20140331-DBS_Group-HK_Property_Rising_rentals_from_China_32页_603kb

Summary of DBS Group Research: Rising Rentals from China

Core Content

This report focuses on the growth of rental income from China for major Hong Kong property companies and investors. It highlights the increasing importance of the Chinese market in the rental portfolios of these firms and provides insights into their future developments and valuations.

Main Points

• Leading Rental Income from China:

  • Hang Lung Properties and SHKP derive the most rental income from China among Hong Kong property companies.
  • Hang Lung Properties and Kerry Properties have over 50% of their total rental income coming from China.

• Growth in Rental Income:

  • In 2013, the total rental income from China for covered Hong Kong property companies reached HK$14bn, and is expected to grow further with new properties coming online.
  • Hang Lung Properties had HK$3.53bn in China rental income, representing 53% of its total rental income.
  • SHKP saw a 56% increase in China rental income in 1HFY14, reaching HK$1.54bn, or 17% of its total rental income.

• New Projects to Boost Rental Revenue:

  • Hang Lung Properties plans to complete one new shopping mall annually, alongside modest growth in Shanghai.
  • SHKP is set to add new properties such as Two ICC in Shanghai, Hong Cheng project, and Tianhui Plaza in Guangzhou to its investment portfolio over the next three years.
  • Swire Properties and Kerry Properties are also expanding their rental portfolios with projects like Daci Temple and Tianjin Kerry Centre.
  • Henderson Land and Wharf are expected to benefit from new developments like Henderson 688 and Chengdu IFS.

Key Information

• China's Impact on Rental Income:

  • Hang Lung Properties and Kerry Properties have the highest proportion of China-related rental income.
  • The Chinese market is a key driver for rental growth, with many companies expanding their presence through new developments.

• Valuation and Recommendations:

  • The report includes valuation tables for both property developers and property investors, along with REITs.

  • Valuation Metrics:

    • Price to Target: Indicates the price relative to the 12-month target.
    • Discount to NAV: Shows how much the current price is below the net asset value.
    • Yield: Reflects the rental return on investment.
    • PE Ratio: Provides insight into earnings multiples.

  • Recommendations:

    • Buy for Cheung Kong, K Wah Int'l, MTR Corp, New World Dev, Sino Land, SHKP, and Wheelock & Co.
    • Hold for Hang Lung Group, Hang Lung Properties, Henderson Land, and Kerry Properties.

• Share Price Performance:

  • The report includes a share price movement comparison for developers and investors, highlighting the performance of individual companies over different timeframes (1 week, 1 month, 6 months, etc.).
  • The Heng Seng Index (HSI) is used as a benchmark, with a value of 22,066 at the time of the report.

• Market Trends:

  • Primary and Secondary Market transaction volumes and values are analyzed, showing the activity levels in the housing market.
  • Residential Demand and Supply factors are discussed, including real GDP growth, unemployment rate, HIBOR vs Prime rate, and effective mortgage rates.
  • Housing Affordability and Rental Yields are also considered, with a focus on mass market projects.

Upcoming Projects

• Project Launches (Mar 2014):

  • Mount Parker Residences (Sai Wan Ho, Swire Properties/Henderson) - 92 units, 42% sold.
  • Trinity Towers (Cheung Sha Wan, Cheung Kong/URA) - 402 units, 54% sold.

• Occupation Permits Issued (Jan 2014):

  • 2Cape Drive (Island South, Private developer) - 7 units.
  • The Warren (Tai Hang, Wing Tai) - 103 units.
  • The Avery (Kowloon City, Sino Land) - 78 units.
  • 9 Lok To Street (Tuen Mun, Private developer) - 1 unit.

• Pre-Sale Consent Granted (Feb 2014):

  • 1 Tsing Lung Road (Tuen Mun, Manhattan Realty) - 75 units.

• Pre-Sale Consent Pending Approval (Feb 2014):

  • The Nova (Sai Ying Pun, COLI/URA) - 255 units.
  • IL 9007 (Ph 3) (The Peak, Wharf/Nan Fung Group) - 24 units.
  • IL 9007 (Ph 2) (The Peak, Wharf/Nan Fung Group) - 26 units.
  • IL 9007 (Ph 1) (The Peak, Wharf/Nan Fung Group) - 17 units.
  • The Pavilia Hill (Tin Hau, NWD/Hip Shing Hong) - 358 units.
  • KIL 11184 (Ho Man Tin, Wing Tai Prop, Nan Fung) - 173 units.
  • KIL 2098 (Ho Man Tin, Kerry Properties) - 56 units.
  • HHIL 555 (Hung Hom, Hong Kong Ferry) - 95 units.
  • 1 & 3 Ede Road (Kowloon Tong, Kerry Properties) - 41 units.
  • Heya Star (Sham Shui Po, Hong Kong Housing Society) - 175 units.
  • Heya Delight (Sham Shui Po, Hong Kong Housing Society) - 130 units.
  • Austin Station project - Site D (Tsim Sha Tsui West, NWD/Wheelock) - 691 units.
  • KIL 11211 RP (To Kwa Wan, COLI/URA) - 168 units.
  • KIL 9673 (Not specified).

Conclusion

The report underscores the growing significance of the Chinese market for Hong Kong property companies, with several firms deriving over 50% of their rental income from China. New developments and projects are expected to further enhance rental revenue, while the valuation analysis provides insights into the current and future price targets for various companies. The Buy and Hold recommendations reflect the analysts' confidence in the long-term prospects of these firms, particularly those with strong presence and growth potential in the Chinese market.