In-line FY15 results. SHKP reported FY15 underlying earnings of HKD19,825m, down7% y-o-y, which came in largely in line with our and consensus estimates of HKD19,546mand HKD19,909m. The y-o-y decrease was driven by lower profits from property salesrecognized. SHKP declared a final DPS of HKD2.4, bringing the full year DPS to HKD3.35,flat y-o-y and in line with our and consensus estimates. FY15 DPS implies a payout ratio of47%, compared to 42% in FY14.
FY15 contracted sales in HK well exceeded target. SHKP reported contracted sales of overHKD37.5bn in FY15, including around HKD32bn achieved in HK, which well-exceeded theFY15 target of HKD25bn and made up the short fall in China contracted sales (overHKD5.8bn achieved vs target of HKD7bn). For property sales recognized, revenue (includingassociates) decreased 40% y-o-y to HKD21,704m in FY15, reflecting contributions mainlyfrom projects such as W50 (office project), One Harbour Square, Twelve Peaks, The Cullinan,Mount One and Deauville in HK, as well as Forest Hills Phase 1A in Guangzhou, Shanghai ArchPhase 1, and Top Plaza (office) in Guangzhou. Development margin improved to 34% in FY15from 24% in 1HFY15 and 29% in FY14, thanks to contributions from office and luxuryresidential projects in HK, which enjoyed higher margins.
Solid rental growth and balance sheet. Gross rental income (including associates) rose 6%y-o-y and 4% h-o-h in FY15 to HKD19,681m on positive rental reversions and steadyoccupancy of 95% (vs. c95% in 1H15). China gross rental contributed to 17% of total rental inFY15 (flat y-o-y). Rental margin came in at 78% in FY15, slightly up from 77% in 1HFY15and FY14. On the balance sheet side, book NAV rose +2% h-o-h to HKD157 from HKD153as of end-2014 and HKD152 as of June 2014, reflecting a revaluation gain of c1% h-o-h onour estimates for consolidated investment properties. SHKP’s gearing improved to 11.2% inJune 2015 from 13.8% as of end-2014 and 15.7% as of June 2014.
We have a Buy rating and a target price of HKD160. Our fair value target price of HKD160is based on a 23% NAV discount (0.5 SD below average) to our NAV estimate of HKD208. Webelieve SHKP is well-positioned against sector headwinds given a solid primary sales track record,a quality and growing 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.