Hastening land bank expansion
? NWD’s underlying profit rose 5% yoy to HK$3.9bn in 1HFY6/22, driven by high operating margin of DP sales booking in China.
? The Greater Bay Area accounted for 87% of its presales in China in 1H; it also acquired three plots there to replenish its land bank.
? Its land bank expansion in HK and China comes with a higher net gearing.
? Reiterate Add with a lower TP of HK$42.5. It trades at an attractive 6.5% FY22F dividend yield.
1HFY22 underlying profit up 5% yoy
NWD reported a 5% yoy increase in underlying profit (before perpetual capital securities (PCS) distribution) to HK$3.9bn in 1HFY22 (53% of our FY22F estimate), primarily due to lucrative operating margin (~70%) from recognition of China development property (DP) sales. Interim DPS was flat yoy at HK$0.56.
Cost savings drove HKIP operating profit growth
NWD recorded HK$3.9bn contracted sales in 1HFY6/22, vs. HK$10bn sales target p.a. for FY6/22-23F, driven by presales of 888 Lai Chi Kok Road office units (67% of GFA pre-sold) and sales of inventories of Mount Pavilia and Atrium House. It expects to recognise unbooked sales of HK$6bn in 2HFY6/22F and HK$24.8bn in FY23F. Meanwhile, its HK investment property (IP) segment profit rose by 33% yoy primarily driven by cost savings. Office at 11 Skies will be partially open in Jul 22.
GBA drives DP sales booking in China
China DP contracted sales were Rmb9.3bn in 1HFY6/22, driven by presales of projects in the Greater Bay Area (GBA) in China which accounted for 87% of sales in the period. With the launch of Hangzhou Wangjiang New Town project in 2QCY22, w e expect NWD to meet its FY22F sales target of Rmb20bn. Its rental income from China rose 17% to HK$1bn in 1HFY6/22; occupancy at K11 malls in Tier-1 cities in China was 92%.
Expansion of land bank comes with higher net gearing
NWD has been active in landbanking in China and HK since Jul 21, having acquired three plots in the GBA in China and a 50% stake in a residential plot in Kai Tak, HK. It also received approval from the Planning Department on its development plan for a farmland located in Sai Kung, on which it expects to build 966 flats. All these replenish NWD’s land bank after pre-selling projects in Qianhai as well as Pavilia Farm in HK. The land bank expansion however comes with a higher net gearing (41.3% at end-2021); management expects the gearing to stay at the current level for some time.
Reiterate Add with a lower TP of HK$42.5
We tw eak FY22F/23F EPS by -2%/-1% to factor in slow er IP growth due to slower HKIP recovery. How ever, w e cut NWD’s NAV by 9%, as w e factor in its higher net debt and lower valuation of its IPs due to slower recovery in HK’s rental market. Our TP for NWD is cut to HK$42.5, still based on a 40% discount to NAV. Reiterate Add. Key downside risks are a prolonged Covid-19 outbreak in HK, leading to even slower rental growth. Stronger-than-expected DP sales in HK and China are re-rating catalysts.