SHK Properties Summary
Core Content
SHK Properties (SHKP) is a leading property company in Hong Kong, with substantial investments in residential, office, and retail sectors. The company also has a significant landbank in China, where it has been expanding its commercial property holdings. The report discusses the current market sentiment towards residential property and the potential for a recovery, supported by SHKP's performance and future prospects.
Main Points
- Market Sentiment: There is a belief that the market pessimism towards residential property is likely to recede rather than escalate. Developers are using rebate methods to stimulate demand and mitigate the impact of government measures.
- Rental Income Growth: SHKP has experienced solid growth in its rental income, with a CAGR of 12% over FY03-13. It is forecasted to reach HKD21bn (HKD8.0/share) by FY17.
- China Business: The company's China business is showing strong potential, particularly with the contribution of Shanghai Arch Phase 1, which is expected to accelerate property sales profit in FY14.
- Valuation: SHKP's valuation is considered attractive, with a PBR of 0.6x, and its implied gross yield of 12.7% for completed investment properties is seen as high.
- Investor Attention: The company's strong fundamentals and potential for improved market sentiment are expected to attract more investor attention.
- Recommendation: The report reiterates a Buy rating with a target price of HKD136.50, which is 36.2% above the 13 Nov price of HKD100.20.
Key Information
Financial Performance (FY13 and Forecast)
| Metric |
FY13 (HKDm) |
FY14E (HKDm) |
FY15E (HKDm) |
FY16E (HKDm) |
| Revenue |
53,793 |
64,450 |
71,208 |
80,030 |
| Operating Profit |
24,597 |
30,344 |
33,688 |
38,104 |
| Net Profit |
18,619 |
22,902 |
25,831 |
29,180 |
| Core EPS (Fully-Diluted) |
7.245 |
8.911 |
10.051 |
11.354 |
| DPS |
3.350 |
3.700 |
4.000 |
4.300 |
| Net Debt to Equity |
12.5% |
15.6% |
13.4% |
11.9% |
Valuation Metrics
| Metric |
FY13 (x) |
FY14E (x) |
FY15E (x) |
FY16E (x) |
| PER |
11.2 |
10.0 |
8.8 |
n.a. |
| PBR |
0.6 |
0.6 |
0.6 |
0.6 |
| EV/EBITDA |
8.7 |
7.6 |
6.6 |
n.a. |
Profit and Loss Highlights
| Year to 30 Jun |
2013 (HKDm) |
2014E (HKDm) |
2015E (HKDm) |
2016E (HKDm) |
| Rental Income |
16,019 |
17,715 |
19,779 |
22,013 |
| Property Sales Profit |
7,190 |
11,237 |
12,650 |
14,870 |
| Total Revenue |
53,793 |
64,450 |
71,208 |
80,030 |
| Net Profit |
18,619 |
22,902 |
25,831 |
29,180 |
Capital Structure
| Metric |
2013 (HKDm) |
2014E (HKDm) |
2015E (HKDm) |
2016E (HKDm) |
| Total Assets |
512,896 |
536,438 |
546,209 |
559,268 |
| Total Liabilities |
122,367 |
133,935 |
130,760 |
128,809 |
| Shareholders' Equity |
385,912 |
397,363 |
410,279 |
425,269 |
| Net Debt |
48,159 |
62,177 |
55,111 |
50,555 |
Key Risks
- The main risk to the Buy recommendation is the possibility of a price war among new launches, which could affect profit margins.
Conclusion
The report suggests that SHKP is well-positioned for growth due to its strong rental income, expanding China business, and attractive valuation. Despite the current negative sentiment in the residential property market, the company is seen as a good investment opportunity, with potential for improved market sentiment and increased investor attention. The report reaffirms the Buy rating with a target price of HKD136.50, based on a 35% discount on the end-2014E NAV of HKD210.0.
