20180821-高盛-嘉里建设-00683.HK-1HFY18_results_first_take__Below_expectations_with_a_surprise_interim_DPS_cut_6页_419kb

Summary of Kerry Properties (0683.HK) 1HFY18 Results

Core Content

Kerry Properties (0683.HK) released its first-half financial year 2018 (1HFY18) results, which fell below expectations. The company reported an underlying profit of HK$1,552 million, a 45% year-over-year (YoY) decline. Excluding a HK$1.2 billion impairment loss from a Macau development project, the results aligned with analyst expectations, primarily due to reduced development profit recognition.

Main Financial Highlights

• Underlying Profit: HK$1,552 million (down 45% YoY)
• Underlying EPS: HK$1.07 (down 45.5% YoY)
• Interim DPS Cut: A significant 11.1% reduction to HK$0.40, reflecting the impact of unfavorable macroeconomic and government policies in Hong Kong and China.
• Total Revenue: HK$10,560 million (down 40.5% YoY)
• Segmental Performance:
  • Property Sales: HK$7,054 million (down 51.7% YoY), with Hong Kong property sales down 83.5% YoY and China property sales up 63% YoY.
  • Rental EBIT: HK$1,949 million (up 9.8% YoY)
  • Hotel EBIT: HK$209 million (up 23% YoY), driven by new hotel openings.

Key Takeaways

• Contracted Sales: Kerry Properties secured HK$9.3 billion in contracted sales for the first half of 2018, falling short of its full-year target of HK$16 billion.
• Dividend Policy: While management maintains a long-term commitment to steady DPS growth, the interim DPS cut was primarily due to external policy challenges and macroeconomic headwinds.
• Landbank Strategy: Management believes the current market conditions, particularly in China, present an opportunity to replenish landbank, as many developers are cash-constrained and land auctions are less competitive.
• Valuation Metrics:
  • Investment Property Valuation: HK$73,952 million (up 24% YoY)
  • Reported Book Value per Share: HK$66.70 (up 11.8% YoY)
• Net Debt/EBITDA: 2.6x (based on 12-month forecast)
• P/E Ratio: 9.6x (based on 12-month forecast)
• P/B Ratio: 3.8x (based on 12-month forecast)
• Dividend Yield: 3.8% (based on 12-month forecast)

Analyst Ratings and Forecast

• Rating: Neutral
• 12-Month Price Target: HK$37.60
• Current Price: HK$36.60
• Upside Potential: 2.7%
• GS Forecast:
  • Revenue: HK$23,895.1 million (12/18E)
  • EBITDA: HK$7,452.3 million (12/18E)
  • EPS: HK$3.81 (12/18E)
  • P/E: 9.6x
  • P/B: 3.8x
  • Dividend Yield: 3.8%

Risks

• Property Sales: Slower or faster-than-expected sales in Hong Kong and China
• Government Policies: Unfavorable regulatory changes affecting operations
• Currency Volatility: RMB FX fluctuations impacting financial performance

M&A Rank

• M&A Rank: 3 (low probability of acquisition)
• Implication: The M&A rank does not affect the price target and may not be discussed in research

Valuation and Performance

• Occupancy Rates:
  • Residential: 94% (vs. 86% in Jun 2017)
  • Commercial: 98% (vs. 99% in Jun 2017)
  • Office: 95% (vs. 96% in Jun 2017)
• Net Gearing: 18.9% (as of Jun 2018), down from 25.7% in Dec 2017
• Underlying Profit Excluding One-offs: HK$2,727 million

Investment Context

• GS Factor Profile: Compares Kerry Properties against the market and sector peers on Growth, Financial Returns, and Multiple
• Quantum Database: Provides detailed financial statement histories and forecasts for in-depth analysis
• GS SUSTAIN Strategy: Focuses on long-term alpha generation by identifying high-quality industry leaders

Regulatory and Disclosure Information

• Analyst: Justin Kwok, CFA and Colin Yao
• Contact Information:
  • Justin Kwok: +852-2978-0481 | justin.kwok@gs.com
  • Colin Yao: +852-2978-1474 | colin.yao@gs.com
• Coverage Groups: Hong Kong Property
• Disclosures:
  • Goldman Sachs may have investment banking relationships with the company
  • Analysts are prohibited from owning securities in their coverage area
  • Research is not an offer to sell or buy any security

Additional Notes

• The report includes a detailed table summarizing financial results for 1HFY18 compared to previous periods.
• The report is subject to regulatory requirements in various jurisdictions, including Australia, Brazil, Canada, Hong Kong, India, Japan, Korea, New Zealand, Russia, Singapore, and the United Kingdom.
• The research is based on current public information and may be subject to change.