PREVIEW-Sun Hung Kai H2 seen weak, but rental income steady

* What: Sun Hung Kai Properties year net profit

* When: Thursday

* Underlying profit expected to fall 9.8 percent in H2

By Donny Kwok and Joy Leung

HONG KONG, Sept 9 (Reuters) - Sun Hung Kai Properties
(0016.HK), Asia's biggest property group by value, is set to
post a 10 percent slide in fiscal second-half earnings after
holding back apartment sales to wait out a worsening real
estate market.

But analysts say the blue-chip, whose $31.2 billion value
surpasses Japan's Mitsubishi Estate (8802.T) and India's DLF
Ltd (DLF.BO), should benefit from a full pipeline of upcoming
projects across China and Hong Kong, as well as a portfolio
more resistant to economic shocks than its rivals'.

One bright spot is rental income, which has held steady and
is expected to drive underlying net profit -- a measure that
strips out property price fluctuations -- in the year to come.

Some analysts argue investors are overly downbeat on
property stocks, many of which tanked on Tuesday.
[ID:nHKG298458]

"I see upside potential for the Hong Kong property market
for the rest of the year or even in 2009. The market isn't as
bad as people think," said Eric Wong, a property analyst at UBS
who maintained a buy on Sun Hung Kai's stock.

"It's unique in tracking softer interest rates globally,
while also enjoying the benefit of strong economic growth in
the mainland. We can't see it anywhere else."

Sun Hung Kai is expected to post January-June underlying
net profit of HK$5.59 billion ($717 million), according to an
average forecast of six analysts polled by Reuters, down from
HK$6.2 billion a year ago.

Like rivals, the Hong Kong developer put its largest
projects on ice earlier this year, hoping the market will
recover.

"There's no rush for developers to unload their flats after
taking into consideration the cost. They wait until the market
improves," said Patrick Yiu, an associate director with CASH
Asset Management.

CRYSTAL BALL

Looking ahead, some analysts say slowing economic growth
both in China and locally will continue to exert pressure on
prices.

Just last week, Goldman Sachs downgraded Sun Hung Kai and
Henderson Land (0012.HK) on expectations of price falls in the
primary real estate market and a secondary market expected to
undergo a further 10 percent drop in prices in 2009.

Last month, smaller rival Kerry Properties (0683.HK) posted
a 1 percent rise in first-half profit, while billionaire Li
Ka-shing's flagship, Cheung Kong (0001.HK), saw first-half
earnings drop by 35 percent.

But analysts argue investors should put more stock in Sun
Hung Kai's slate of upcoming commercial and residential
projects, as well as its cash cow of rental income.

Credit Suisse foresees SHKP's rental income climbing 14
percent for the current fiscal year, even as development
earnings slip by more than a third on a lack of large-scale
launches.

UBS is even more bullish, expecting rental profits to
increase 36 percent to HK$6 billion for the full year, on the
strength of prime, landmark Hong Kong properties such as
Millennium City and the International Finance Centre in
Shanghai.

"We expect an upside surprise as we have not factored in
any gains from the sale of listed investments in 2H," said
Raymond Ngai, a property analyst at JPMorgan.

Sun Hung Kai is expected to launch its Cullinan homes in
its fiscal first-half, propping up residential sales in coming
years.

Lehman Brothers maintains an overweight rating on the firm
-- one of a dozen investment banks to have a buy or overweight
rating on the stock, according to Reuters Estimates -- saying
it offers good value because resilient asset classes, such as
shopping malls, make up 30 percent of its net asset value.

Just two investment banks rate the stock a sell or
underperform.

Shares of Sun Hung Kai have fallen 41 percent so far this
year through Tuesday, underperforming a 36 percent drop on the
Hang Seng Properties Sub-Index .HSNP.

Forecasts for SHKP Jan-June underlying net profit (HK$
bln)
Lehman Brothers 5.31
Citigroup 6.75
UBS 4.98
Macquarie 5
JPMorgan 5.51
Credit Suisse 5.99
(US$1=HK$7.8)
(Editing by Mathew Veedon & Ian Geoghegan)