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Investment Thesis: Strong hidden value

BUY with HK$29.35 TP. The stock is trading 77% below our appraised current NAV. Share buyback should signal the stock’s strong embedded value and serve as a near-term catalyst. The successful launch of La Marina helps unlock its NAV. Uncertain policy outlook, however, remains the key overhang on the sector.

Share buyback to create shareholder value. Immediately after announcing its intention to buy back up to 10% of outstanding shares, Kerry Properties commenced the share repurchase which could potentially enhance our NAV estimate by c.8%. Even after allowing for share buybacks, Kerry’s financial position should remain sound taking into account >HK$11bn proceeds from disposal of Kerry Logistics Network (KLN) shares under the partial offer and share placement and special dividend distribution from KLN. Thus we believe the company remains in acquisition mode in the year ahead

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Multiple channels to replenish land bank for long-term growth. After acquiring 50% stakes in two farmland sites in Yuen Long for residential usage conversion in May-21, Kerry Properties recently bought 17 agricultural lots in Kwu Tong for land banking. In China, the company joined hands with GIC to acquire a retail-led mixed-use site in Pudong, Shanghai in Feb-21.

Multi-faceted land banking approach for long-term growth. After acquiring 50% stake in two farmland sites in Yuen Long for residential usage conversion in May-21, Kerry Properties bought 17 agricultural lots in Kwu Tong for land banking. In China, the company joined hands with GIC to acquire a retail-led mixed-use site in Pudong of Shanghai in Feb-21

Valuation: Our target price is based on a target discount of 70% to our Jun-2022 NAV estimate.

Where we differ: We are positive that the company could make good use of proceeds from the deals to propel its long-term growth.

Key Risks to Our View: Any deterioration in property demand in Hong Kong & China could drag its earnings and share price performance. Any unexpected housing policy change could trigger a sector wide de-rating.