- Hong Kong’s economy fell into a technical recession in the third quarter
- More than a dozen companies so far this month have warned that protests and a weakening economy have cut into results
From property and aviation giant Swire Pacific to the owner of the Hong Kong Economic Times newspaper, companies are warning the months-long unrest that has gripped Hong Kong in its worst ever political crisis has weighed heavily on their bottom lines in the third quarter and could cut into their results for the year.
The city's economy fell into a technical recession in the third quarter after more than five months of street protests that have been marked by increasingly violent confrontations between police and more radical demonstrators, including a tense stand-off between authorities and protesters at Hong Kong's Polytechnic University in the past week.
Luxury retailers, hotels and other tourism-related businesses have reported lower sales and bookings as tourists have shunned Hong Kong in droves in recent months. But the effects from the slowing economy appear to be spreading to a broader range of companies.
As Hong Kong's reporting season continues, more than a dozen companies have warned since the beginning of November that they will report a loss or see worsening profits " for the third quarter or the half-year " as a result of the city's slowing economy. That is on top of 22 companies which cited the ongoing social unrest or weakening Hong Kong economy when issuing profit warnings in October.
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On Monday, Auto Italia Holdings, an importer of Maserati sports cars to Hong Kong and Macau, warned it had a wider unaudited pre-tax loss of HK$8 million (US$1 million) in the 10 months ended in October, primarily because of a "decline in revenue of the car division due to (the) uncertain economic environment and weak market sentiment owing to continuing social unrest in Hong Kong.
"It is expected that the operating environment for the rest of the year remains challenging," the company said in a filing with the Hong Kong stock exchange on Monday. The company expects to report its annual results in March.
The protests began in June over a controversial extradition bill that would have made it easier to send criminal suspects to mainland China for trial. The extradition bill has been formally withdrawn after months of unrest, but the demonstrations have morphed into a broader discussion over income inequality, affordable housing and Beijing's influence over the city.
The street protests have cut foot traffic, forced shops to close early and discouraged residents from dining out, with food deliveries one of the few areas of the economy to see an uptick in recent months. Visits by mainland tourists, the biggest category of visitors to the city annually, fell by 42 per cent in August as the political crisis worsened.
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Hong Kong's Financial Secretary Paul Chan Mo-po said on Sunday that Hong Kong was on the brink of its worst recession since the 1997 handover.
Last month, luxury retailers Moncler and Kering, the owner of Gucci, Yves Saint Laurent and Bottega Venta, both reported double digit declines in sales at their Hong Kong stores in the third quarter. InterContinental Hotels Group, the operator of the Crowne Plaza and InterContinental hotels in Hong Kong, and spirits maker Remy Cointreau, which produces Remy Martin cognac, also have said declining tourism in Hong Kong cut into their sales and per-room revenue in the period.
Kowloon-based Tse Sui Luen Jewellery (International), which issued a results warning last month, said on Tuesday its profit fell by 94 per cent to HK$1.57 million in the six months ended September 30.
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"The weak local consumer sentiment as a result of citywide protests has made it challenging for retailers to operate," the company said in a stock exchange filing. "The hardship the local retail industry is facing is likely to persist or even worsen in the remainder of this financial year.
"Amid the difficult business environment, the group will manage the risks with effective cost saving measures in a prudent manner, and stay alert and respond to any future market changes as and when they occur."
Swire Pacific, the owner of Hong Kong-based airline Cathay Pacific and the operator of the Pacific Place shopping centre and office building complex, said sales at its malls in Hong Kong have been hit by the protests, with rental concessions offered to some retail tenants.
Passenger traffic and forward bookings have been affected "adversely" at Cathay Pacific and the unrest is affecting sales at retail outlets operated by Swire Resources. As a result, Swire Pacific said its consolidated recurring underlying profit for 2019 is expected to be below 2018.
"The expected results of Cathay Pacific are the principal reason for this," Swire said in a November 7 stock exchange filing.
The company said, however, its consolidated underlying profit for the year is expected to exceed 2018's as a result of the disposal of investment properties and other one-time factors.
In recent weeks, investment companies and builders alike have joined the cavalcade of firms to warn they expected to post losses or weaker results, citing softening property values, declining sales and slower construction activity in the city.
On Friday, Lippo China Resources, the property investor and operator of cafes, health care services and mineral extraction operations, said it expected to report a loss of HK$100 million for the first half of the year as a result of a fair value loss on its investment properties, "mainly due to the softening property market in Hong Kong". Lippo is expected to report its results later this month.
Silver Tide Holdings, a Kowloon construction contractor, warned on November 13 it expected to report a "substantial decrease" in profit of about 70 per cent to 80 per cent for the six months ended in September, attributing the decline in part to "an increase in subcontracting charges" because of project delays "as a result of recent social unrest in Hong Kong". Silver Tide is expected to report its results by the end of November.
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Even the media has not been spared.
HKET Holdings, the publisher of the Hong Kong Economic Times, said last week it expected to report a "significant decline" in its profit for the six months ended in September.
"Such decline is mainly attributable to the adversity in the economic and business environment, especially the advertising market, resulted from the global economic uncertainties and recent social unrest in Hong Kong," the company said in a stock exchange filing on November 11. The company expects to report its first-half results before November 30.
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