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Investment Thesis: Robust launch pipeline

BUY, HK$126.1 TP. The stock is trading at a 61% discount to our appraised current NAV, c.1SD below its 10-year average discount of 44%. Estimated dividend yield stands at 4.5%. Valuation is compelling from a historical viewpoint. The strong project launch pipeline enables the company to unlock its NAV, offering upside to the stock. Growing recurrent earnings stream should justify a higher valuation over the long term. Uncertain policy outlook, however, remains the key overhang on the sector. 

Robust and diversified project launch pipeline.  The recent launch of Wetland Season Bay Ph I received overwhelming market response. The YOHO Hub in Yuen Long is planned to be launched in 4Q21 and two other mass-market projects in Siu Hong and Tai Po in 1Q22. Luxury developments including Ph 2 of Victoria Harbour and Central Peak are expected to be on the market in FY22 when opportunity avails. Overall, SHKP plans to sell HK$45bn worth of properties in Hong Kong in FY22.

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Significant portfolio expansion to boost rental income. In the next five years, SHKP plans to add new investment properties of >16msf to its portfolio, with c.85% from China. In Hong Kong, the How Ming Street commercial development is scheduled for completion in 2023. The remaining phases of Shanghai ITC will be gradually completed in the years ahead. Recently, SHKP has secured sites for commercial developments near the border in New Territories through a public tender and usage conversion. Longer term, the two large-scale mixed-use developments at Guangzhou South Station and Hong Kong West Kowloon Station will further strengthen its rental income base.

Valuation: Our target price is based on 50% discount to our Jun-2022 NAV estimate.

Where we differ: We are more positive on the long-term growth of rental earnings led by portfolio expansion in Hong Kong & China. This should justify higher stock valuations.

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 re-rating or de-rating.