Company Update: Encouraging sales response to project launches
Since Jul-21, SHKP achieved contracted sales of c.HK$22bn in Hong Kong. This represents about 50% of the company’s FY22 sales target. Wetland Seasons Bay Ph 1&2 in Tin Shui Wai were key contributors. Like the neighbouring Wetland Seasons Park, they are popular among end-users with c.90% of total units being pre-sold for >HK$10bn. Given low land costs, we estimate pre-tax margins to exceed 40%. Besides, SHKP has sold >400 units at YOHO Hub Ph 1 in Yuen Long for >HK$4bn. The balance came from inventory sales. For example, SHKP sold two houses at Central Peak on Stubbs Road for HK$740m or HK$100,000psf on average.
Project sales in China progressed slowly given weak market sentiment. Since Jul-21, SHKP sold >HK$1bn worth of properties in China with no new project launches.
In 1H22, SHKP has a strong project launch pipeline. The company will release a new batch of units at YOHO Hub onto the market after Chinese New Year. Elsewhere, it plans to launch of the first phase of two large developments in Tuen Mun (TMTL483) and Tai Po (TPTL214) in 2Q22.
Retail tenants’ sales improved on back of reviving local consumption, outperforming the broad market in 2H21. Retail occupancy has recovered to c.93-94% with narrower rental decline on renewal. On the office front, IFC Office remains virtually fully let. On the other hand, SHKP is still looking for replacement tenants for the space surrendered by Deutsche Bank at ICC. Overall, office reversionary growth remains under pressure.
Retail tenants’ sales growth in Shanghai stayed positive in 2H21 with favourable rental growth achieved upon lease renewal and new lettings. Office rental reversion, however, should remain largely neutral in China. A new 220m-tall office tower at Shanghai ITC is scheduled for completion in mid-2022 with pre-leasing underway. Nanjing IFC mall is targeted to open for business in late 2022. Contributions from these new investment properties should add momentum to the company’s rental income from China.
In 2H21, SHKP paid land premium of HK$3.72bn for additional residential GFA of 1.06msf for its Shap Sz Heung development. This mega-sized project now offers total GFA of 5.8msf, primarily for residential use. The number of units built is also revised up to 9,500 from 4,930. This should lead to better marketability and higher development value. Infrastructural works are currently underway with pre-sale of the first phase expected in 2023 at the earliest.
Shares of SHKP fell 7% in the previous three months, underperforming its peers. Meanwhile, the stock is trading at a 61% discount to our assessed current NAV, c.2SD below its 10-year average of 45%. Estimated dividend yield for FY22 is 5.2%. Valuation is very compelling from a historical perspective. SHKP derives an estimated 7% of its GAV from projects in the Northern Metropolis and stands to benefit from the future development there. With strong project launch to unlock NAV on one hand and growing rental income to improve earnings quality on the other, SHKP remains a core holding amongst those investors betting on the Hong Kong real estate market. BUY with HK$118.20 TP. This is premised on 55% discount to our Dec-22 NAV estimate.