20141113-高盛-The_name_of_the_game_is_volume__upgrade_New_World_Dev._to_Buy_23页_792kb

Summary of Hong Kong: Real Estate Developers

Core Content

This report provides an equity research analysis on the Hong Kong real estate market, focusing on developers and their performance in 2014 and outlook for 2015. The key areas of discussion include residential sales trends, asset turnover rates, interest rate risks, valuation summaries, and company-specific insights.

Main Points

• Residential Sales Performance:

  • Residential sales at major developers have exceeded expectations in 2014 due to less aggressive pricing and reduced concerns about future interest rate hikes.
  • The price differential between primary and secondary housing markets has narrowed from 20% in 2013 to single-digit levels, which is expected to support continued strong sales in 2015.

• Asset Turnover Improvements:

  • Developers are able to replenish their land banks due to lower land prices, which is expected to improve asset turnover rates.
  • New World Development (NWD) has seen an acceleration in land replenishment and improved asset turnover, leading to an upgrade to Buy from Neutral.

• Interest Rate Risk:

  • Interest rates are considered a major medium-term risk, with the US Fed expected to raise rates in late 2015.
  • A 5% residential price correction is anticipated in 2015E and 2016E, but homebuyers are not acting ahead of the curve, allowing developers to maintain stable selling prices.

• Valuation Adjustments:

  • Target prices (TPs) for major developers are updated based on revised NAV discount rates (trimmed by 5–10 pp).
  • NWD, SHKP, Cheung Kong, and Kerry are upgraded to Buy due to better asset turnover and NAV performance, while Sino Land and Hang Lung Group remain Neutral.
  • The potential upside for Buy-rated developers ranges from 19% to 28% based on 12-month TPs.

• Market Trends:

  • Residential transaction volumes and prices have rebounded since the second quarter of 2014, with secondary market prices rising by 9.6% since March 2014.
  • Developers are adjusting their pricing strategies to align with the secondary market, leading to a more competitive landscape.

• Key Risks:

  • An abrupt economic downturn.
  • Unexpected fluctuations in interest rates.
  • Changes in government policies.

Key Developers and Their Performance

Outlook for 2015

• Developers are expected to maintain strong sales momentum due to stable prices and improved asset turnover.
• Lower land prices are facilitating land bank replenishment, supporting future development activities.
• A 5% residential price correction is expected in 2015 and 2016 due to potential interest rate hikes, but the physical market is not anticipated to react prematurely.

Company-Specific Insights

• New World Development (NWD):

  • Improved asset turnover and land replenishment.
  • Strong balance sheet post-rights issue, with net-debt-to-equity ratio dropping from 48% to 37%.
  • NAV discount is estimated at 51.5%, indicating a potential premium over current share price.

• Cheung Kong:

  • Strong residential and office segments.
  • Positive outlook on its asset turnover and earnings growth.

• SHKP:

  • Maintains a Buy rating.
  • Increased NAV and potential upside of 19.1%.

• Kerry Properties:

  • Maintains a Buy rating.
  • NAV discount at 51.0%, with potential upside of 22.4%.

• Sino Land:

  • Remains Neutral due to less exposure to residential business.
  • NAV discount at 31.9%, with potential upside of 10.0%.

• Hang Lung Group:

  • Remains Neutral due to limited exposure to residential market.
  • NAV discount at 33.3%, with potential upside of 12.5%.

• K Wah International:

  • Remains Neutral.
  • NAV discount at 54.4%, with potential upside of 9.4%.

• Henderson Land:

  • Remains Neutral.
  • NAV discount at 28.6%, with potential upside of -2.0%.

Conclusion

The Hong Kong real estate market is showing resilience in the face of potential interest rate hikes and tapering discussions. Developers are benefiting from improved asset turnover and lower land prices, with NWD being a notable standout. While interest rate risks remain, the physical market's behavior suggests that developers can maintain strong sales volumes if prices remain stable. The overall outlook remains positive for the sector, with a focus on NAV-based valuations and potential share price appreciation.