Company Update: Encouraging response to YOHO West launch
- Newly launched YOHO West should offer decent margins
- Portfolio expansion to underpin rental income growth
- Replenish residential land bank via farmland conversion
- BUY with HK$99.2 TP
In 1HFY24 (July-Dec 23), Sun Hung Kai Properties (SHKP) achieved contracted sales of HK$9.6bn from Hong Kong which represented 29% of its FY24 sales target of HK$33bn. YOHO West Ph 1 in Tin Shui Wai was the main contributor. Since its initial launch in Dec-23, SHKP has sold over 1100 units at YOHO West Ph 1 for HK$5.8bn. This represented 79% of the total. We attribute the encouraging sales response to its attractive pricing. Given the low land costs, YOHO West should offer handsome pre-tax margins of c.30%. Elsewhere, SHKP generated >HK$2bn proceeds from selling completed inventory such as St. Barths and The Cullinan.
In 1H24, SHKP plans to offer The YOHO Hub II in Yuen Long and NOVO Land Ph 3 in Tuen Mun. Besides, the company intends to sell luxury apartments at two harbourfront developments, Cullinan Harbour in Kai Tak and Victoria Harbour II in North Point, via tender. Given the prevailing market conditions, it remains challenging for SHKP to meet its full-year target. This is despite the company’s strong execution capabilities.
Contracted sales from China amounted to HK$3.3bn in 1HFY24. The bulk came from selling Ph 3 of Hangzhou IFC. SHKP released this phase onto the market in Aug-23 with all of c.350 residential units sold.
SHKP’s retail tenants’ sales outperformed the overall market in 11M23 with reversionary growth turning positive. YOHO Mix in Yuen Long is expected to open for business in 1H24, further expanding the retail offering of the entire YOHO Mall. This will be followed by the opening of the retail portion beneath The Millennity in Kwun Tong in 2H24. The office portion is 40% committed. Overall office rental reversion remains in the negative territory.
Newly built Townplace West Kowloon should offer fresh rental contributions. This aparthotel contains 843 rooms with flexible leasing terms.
In China, office occupancy at Shanghai IFC and Shanghai IAPM stays firm at >90% with steady passing rents. Tower A of Three ITC has been ramping up with committed occupancy of >40%. Positive rental reversion is working its way through the company’s retail portfolio. Elsewhere, the remaining portion of Nanjing IFC Mall recently opened for business.
Aided by contributions from newly built investment properties, SHKP’s gross rental receipts should grow 4% in FY24 and 5% in FY25.
In 2H23, SHKP converted two pieces of farmland in Yuen Long into residential use following the land premium payment. These two projects altogether offer total GFA of >1msf. With favourable land premium, we believe these two developments should offer pre-tax margins of >30% based on the current selling price in the area.
In the past three months, shares of SHKP fell 4%. Following the share price retreat, the stock is attractively valued, trading at 68% discount to our appraised current NAV, c.2SD below its 10-year average. Estimated dividend yield for FY24F reaches 5.6%. Concerns over property market challenges should be priced in. Major shareholder, Kwok family, has increased its stake in the company recently, signaling strong embedded value. With strong execution, the company is well positioned to create long-term shareholders’ value. By assigning target discount of 60% to our Dec-24 NAV estimate, we set our TP at HK$99.2 which implies 30% upside potential. BUY