Sun Hung Kai Properties - Strong project launch pipeline
- Strong project launch pipeline to tap into improving residential demand
- Secured Artist Square Towers project to consolidate control over West Kowloon office market
- Portfolio expansion to boost rental earnings
- BUY with HK$129 TP
Despite the market headwinds and pandemic disruption, SHKP achieved contracted sales of HK$2.8-2.9bn from China projects in 1HFY23, representing >50% of its FY23 sales target – about half stemmed from the sale of Hangzhou IFC Phase 1; all c.230 residential units (440,000sf) were snapped up within a short period of time when this joint venture development was launched for sale in Jul 22. In 2023, SHKP plans to offer Phases 1 A & 1B of Guangzhou South Station ICC for pre-sale.
The newly completed office portion of The Millennity in Kwun Tong is around 20% committed. Retail portions of The Millennity and YOHO Hub are scheduled to open in 2024. In China, Nanjing IFC Mall is set to open in 2023, for which the leasing response has been encouraging. The remaining part of the mega-sized Shanghai ITC is expected to come onstream in the coming years. Supported by contributions from new rental properties in Hong Kong & China, SHKP’s rental earnings stream is set to strengthen in the years ahead.
SHKP further expands its office presence in West Kowloon. In Nov 22, SHKP secured the development and operation rights of the Artist Square Towers project under a "Build, Operate and Transfer" model for about 47 years in Nov 22. Situated in the West Kowloon Cultural District, this project is close to Kowloon MTR Station and High Speed Rail West Kowloon Terminus, with excellent transportation connectivity. This harbour-front project comprises three commercial towers, primarily for office use, with spectacular views of Victoria Harbour. Total GFA reached 0.7msf, split into 0.67msf for office use and 26,900sf for retail purposes. SHKP has to pay fixed rents to WKCDA in two stages and share rental income on a monthly basis after project completion.
This project should enable SHKP to further consolidate its control over the office market in the West Kowloon Harbour district. Currently, SHKP owns ICC atop Kowloon Station, which provides 2.5msf of Grade A office space. The company is also co-developing the High-Speed Rail West Kowloon Terminus development with its major shareholder, the Kwok family, and Ping An Insurance. SHKP has a 45% stake in the office portion, which will provide total GFA of 2.56msf upon completion after 2025. Coupled with the Artist Square Towers, SHKP boasts an office portfolio of >4.3msf in terms of attributable GFA. These three projects should yield synergy with each other given their close proximity.
Elsewhere, the company acquired a retail site off Anderson Road in Kwun Tong for HK$296m or HK$2,684psf in Nov-22. The site will be developed into a community mall with GFA of 110,290sf.
The stock is trading at a 54% discount to our assessed current NAV, against its 10-year average of 48%. Despite the recent share rally, the current valuation remains inexpensive. SHKP remains a core holding among those investors betting on the Hong Kong property market recovery led by the border re-opening, given the company’s strong exposure in different property subsectors. BUY with HK$129 TP, based on a 50% discount to our Dec 2023 NAV estimate.
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