Sun Hung Kai Properties - Rich pipeline of new project launches
- FY24 underlying earnings was 9% lower at HK$21.7bn, broadly in line with our estimate
- Final DPS was down 24% to HKD2.80. This brought the full year DPS to HKD3.75, representing lower payout ratio of 50%.
- Recognized gains from the government’s land resumption in the Northern Metropolis
- Prime beneficiary of interest rate pivot, maintain BUY with TP HKD92.9
Lower development profit. Including associates and joint ventures, development profit fell 31% y/y to HKD7.85bn. Development profit from Hong Kong declined 23% y/y to HKD6.5bn, with operating margin narrowed to 26% in FY24 from FY23’s 36%. Major contributors included NOVO Land Ph2A & 2B, University Hill Ph2A & 2B, Silicon Hill and Grand YOHO Ph2. Development earnings from China more than halved to HKD1.34bn on lower sales volume of residential units. The bulk primarily stemmed from Oriental Bund, TODTOWN, The Woodland and Grand Waterfront.
Robust residential sales. In FY24, SHKP achieved contracted sales of HKD25.6bn from Hong Kong. Key contributors included YOHO West Ph1 in Tin Shui Wai, The YOHO Hub II in Yuen Long, Cullinan Harbour I in Kai Tak, NOVO Land Ph2A & 3B in Tuen Mun and Dynasty Court in Mid-levels. Elsewhere, SHKP achieved contracted sales of HKD11.9bn in China, which came mainly from Shanghai Arch Ph3 and River East at Hangzhou IFC. In FY25, sales targets in Hong Kong and China are HKD25bn and HKD4bn respectively.Â
High visibility of near-term development earnings. As of Jun-24, SHKP has a net order book of HKD24.9bn in Hong Kong, of which HK19.6bn will be recognized in FY25. Elsewhere, net order book in China stood at HKD13.4bn, with HKD8.6bn expected to be recognized in FY25.
Rich pipeline of new project launches. In the next nine months, SHKP plans to launch Victoria Harbour II, Cullinan Sky Ph1, 233 Prince Edward Road West, Sai Sha Project Ph1, The YOHO Hub II (Tower 6) and YOHO West Ph2 in Hong Kong, along with serviced apartments at Hangzhou IFC, Lake Geneve Ph2A, and new batches at Forest Park and Oriental Bund in China.
Accelerated land replenishment to take advantage of soft land prices. The company added three residential sites with total aggregate GFA of >1.5msf through lease modification in FY24. Since Jul-24, SHKP has acquired another two sites for residential development in Shatin and Fanling North with total aggregate GFA of >0.46msf. In Jul-24, the company secured the Siu Lek Yuen site (STTL623) in Shatin through government tender for HKD619m or HKD3,952psf. SHKP also converted its agricultural site in Fanling North into residential use via in-situ land exchange after paying a land premium of HKD517m. Together with the construction costs of the public facilities of HKD268m, total land costs reached HKD784m or HKD2,546psf.
Gain on land resumption recognized in FY24. Furthermore, c.1.5msf of land lots in Kwu Tung/Fanling North New Development Area were resumed by the government with expected cash compensation of c.HKD1.9bn. A gain of c.HKD1.095bn was recognized in FY24. Another 2.5msf of land lots in Hung Shui Kiu/Ha Tsuen New Development Area will be resumed by the government for a cash compensation of c.HKD2.7bn, which will be recognized in FY25.
Improved income from rental portfolio. Including associates and joint ventures, net rental receipts grew by 3% to HKD19bn on higher contribution from both Hong Kong and China. Net rental income from Hong Kong increased slightly by 1% to HKD13.4bn, mainly driven by positive reversionary growth in its retail portfolio and maiden contribution from TOWNPLACE WEST KOWLOON which was newly opened in Oct-23, partly offset by the negative reversionary growth in its office portfolio. On the other hand, net rental receipts from China surged by 8% to HKD5.03bn, mainly driven by contribution from newly completed properties, including Nanjing IFC Mall and Tower A of Three ITC in Shanghai and the absence of rental concessions.
Expanding recurring income base. In Oct-23, TOWNPLACE WEST KOWLOON, a brand-new 843-room serviced apartment near Nam Cheong Station, was soft-opened with majority of units leased to young professionals. Furthermore, following the opening of YOHO Mix and the rebranded YOHO Plus in Jun-24, the total GFA of YOHO-branded malls close to Yuen Long MTR Station has increased to c.1.1msf in GFA terms, with enhanced retail offerings. The company also plans to open the first phase at the shopping mall (500,000sf) beneath The Millennity in Kwun Tong in late 2024, while the first office towers at IGC atop the High Speed Rail West Kowloon Terminus will be ready for handover from early 2026. UBS has rented an entire block of c.0.46msf as its anchor regional office, with pre-leasing of remaining office spaces well underway. Elsewhere, in China, Nanjing IFC mall has held its grand opening in Jul-24 after its soft-opening in Jan-24, while the remaining office, retail and hotel portion of Three ITC in Shanghai is scheduled for completion in phases from 2025 onwards.
Operating profit from hotel operations more than quadrupled to HKD650m in FY24 (FY23: HKD161m), thanks to improved RevPAR for Hong Kong hotels despite slower-than-expected return of inbound tourists. Additionally, Ritz-Carlton Shanghai, Pudong registered record high in both average room rates and RevPAR. Four Seasons Hotel Suzhou, which commenced operations in Dec-23, has established reputation.
Increase exposure to Rmb-denominated loan. Total borrowings stood at HKD127.1bn in Jun-24, of which HKD10.5bn or 8% of total, is repayable within one year. About 20% of total debt are Rmb-denominated (Dec-23: 16%), which provides a better alignment of Rmb-denominated assets and liabilities. Together with fixed rate debt, c.46% of total debt are either fixed-rate or Rmb-denominated, up from Dec-23’s 41%. Net debt fell 13% h/h to HKD110.9bn in Jun-24, thanks to the receipts of sales proceeds. This put its gearing at 18.3% (Dec-23: 21.2%). With >HKD28bn of sales proceeds that are expected to be received by Jun-25, gearing should further improve by end of FY25.
BUY with HKD92.9 TP. In the past three months, SHKP’s share price increased slightly by 1%, outperforming the market by 6ppts. Meanwhile, the stock is trading at 67% discount to our assessed current NAV, c.1.5SD below its 10-year average of 52%. Interest rate pivot should facilitate the planned project sales and improve the sector sentiment. This should be positive for SHKP. By assigning target discount of 60% to our Jun-25 NAV estimate, we set our TP at HKD92.9. Maintain BUY.
Access more at DBS Insights Direct
Â
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate[1] does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests[2] in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.Â
Â
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
Â
1. | DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA, or their subsidiaries and/or other affiliates have a proprietary position in Sun Hung Kai Properties Ltd (16 HK) recommended in this report as of 02 Sep 2024. |
2. | Compensation for investment banking services: Â Â |
3. | Disclosure of previous investment recommendation produced: Â Â |
Â
[1] An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.Â
[2] Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.Â
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK.Â
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.Â
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) Â Â Â Â such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b)Â Â Â Â there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
On 3 June 2021, President J. Biden issued Executive Order 14032 (“the EO”), superseding Executive Order 13959 of 12 November 2020. The EO, which takes effect on 2 August 2021, prohibits US persons from investing in publicly traded securities or derivatives thereof from firms listed as Chinese Military-Industrial Complex Companies (“CMICs”). The list of CMICs can be found on the US Department of the Treasury’s website at https://home.treasury.gov/policy-issues/financial-sanctions/consolidated-sanctions-list/ns-cmic-list.
DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
RESTRICTIONS ON DISTRIBUTION
General | This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. |
Australia | This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA. |
Hong Kong | This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore. For any query regarding the materials herein, please contact Dennis Lam (Reg No. AH8290) at [email protected] |
Indonesia | This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. |
Malaysia | This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Wong Ming Tek, Executive Director, ADBSR |
Singapore | This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6878 8888 for matters arising from, or in connection with the report. |
Thailand | This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. |
United Kingdom | This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority This report is disseminated in the United Kingdom by DBS Bank Ltd, London Branch (“DBS UK”). DBS Bank Ltd is regulated by the Monetary Authority of Singapore. DBS UK is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. In respect of the United Kingdom, this report is solely intended for the clients of DBS UK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS UK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. |
Dubai International Financial Centre | This communication is provided to you as a Professional Client or Market Counterparty as defined in the DFSA Rulebook Conduct of Business Module (the "COB Module"), and should not be relied upon or acted on by any person which does not meet the criteria to be classified as a Professional Client or Market Counterparty under the DFSA rules. This communication is from the branch of DBS Bank Ltd operating in the Dubai International Financial Centre (the "DIFC") under the trading name "DBS Bank Ltd. (DIFC Branch)" ("DBS DIFC"), registered with the DIFC Registrar of Companies under number 156 and having its registered office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS DIFC is regulated by the Dubai Financial Services Authority (the "DFSA") with a DFSA reference number F000164. For more information on DBS DIFC and its affiliates, please see http://www.dbs.com/ae/our--network/default.page. Where this communication contains a research report, this research report is prepared by the entity referred to therein, which may be DBS Bank Ltd or a third party, and is provided to you by DBS DIFC. The research report has not been reviewed or authorised by the DFSA. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS DIFC. Unless otherwise indicated, this communication does not constitute an "Offer of Securities to the Public" as defined under Article 12 of the Markets Law (DIFC Law No.1 of 2012) or an "Offer of a Unit of a Fund" as defined under Article 19(2) of the Collective Investment Law (DIFC Law No.2 of 2010). The DFSA has no responsibility for reviewing or verifying this communication or any associated documents in connection with this investment and it is not subject to any form of regulation or approval by the DFSA. Accordingly, the DFSA has not approved this communication or any other associated documents in connection with this investment nor taken any steps to verify the information set out in this communication or any associated documents, and has no responsibility for them. The DFSA has not assessed the suitability of any investments to which the communication relates and, in respect of any Islamic investments (or other investments identified to be Shari'a compliant), neither we nor the DFSA has determined whether they are Shari'a compliant in any way. Any investments which this communication relates to may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on any investments. If you do not understand the contents of this document you should consult an authorised financial adviser. |
United States | This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. |
Other jurisdictions | In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. |
Â
HONG KONG DBS Bank (Hong Kong) Ltd Contact:Â Dennis Lam 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected] Â | SINGAPORE DBS Bank Ltd Contact:Â Paul Yong 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E |
  THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand | INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]   |
  |  |