Result Analysis: Hefty fair value gains on transferring two malls in Shanghai to investment properties
CSI Properties’ FY22 net profit more than tripled to HK$1.16bn mainly driven by significant revaluation gains upon the reclassification of two shopping malls in Shanghai to investment properties and hefty gains on stake disposal in the Novotel Hotel Redevelopment. This was partially offset by realised and unrealised losses on financial assets and property provisions. The results came as no surprise to the market as the company had issued a profit alert earlier this year. Final DPS stayed flat at HK$0.0042.
In Sep-21, CSI Properties divested a 49% stake in Novotel Hotel redevelopment to a Canadian fund and a minority partner for HK$1.715bn with disposal gains of HK$742m. Foundation works of this redevelopment project is in progress. Upon scheduled project completion in 2025, it will provide GFA of >0.25msf. Pre-sale of residential portion is expected in mid-23. Elsewhere, the residential joint venture projects at Yau Tong and Wong Chuk Hang MTR Stations are also anticipated to go on pre-sale around mid-23.
The company also booked revaluation surplus of HK$1.28bn, mainly from reclassifying In Point Shopping Mall in Shanghai from property held for sale into investment property. Rental value of this retail property has substantially improved after the completion of extensive renovation.
Elsewhere, CSI booked a mark-to-market valuation loss of HK$629m in FY22. Its financial asset has market value of HK$655m as of Mar-22. (Sep-21: HK$1.7bn)
In May-22, CSI Properties sold a triplex (4,207sf) on the ground floor in Dukes Place at Jardines’ Lookout for HK$334m or HK$80,000psf. This is the most expensive unit at this luxury development in terms of unit price. Since its initial launch in Jan-20, CSI Properties has sold 11 units for HK$2.3bn. The company will launch the remaining units for sale via tender in the future. This, coupled with Infinity on the Peak, should dictate the near-term development earnings.
With GFA of c.32,000sf, the newly built FOCO in Central has been substantially let to F&B and lifestyle tenants. Following the completion of substantial enhancement works, Harbourside HQ in Kowloon Bay is now targeting high-yielding tenants from banking, TMT and insurance.
In Mar-22, consolidated net debt stood at HK$7.83bn, down from Sep-21’s HK$8.58bn. This represented 27% of total assets. Its off-balance sheet debt reached HK$8.5bn. (Sep-21: HK$8.42bn)
In FY22, CSI Properties has bought back 117m shares for HK$28.2m or HK$0.241/sh on average. This signalled the stock’s strong embedded value.
Meanwhile, the stock, trading at 85% discount to our assessed current NAV, is attractively valued. Continued sales of its lucrative luxury developments should help to unlock its NAV, providing upside on stock. Thus we maintain our BUY rating with HK$0.278 TP premised on 80% discount to our Jun-2023 NAV estimate.