Expect greater financial discipline
- NWD’s underlying profit was flattish yoy at HK$4.7bn in FY6/22 with a flattish DPS of HK$2.06. Net gearing was 43.2% at end-Jun 22.
- With more new IP coming into operation, it still projects 30% CAGR in rental income from K11-branded IP over FY6/22-6/26F.
- It is trying hard to bring capex under control for a more stable net gearing. Reiterate Add with a lower TP of HK$30.9 (50% discount to NAV).
Flattish underlying profit in FY6/22
NWD posted flattish yoy growth in underlying profit (excl. perpetual securities (PCS) distribution) to HK$4.7bn, 14% below our forecast. Reported underlying profit (before PCS distribution) was up 2% yoy to HK$7.1bn. FY6/22 DPS was flat yoy at HK$2.06.
Targets contracted sales of HK$30bn in FY6/23F
Attributable contracted sales from HK development properties (DP) were HK$8.2bn in FY6/22, mainly from office space at NCB Innovation Centre. NWD estimates about HK$25bn unbooked sales, mainly from Pavilia Farm I and II, will be booked in FY6/23F. FY6/23F contracted sales in HK appear to rely on projects in Kai Tak (e.g. Miami Quay). China DP gross contracted sales were Rmb17bn in FY6/22. NWD targets total contracted sales of HK$30bn from HK and China in FY6/23F.
IP performance still resilient despite challenging environment
NWD’s investment properties (IP) were resilient with 4% yoy growth in revenue and 8% yoy in segment profit in FY6/22. In particular, segment profit from K11-branded IP increased 14% yoy in HK and 29% yoy in China. Major new IP additions in FY6/23F are HK 11 Skies office and Shenzhen (Qianhai) K11 portfolio. It reiterates its target of 30% CAGR in rental income from K11-branded IP over FY6/23-6/26F.
Trying to bring capex under control
Reported net gearing (PCS as equity) rose 7.6% pts yoy to 43.2% at end-Jun 22 due to an increase in construction capex (HK$37bn in FY6/22). It targets mid-to-high 40s net gearing in FY6/23F by bringing capex down to HK$36bn. Meanwhile, it projects extra HK$1.2bn interest expense, assuming higher average interest cost at 4.5% in FY6/23 (2.5% in FY6/22). In our view, its booking of Pavilia Farm and non -core asset disposals (e.g. 51% stake in Wing Hong Street office project last week) could partially offset pressure from higher interest expense on its underlying profit in FY6/23F.
Reiterate Add with a lower TP of HK$30.9
Due to one-off adjustment for core net profit (see p.2), we cut FY6/23-24F EPS by 52-59%. We reduce our TP to HK$30.9, based on a 50% discount (40% previously) to NAV of HK$61.8 (HK$70.8 previously) due to its higher net gearing and a lower exchange rate for CNY:HK$. Reiterate Add due to attractive valuations. A key downside risk is a further increase in interest expense while stronger DP contracted sales is a re-rating catalyst.
