Looking forward to better sales in 2HFY24F
- SHKP’s underlying profit declined 6% yoy in 1HFY24; it declared an interim DPS of HK$0.95, 24% lower yoy.
- It cut its FY24 HK DP sales target by 30% to HK$23bn; we believe this is achievable, given its sales pipeline for 2HFY24F and policy support.
- Management will step up measures to bring its net gearing down to below 20% by end-FY24F.
- Reiterate Add with lower TP of HK$97.70 (45% discount to NAV). We believe SHKP is one of the key beneficiaries of HK government’s policy relaxation.
Underlying profit down 6% in 1HFY24
SHKP’s 1HFY24 underlying profit declined 6% yoy to HK$8.9bn (10% below our forecast) due to lower development property (DP) profit and higher interest expense (4.5% vs. 3.1% for 1HFY23). Its interim DPS of HK$0.95 (-24% yoy) is 11% below our estimate.
Better sales prospects, despite lower sales target
OPM from HK DP fell 7% pts yoy to 34% in 1HFY24 on attributable sales of HK$3.6bn booked. Its contracted sales amounted to HK$9.6bn in 1HFY24, driven by Yoho West (HK$5.8bn). In view of its slower DP launches, SHKP cut its FY6/24F sales target by 30% from HK$33bn to HK$23bn, which we believe is achievable given the stronger sales pipeline in 2HFY24F on the back of HK government’s new policies for the property market. SHKP targets to launch seven new projects in CY24, including Cullinan Harbour and Cullinan Sky, the two projects in Kai Tai which SHKP believes would benefit from the scrapping of extra stamp duties and higher loan-to-value (LTV) ratios for bank mortgage financing. Meanwhile, SHKP is confident of meeting its FY6/24F sales target of HK$5bn for China on the upbeat performance by the Hangzhou IFC residential portion.
Solid recovery seen in its retail portfolio
Its gross rental income (GRI) from HK investment properties (IP) rebounded by 2% yoy to HK$8.9bn in 1HFY24, driven by its retail portfolio (95% occupancy) which registered positive rental reversion during the period. Despite a 3% yoy decline in office GRI in 1HFY24, its office portfolio occupancy still held up well at 92%. GRI growth in China was strong at 15.5% yoy in Rmb terms in 1HFY24, driven by rental growth in the retail space and the absence of rental concession. Its new rental growth drivers in 2024-25 include The Millenity, Yoho Mix mall, Nanjing IFC Mall and Shanghai Three IFC.
Reiterate Add with a lower TP
After factoring in delayed DP sales recognition and higher borrowing costs, we cut FY24- 26F EPS by 7-8% and trim end-FY24F NAV by 3% to HK$177.7. Accordingly, our TP, still based on 45% discount to NAV, declines by 3% to HK$97.70. Reiterate Add as we believe SHKP is one of the key beneficiaries of HK government’s full-scale relaxation of extra stamp duties for residential property transactions and further mortgage financing. Key downside risks: higher-than-expected DPS cuts and DP price cuts. Stronger- than-expected contracted sales and IP rental reversions are potential re-rating catalysts.