20180914-高盛-新鸿基地产-00016.HK-Earnings_Review__FY18_results_in_line_with_expectations__13__DPS_hike_plus_ample_capacity_to_sustain_earnings_delivery__CL-Buy_8页_438kb

Summary of Sun Hung Kai Properties (0016.HK) Earnings Review and Investment Analysis

Core Content

Sun Hung Kai Properties (0016.HK) reported FY2018 results that were in line with expectations, demonstrating strong performance across multiple segments. The company's underlying profit reached a record HK$30.4bn, a 17% increase year-over-year (YoY), surpassing the forecast of HK$30bn. Development profit rose by 36% YoY to HK$16.3bn, while attr. net rental profit increased by 9% to HK$18.6bn. The dividend per share (DPS) was HK$4.65, a 13% increase YoY, exceeding the forecast of HK$4.40/share. Book value per share (BVPS) rose by 8.2% to HK$186.1, with the investment property book value at HK$369bn or HK$127.5/share.

Key Highlights

• Residential Sales:

  • SHKP achieved HK$41bn in contracted sales for FY2018, surpassing its HK$36bn target.
  • HK$29bn remains unrecognised.
  • The company reiterated its medium-term contracted sales target of HK$40bn per annum, indicating a robust development pipeline.

• Land Banking Strategy:

  • SHKP is actively pursuing farm land conversion to secure land for future development.
  • Two sites are in advanced stages of conversion.
  • The company has applied for a higher plot ratio at the Shap Sze Heung site, which could increase gross floor area (GFA) by approximately 20%.

• Retail Rentals:

  • The retail rental portfolio showed double-digit growth in tenant sales for 2018.
  • No signs of slowdown in momentum, despite macro uncertainties and FX volatility.
  • The company believes improved regional connectivity (e.g., high-speed rail, HK-Macau-Zhuhai bridge) could offset these risks.

• China and Overseas Investments:

  • In China, SHKP continues to focus on mixed-use developments, with an example being a 435k sq ft GFA commercial site in Nansha Free Trade Zone.
  • Overseas, SHKP is open to experimental projects through joint ventures (JVs) with reputable local partners.
  • London and Singapore are potential markets, with a JV residential project in Canary Wharf and an existing ION Orchard complex in Singapore.

Financial Performance

Valuation and Price Target

• Current Price: HK$114.70
• 12m Price Target: HK$168.00
• Upside: 46.5%
• Dividend Yield: 4.1%
• FCF Yield Estimate (Post-tax): ~5.5% per share annually
• Rental Growth: Estimated 5% CAGR from FY18 to FY21E
• NAV-Based Valuation: The stock is trading at a 50% discount to FY19E NAV, suggesting undervaluation.
• 12m TP Adjustment: Raised by 1.2% to HK$168, still based on a 25% discount to NAV.

Investment Recommendation

• Rating: Buy (CL)
• Rationale:
  • Steadily growing recurring income.
  • Sizable development land bank with large margin buffers.
  • Strong cash flow generation from rentals.
  • Updated FY19E/20E EPS estimates by up to 1.4%, and FY21E EPS introduced.

Risks

• Real Estate Policies: Potential changes to land formation, public housing policies, and demand-side measures.
• Interest Rates: Structural negative impact on residential price outlook.
• Debt-Service Ratio (DSR): Average DSR of 75% for private residential units.
• Price-to-Income Ratio: 18X for private residential units, up from historical averages of 9.5X.

Analyst Information

• Analyst: Justin Kwok, CFA
• Contact: +852-2978-0481 | justin.kwok@gs.com
• Company: Goldman Sachs (Asia) L.L.C.
• Colleague: Colin Yao | +852-2978-1474 | colin.yao@gs.com

M&A Rank

• Rank: 3 (low probability of acquisition)
• Implication: Does not factor into price target and may not be discussed in research.

GS Factor Profile

• Growth: Forward-looking sales, EBITDA, and EPS growth.
• Financial Returns: ROE, ROCE, and CROCI.
• Multiple: P/E, P/B, EV/EBITDA, and EV/FCF.
• Integrated: Averaging Growth, Financial Returns, and (100% - Multiple) percentiles.

Coverage and Disclosure

• Coverage Group: Hong Kong Property
• Disclosures:
  • Analyst compensation may be tied to investment banking revenues.
  • No ownership of covered securities by analysts or their households.
  • Goldman Sachs may trade as a principal in debt securities of issuers discussed.
  • Non-U.S. analysts may not be subject to certain FINRA restrictions.

Conclusion

Sun Hung Kai Properties delivered strong FY18 results, with record underlying profits and a significant DPS increase. The company's development pipeline and land banking strategy position it well for future growth. Despite macroeconomic uncertainties, SHKP is well-prepared with a diversified portfolio and strategic expansion in both domestic and international markets. The current valuation suggests potential upside, and the stock is recommended as a Buy.