Result first take: better-than-expected results
- FY21 underlying earnings surged 48% to HK$6.27bn, ahead of our estimate because of larger-than-estimated growth in contributions from Kerry Logistics Networks.
- Gross profit from rental operations rose 8% on higher contributions from China portfolio
- Conservatively set sales target at HK$7bn for 2022
Excluding fair value change on investment properties and one-off gains of HK$2.1bn from the disposal of shares in Kerry Logistics Network (KLN), Kerry Properties’ FY21 underlying profit jumped 48% to HK$6.27bn fueled by larger contributions from Kerry Logistics Network (KLN), and lower financing costs.
Final DPS remained stable at HK$0.95. Including the interim and special DPS, the full-year DPS amounted to HK$3.65.
Gross profit from property development remained broadly stable at HK$4.24bn. This included HK$2.83bn from China. Key contributors included apartments at Qianhai Kerry Centre Ph 1 in Shenzhen and Lake Grandeur in Hangzhou.
Property development in Hong Kong contributed gross profit of HK$1.41bn, up 8%. which came primarily from continued sales of Mantin Heights, The Bloomsway and Mont Rouge.
In 2021, Kerry Properties’ contracted sales reached HK$17.9bn exceeding its sale target of HK$13.5bn by 33%. In Hong Kong, the company sold HK$9.3bn worth of properties. La Marina was the key contributor followed by Mont Rouge. Contracted sales from China amounted to HK$8.6bn. The bulk came from Arcadia Court in Zhengzhou, The Arcadia in Shenyang, Qianhai Kerry Centre Ph 1 in Shenzhen, Rivercity in Fuzhou and Lake Grandeur in Hangzhou.
In Dec-21, Kerry Properties had net order book of HK$17.4bn including HK$10.2bn from Hong Kong and HK$7.2bn from China. Among these, about HK$6.5bn will be recognized in FY22.
In 2022, Kerry Properties has conservatively set a contracted sales target of HK$7bn including HK$4bn from Hong Kong and HK$3bn from China.
Gross profit from rental operations rose 8% to HK$4bn This was primarily led by higher contributions from China portfolio which saw 12% growth in gross profit as a result of improved occupancy at its mixed-use projects and contributions from newly built Qianhai Kerry Centre Ph 1. In Dec-21, the office and retail portion of Qianhai Kerry Centre Ph 1 was 46% and 43% occupied. On a committed basis, their respective occupancy reached 62% and 54%.
The growth, however, was partially diluted by the minor decline in contributions from its Hong Kong counterpart due to increased vacancy at Mega Box/Enterprise Square V. Occupancy at its residential properties remained high at 96% in Dec-21.
Net debt improved to HK$20bn in Dec-21 from Jun-21’s HK$27bn, thanks to the proceeds from the disposal of KLN shares and strong property sales revenue. This puts its gearing at 17%. (Jun-21: 24%) Following the acquisition of To Kwa Wan URA redevelopment project and mixed-use development site in Huangpu district of Shanghai, we estimate the company’s gearing to rise to c.36%.
Since Sep-21, Kerry Properties has repurchased 2.03m units for HK$40.3m or HK$19.84/sh. This not only signals strong hidden value but also cushion the downside risk on share price.