New World Development - Pre-financing cash flow close to breakeven
- Net interim loss reached HKD6.6bn, in line with profit warning
- Pre-financing cashflow close to breakeven
- Total debt and short-term debt lowered while gearing rose slightly
- Maintain HOLD with lower TP of HKD4.61
Pre-financing cash flow close to breakeven. In 1HFY25, G&A expenses was 9% y/y lower at HKD1.85bn, while capex was reduced significantly by 35% at HKD4.9bn. Pre-financing cash flow was thus close to breakeven in 1HFY25.
Total debt and short-term debt lowered. Since Jul-24, the company has successfully refinanced c.HKD18.7bn of its bank loans, with c.HKD8.5bn more assets being pledged. In Dec-24, total debt was 3.4% h/h lower at HKD146.5mn, of which short term debt decreased by HKD9.4bn to HKD32.2bn representing 22% of total. Total capital resources amounted to c.HKD34bn, including c.HKD22bn cash and HKD12bn undrawn banking facilities, which should be sufficient to service its short-term debt.
Net gearing, however, inched up. Due to the buyback of its perpetual securities, net debt edged up slightly by 0.8% h/h to HKD124.6bn in Dec-24. Coupled with property provision and fair value loss on investment properties, net debt to total equity ratio edged up to 57.5% in Dec-24 from Jun-24’s 55%.
Perpetual securities subject to step-up rate soon. In Aug-24, the company issued a USD400m guaranteed notes due 2028 at a coupon rate of 8.625%, with part of proceeds used to repurchase its 2027 notes (c.USD45.9mn) and perpetual securities (c.USD108.6mn). The perpetual securities have an outstanding amount of USD345.3bn, which will see a step-up rate in Jun-25.
Steady financing cost. Financing cost was largely flat at HKD2.53bn in 1HFY25 (1HFY24: HKD2.52bn). The average interest rate for 1HFY25 was slightly lower at 4.7% from 1HFY24’s 4.9%.
Launch of State Pavilia well received. In Jan-25, New World launched State Pavilia in North Point for sale with encouraging market response. Within around one month, the company has sold 279 units for c.HKD3.2bn or HKD22,500psf. This represented 72% of total units. Since Jul-24, the company has sold HKD7.9bn worth of properties in Hong Kong representing 72% of its FY25 sales target. Other key contributors included The Pavilia Forest in Kai Tak, NCB Innovation Centre in Lai Chi Kok and Artisan Hub/Artisan Lab in San Po Kong. In the coming year, New Development plans to launch two joint venture developments, Wong Chuk Hang Package 5 and 8 Castle Road, in addition to continued sales of Double Coast, Knightsbridge and Pavilia Forest in Kai Tak.
Project sales in China proceeding smoothly thanks to policy easing. In 1HFY25, contracted sales in China reached Rmb7.5bn or 53% of revised sales target of Rmb14bn for FY25. This included proceeds from selling non-core assets such as Beijing New View Garden Commercial Centre (Rmb1.37bn) and Ningbo New World Office (Rmb268m).
HOLD with HKD4.61 TP. In the past three months, share price of New World had tumbled 30% amid the departure of previous CEO, Eric Ma and heightened financial risk. Meanwhile, the stock is trading at a 77% discount to our appraised current NAV, c.1.5SD below its 10-year average of 61%. To some extent, market concerns over its financial risks have been reflected in the share price following the heavy sell-off. Its share price performance will be primarily driven by the progress of its debt refinancing with the market keeping an eye on its liquidity risks. We currently have a HOLD recommendation with TP based on an 80% discount to our Dec-25 NAV estimate.
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