- 2022 is a year of volatility
- Local developers grasp opportunity for land banking
- Major shareholders have been raising stakes in large developers
- Picks: Cheung Kong Asset Holdings (1113 HK) and Sun Hung Kai Properties (16 HK)
2022- a year of volatility. With the recent COVID resurgence in Hong Kong, most developers have deferred their new project launches, while secondary market activities dwindled. Home prices, which has come off 4% from its all-time high in Aug-21, should remain under pressure in 1Q22. Despite upcoming interest rate hikes, we expect effective mortgage rates to remain at a non-alarming 2.25% by end-22. New private residential supply should remain constrained in the years ahead. The border re-opening, if this materialises after many delays, could be a wild card. We project home prices to regain the lost ground in 2H22 along with the local economic recovery.
Local developers grasp opportunity for land banking. In recent months, local developers successfully acquired land for development through usage conversion on favourable land premiums. Cash strapped China-based developers have been offloading their development projects in Hong Kong since 4Q21. This provides good opportunity for Hong Kong-based developers to replenish their land bank at attractive prices.
Stock picks – CKAH, SHKP.Property developers we cover are trading at a 50% discount to their respective current NAV estimates on a weighted average basis. The sector valuation is undemanding. A number of major shareholders have been raising stakes in large developers. This should provide strong support to share prices. Within the sector, we like Cheung Kong Asset Holdings (CKAH) and Sun Hung Kai Properties (SHKP). Li family has been consistently raising its stake in CKAH which is well positioned to pursue acquisition-led growth. Trading at 61% discount to our assessed current NAV and offering dividend yield of 5.2%, SHKP is very appealing from a historical viewpoint.