We expect FY15e earnings to decline 9% y-o-y with lowerproperty sales recognized offset by higher rental
SHKP stock trades at 54% NAV discount (below crisisvaluation) despite continuing primary sales in HK, e.g.Century Link II, and growth in rental portfolio, e.g. YOHOmall Phase 1
Maintain our Buy rating and target price of HKD160
FY15 earnings preview. SHKP is due to report FY15 results on 10 September. We forecastFY15e underlying earnings of HKD19,546m (vs consensus estimates of HKD20,030m). Thisrepresents a 9% y-o-y decline mainly owing to lower property sales recognised. In 2HFY15,we expect property sales from projects such as W50 (office project), The Cullinan remainingunits sold, 50 Stanley Village Road and Twelve Peaks in HK as well as phases of Jovo Townand Sirius in Chengdu and Forest Hills in Guangzhou in China, following major projectbookings in 1HFY15 for Mount One, Deauville and One Harbour Square in HK as well asphases of residential projects in Shanghai and Guangzhou in China. We also expect net rentalgrowth of +7% y-o-y in FY15. We forecast FY15 DPS of HKD3.35, flat y-o-y.
Key investors’ focus during results briefing, in our view, will likely include: 1) contractedsales target for FY16, compared to the FY15 target of HKD32bn (HKD25bn/7bn from HK/China), 2) primary launch plans in HK, and 3) performance of retail rental portfolio.
Trading below crisis valuation despite solid operations. We see attractive risk-rewardprofile for SHKP stock, which trades at a 54% NAV discount, wider than levels from the Eurocrisis in 2011 and global financial crisis in 2008 (c42% NAV discount). SHKP’s operationshave remained intact, including 1) recent primary sales of Century Link II (total: 932 units) inTung Chung, for which SHKP cleared 328 units or 100% of units launched on 3 September2015, 2) the opening of Phase 1 of YOHO Mall (GFA c600ksf) in Yuen Long on 1 September2015, having attracted c.100,000 persons in footfall on the first day according to local press;and 3) successes with landbank replenishment, involving acquisitions of eight land sites in HKin FY15 (totalling GFA 6.6m sf) for cHKD21.6bn.
We reiterate our Buy rating and target price of HKD160. Our FY15-17e earningsestimates remain largely unchanged after reflecting residential sales achieved in FY15 andupdated telecom division's profits. Our fair value target price of HKD160 is based on a 23%NAV discount (0.5 SD below average) to our NAV estimate of HKD208. We believe SHKP iswell-positioned against sector headwinds given a solid primary sales track record, a quality andgrowing rental portfolio and prudent capital management. Potential catalysts includesustainable primary sales momentum. Key downside risks include delays in primary launches,lower-than-expected ASP in property sales and/or rising HK commercial cap rates.