Hong Kong retail firms brace for more nCov impact

Tourist arrivals and retail sales already affected by unrest are tipped to worsen.

On top of weak macro conditions and lingering effects of the unrest in 2019, companies in Hong Kong with significant retail exposure may face another challenge in 2020 with the novel coronavirus outbreak spreading across the globe, according to a Moody’s report.

The outbreak of the coronavirus is expected to reduce further tourist arrivals in Hong Kong, both of which have already been weakened by slowing GDP growth and the unrests in the city that began in June 2019.

For the same reasons, the retail sales in the city are expected to crash 20%-25% at worst during the first half of 2020, although it may recover moderately during the rest of the year. For the whole year, it is projected to moderate from 2019.

Also read: Hong Kong's retail sector may see its worst period yet as stores close down

Furthermore, the retail-related Hong Kong property operators rated by Moody’s generate between 4-77% of their total revenue from Hong Kong and mainland China retail rentals.

On the bright side, the earnings of companies with significant retail exposure in Hong Kong may unlikely decline for more than 5-10% in their FY 2020 if the disruptions from the novel coronavirus outbreak do not last for more than three to six months.

Most of these companies have significant contributions from stable businesses like office investment property. Property firms with retail exposure were also noted to have well-staggered lease expiries and modest exposure to turnover rents, which can protect their revenue against any short-term retail shocks.