global economic downturn.

'As expected, Hong Kong is in a technical recession and this may last until early next year. The economic outlook is not that good,' said Daniel Chan, senior investment strategist at DBS Bank.

'China may help, but Hong Kong's overall exports will continue to slow down because our major trading partners, such as Europe and the US, are also in a recession,' he noted.

The International Monetary Fund forecasts 2 per cent growth for Hong Kong in 2009, but a number of local economists say it will be hard-pressed to achieve one per cent growth.

Expected job losses in the trade, retail and property sectors in particular will push the unemployment rate up from 3.4 per cent at present, curbing wage growth and deterring consumption, analysts say.

Consumer confidence fell in the second half of this year to the lowest level in four years, the Nielsen Company said, and retail sales grew by the least in 17 months in September.

The 51 per cent slump in the Hang Seng Index of stocks this year has damped spending. So, too, has weakness in real estate. The number of home sales posted the biggest drop in almost nine years in October.

Private consumption expenditure, which excludes spending by tourists, rose only 0.3 per cent in the third quarter from the previous quarter, as locals were hit by a 50 per cent plunge in the stock market this year and as property prices have started to decline.

Investment spending rose 3 per cent from a year earlier while net services exports still managed solid growth of 5.3 per cent.

Consumption had been buoyant. It was the main driver of economic growth, which averaged 7.3 per cent annually in the past four years, as the territory benefited from China's booming economy.

China will still provide some cushion for Hong Kong as mainland companies require financial services in the city and mainland Chinese are still flocking in to shop here. -- Reuters, Bloomberg

F&N Profit Jumps 23% In Q4 To $120m

Source : The Business Times, November 15, 2008

Property business remains a key contributor to profit; APB reports 7% slide in full-year net

LOCAL conglomerate Fraser and Neave (F&N) yesterday reported net profit of $120.3 million for the fourth quarter ended Sept 30, up 23 per cent from the corresponding period last year.

CHEERS! F&N's food & beverage business has proved resilient in earlier downturns

Fourth-quarter revenue rose 4.4 per cent to $1.29 billion.

The Q4 results brought F&N's full-year net profit after fair value gains and exceptionals to $435.8 million - 15 per cent higher than in the year-ago period. This translates to earnings per share of 31.4 cents, against 28.7 cents a year ago.

Before fair value gains and exceptionals items, however, net profit notched up just 0.3 per cent to $379.0 million.

Group revenue for the financial year increased 5 per cent to $4.95 billion.

Shareholders can expect a final dividend of 8.5 cents per share, bringing the full-year dividend to 13.5 cents per share.

'The group's diversified portfolio of businesses has helped to provide stability in earnings,' said F&N's chairman Lee Hsien Yang. 'The food & beverage (F&B) and commercial property businesses, in particular, have proven resilient in previous economic downturns, and have remained strong pillars for the group, delivering continued profit growth.'

The property business remained the key contributor to profits, accounting for 59 per cent of profit before interest and taxation (PBIT) for the full year.

Within the segment, however, PBIT from development properties dipped 7 per cent from a year ago, while PBIT from investment property and real estate investment trusts (Reits) jumped 22 per cent.

Residential property sales have been affected in today's climate, said CEO of Frasers Centrepoint Lim Ee Seng, and 'next year is going to be pretty challenging'.

But he pointed out some positives. The business continues to recognise profit from residential properties sold; construction costs are easing; and the land bank comprises mostly plots bought at relatively low cost for the mass- and mid-markets. There will still be launches going forward of projects for which construction has started, he told BT.

Commercial properties put up a stronger showing as Reits, malls, offices, business parks and serviced apartments enjoyed almost full occupancies and improved rentals.

Frasers Centrepoint bought a 17.7 per cent interest in Allco Commercial Reit in July. The Reit has since been renamed Frasers Commercial Trust.

Asked about further plans for the Reit, CEO of Frasers Centrepoint Commercial Christopher Tang said that refinancing and recapitalisation plans 'are in the pipeline'.

The F&B business contributed to 37 per cent of group PBIT for the full year. The publishing and printing arm made up the remaining 4 per cent. 'One of the key directions we have set is stimulating faster growth of our non-property development businesses,' said Mr Lee.

F&N unit Asia Pacific Breweries reported a 7 per cent slide in full-year net profit to $123.7 million. This was despite a 12 per cent increase in revenue to $1.998 billion.

APB shares rose 50 cents yesterday to close at $10.60, while the F&N counter shed 11 cents to $3.14.