Sun Hung Kai Properties - Robust contracted sales
- FY25 underlying profit was stable at HKD21.9bn, in line with our estimate
- Strong contracted sales of >HKD42bn achieved in Hong Kong, the highest in the last five financial years
- Rich project launch pipeline to unlock NAV
- Riding on residential market recovery; maintain BUY with a HKD102.9 TP.
Surging development earnings from China. Including associates and joint ventures, development profit grew 5.6% y/y to HKD8.3bn on higher contribution from China. Development profit from Hong Kong halved to HKD3.2bn with operating margin contracting to 12% (FY24: 26%). Major earnings contributors included YOHO WEST Ph1 and NOVO LAND Ph3B. Elsewhere, development earnings from China more than tripled to HKD5.09bn, mainly driven by the sales of Shanghai Arch Ph3, with robust development margins of 60% (FY24: 50%). Additionally, SHKP also booked gains of >HKD2.2bn from the disposal of 51 units at Dynasty Court, a rental property in Mid-levels, and gains of HKD1.1bn from land resumption by the government in Hung Shui Kiu/Ha Tsuen New Development Area.
Robust contracted sales in Hong Kong. In FY25, SHKP achieved attributable contracted sales of c.HK42.3bn from Hong Kong, surpassing its sales target of HKD25bn and marking the highest level in the last five financial years. Major contributors included Cullinan Sky Ph1 in Kai Tak, Sierra Sea Ph1A (2) & 1B in Sai Sha, Victoria Harbour II in North Point, YOHO WEST PARKSIDE in Tin Shui Wai, NOVO LAND Ph3B in Tuen Mun, The YOHO Hub II in Yuen Long and Dynasty Court in Mid-levels. Elsewhere, SHKP achieved contracted sales of c.HKD4.3bn, mainly from Lake Geneve Ph2 in Suzhou and new batches of residential units at Park Royale and Forest Park in Guangzhou. In FY26, SHKP targets sales of c.HKD30bn in Hong Kong and c.HKD3.5bn in China.
Strong net order book. As of Jun-25, SHKP has a net order book of HKD35.6bn in Hong Kong, of which HKD30.1bn will be recognised in FY26. Elsewhere, net order book in China stood at RMB8.1bn, with the majority expected to be recognised in FY26.
Robust sales pipelines. In Jul-25, SHKP launched NOVO land Ph3A in Tuen Mun, with c.79% of units sold. In the next 10 months, the company plans to market its completed Cullinan Sky Ph2 and Cullinan Harbour Ph2B in Kai Tak. On top of that, Sierra Sea Ph2A & 2B, its Tsuen Wan development, and its Kwu Tung development Ph1 (FSSTL 279) could also be available for sale. In China, SHKP plans to launch the houses at Shanghai Arch in Shanghai and new batches of joint venture projects including Lake Geneve in Suzhou Oriental Bund in Foshan, and Hangzhou IFC.
Land bank restocking. In FY25, SHKP acquired five residential sites for development via public tender and land use conversion with a total attributable GFA of c.1.6msf. As of Jun-25, SHKP has c.13.3msf of residential properties under development for sale. Recently, SHKP settled the land premium for redevelopment of the 50%-owned Kerry Hung Kai Godown in Cheung Sha Wan into a residential project, which will offer a GFA of c.0.46msf. In addition to the resumption of c.2.5msf land from Hung Shui Kiu/Ha Tsuen New Development Area, another 1.1msf land lots, primarily in San Tin and along the Northern Link Main Line, will be resumed with a compensation of c.HKD1.2bn to be recognised in FY26.
Lower rental earnings. Including associates and joint ventures, net rental receipts fell 3% y/y to c.HKD13bn in Hong Kong, mainly dragged by lower contribution from retail and office portfolio and partly aided by full-year contribution from TOWNPLACE WEST KOWLOON. Nevertheless, occupancies at Hong Kong retail and office portfolios held up strongly at 95% and 90% respectively (Dec-24: 93% and 90%). Elsewhere, China net rental income dropped 3% y/y to HKD4.9bn, dragged by lower turnover rent of the retail portfolio and negative rental reversion in the office portfolio, partly offset by maiden contributions from Tower A of Three ITC. Occupancy of the newly built Tower A of Three ITC has ramped up to c.80% as of Jun-25 (Dec-24: 70%).
Expanding rental portfolio. From 2H25, two retail malls will be opened in phases in Hong Kong, including Cullinan Sky Mall in Kai Tak and Scramble Hill in Kwun Tong. Meanwhile, pre-leasing of the office portion of International Gateway Centre in West Kowloon is well underway, with handover expected in early 2026. Elsewhere, the first phase of ITC Maison, the flagship mall at Three ITC, will be open in 2H25. Andaz Shanghai ITC hotel at Three ITC is also scheduled to open by late 2025. Pre-leasing at Tower B of Three ITC is underway, with expected project completion by late 2025.
Improved balance sheet. Total borrowings declined 10% h/h to HKD110.2bn in Jun-25, of which 13% of the total is repayable within one year. SHKP has further increased the RMB-denominated debt portion to 28% in Jun-25 from Dec-24’s 23%. Including fixed-rate debt, c.55% of total debts are either on a fixed rate basis or denominated in RMB. Net finance costs, including interest capitalised, fell 24% y/y, driven by lowered average debt and lower effective interest rate, which fell to 3.7% (FY24: 4.4%). As of Jun-25, net debt fell 13% h/h to HKD93.3bn, thanks to strong proceeds from residential sales. As a result, gearing improved to 15.1% (Dec-24: 17.8%). With improving financials, SHKP is well placed to pursue more accretive land acquisitions when opportunities arise.
BUY with an HKD102.9 TP. In the past one month, shares of SHKP corrected by 6% from its previous peak on HIBOR rebound. The stock is trading at a 59% discount to our assessed current NAV, against its 10-year average of 55%. With a robust project launch pipeline, SHKP is well-positioned to capture the improving market sentiment. Any favourable interest rates movement could provide further upside to the stock. Portfolio expansion in Hong Kong and China should drive rental income growth, which in turn should improve its earnings quality and justify a higher stock valuation over the long term. We maintain BUY with an HKD102.9 TP.
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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 2025.
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