(Updates with chairman's forecast, earnings detail, analyst comments)
By Alex Frew McMillan
HONG KONG, Sept 13 (Reuters) - Hong Kong's Sun Hung Kai Properties, the world's second-largest real estate developer, posted earnings that narrowly beat expectations on Thursday as strong rental growth drove the company to record operational profits.
The company, whose billionaire co-chairmen are fighting bribery charges, reported its best ever underlying profit of HK$21.7 billion for the 2012 fiscal year that ended in June, compared with HK$21.5 billion last year.
Analysts had expected underlying income of HK$21.0 billion for the 2012 year, according to StarMine, based on the mean estimate of 19 analysts polled by Reuters.
Since the results are based on sales locked in last year, the company's performance has yet to see any impact from the high-profile scandal involving brothers Thomas and Raymond Kwok.
The company's co-chairmen are due in court next month to face charges that they paid a senior government official to favour their interests The Kwoks deny any wrongdoing and have continued to run the company since their arrest in March. .
"The incident will not affect the company," Thomas Kwok said at a news conference to discuss the results, stressing the depth of the company's management. "This team do not think what has happened will affect the company."
Once the darling of the investment community and considered one of Hong Kong's best-run companies, Sun Hung Kai's shares have underperformed peers since the arrests. The stock is down 7.9 percent in the last six months, compared with a 3.3 percent gain in the Hang Seng Properties Index. It rose 0.75 percent on Thursday.
"Part of the performance of the other companies has been people selling Sun Hung Kai Properties and buying everything else," said Tim Gibson, head of property equities in Asia for Henderson Global Investors, a fund manager that runs $800 million in Asian real estate stocks.
The results marked the firm's second successive record performance in terms of annual underlying profit, considered by investors to be a more meaningful figure than net profit since the net figures include valuation gains that depend on the property market rather than the performance of the company.
Alfred Lau, property analyst at Bocom International, noted rental income, the company's earnings base, had come in at HK$11.1 billion, ahead of his HK$10.7 billion estimate.
"The rental growth momentum is still accelerating," he said. "This will mean better grounds for them to maintain this record profit going forward."
Sun Hung Kai, which developed Hong Kong's two tallest buildings, the International Finance Centre and the International Commerce Centre on either side of Victoria Harbour, is celebrating the 40th year of its listing.
However, it did not declare a special dividend to honour the occasion, something it did 10 years ago and which analysts had been expecting it to repeat.
Sun Hung Kai says that it is "business as usual" despite the court case hanging over the Kwoks. It has continued to release new properties, and in July agreed to pay HK$6.9 billion ($889.8 million) for a huge waterfront plot in Hong Kong, a price far less than the market had expected.
"We will continue to sell flats and continue to invest in Hong Kong, and we will not slow down investment in China," Thomas Kwok said. The mainland Chinese property market has slowed after more than two years of restrictions on property purchases, but analysts say that presents an opportunity for cash-rich Hong Kong home builders to buy land, projects and stakes in Chinese developers that are running short of money.
Nicole Wong, regional head of property research at the brokerage CLSA Asia-Pacific Markets, said in a note to clients that the results were "very stable", with a 42 percent gain in rental revenue from mainland China lifting overall growth. The company's Hong Kong portfolio only saw 12.5 percent growth.
With office rents slacking due to financial sector worries, it is possible that the current weak leasing environment will feed through to earnings in later reporting periods.
The company has been slower than its peers to expand across the border into the mainland, but Kwok said the main hindrance for the company's expansion was the lack of sufficient manpower rather than a lack of capital.
Market watchers say the impact of Hong Kong's biggest corruption case since its anti-graft agency was formed 40 years ago has been priced into the stock.
More than half of the company's public float is now held by people who knew about the court case when they bought the shares, according to Daiwa Capital Markets analyst Jonas Kan.
Hong Kong developers have come under fire in a city that, according to real-estate brokerage Savills, has the highest home prices in the world, an issue that contributed to a strong voter turnout at elections last Sunday. Kwok said he supports the initiatives of new leader Leung Chun-ying to build more public-rental and subsidised housing. (Reporting by Alex Frew McMillan; Editing by Alex Richardson)