Meeting takeaway: On the right track
K11 Musea sees significantly improved operating profit
Made three quick-win acquisitions in the Greater Bay Area
On track to meet sales target in China despite challenging market conditions
During 5MFY22 (Jul-Nov 22), K11 malls in Hong Kong achieved retail sales growth of 23%, which compared favourably with 8% for the overall retail market in the same period. Average occupancy rates for K11 malls in Hong Kong stood high at 97%.
For K11 Musea, revenue grew 20% y-o-y and operating expense fell 30% in 1HFY22. This resulted in operating profit jumping 150% with operating margins expanding to >65%. In mid-2022, leases for >70 tenants, representing one-third of total, are scheduled for renewal.
Tenants’ sales of K11 malls in China grew 37% in 5MFY22, outperforming the broad market (+5%) Average occupancy rates for K11 malls in China was 92%.
Three office towers at 11 Skies are expected to be partially opened in May 22. Currently, over 40% of office space has been pre-committed by tenants from the wealth management, wellness and medical sectors. By mid-2022, the commitment rate is expected to reach 65%.
In Dec-21, New World achieved contracted sales of Rmb1.17bn on the first day of pre-sale of The Glory of Legend (GFA: 87,000sm) in Guangzhou with ASP cap increased to Rmb68,000psm (>20% higher than its peers)
Despite challenging market condition, New World achieved its half-year contracted sales target and 75% of its annual underlying profit from China developemnt in 1HFY22. Development margins should also be higher in FY22 than in FY21.
In 4Q21, New World Development secured three urban renewal projects in Greater Bay Rea including two in Shenzhen and one in Guangzhou from distressed developers at attractive costs. These quick-win acquisitions enable the company to accelerate return and achieve handsome margins. In Hong Kong, New World Development also joined hands with Far East Consortium to buy a residential site in Kai Tak from financially ridden Kaisa Group.
New World Development has submitted the upzoning application for three farmland sites in the Northern Metropolis to the Town Planning Board. Elsewhere, the Town Planning Board has approved the development plan for its Sa Ha project in Sai Kung which will provide 972 units in 15 residential blocks with GFA of 956,000sf subject to the land premium payment
Major shareholder Chow Tai Fook Enterprises bought 1.62m shares from the market for HK$48.9m or HK$30.19/sh on average in late Dec 2021. This represents a vote of confidence over the company’s underlying value.
We maintain our BUY call.