Investment property portfolio continues to grow. SHKP‘s FY15underlying profits fell 7% to HK$19.8bn, due to lower developmentearnings. Final DPS was unchanged at HK$2.40, bringing full-yearDPS to HK$3.35. Development earnings were 30% lower atHK$7.3bn, which included HK$2.8bn from China projects, reflectinglower project completion in HK . Rental earnings grew 8% toHK$15.4bn aided by positive rental reversion for office/retailproperties in HK/China. With the addition of >1.7m sf of retailproperties including Parc Central/International Grand City inGuangzhou into its rental portfolio in the next 2-3 years, SHKP shouldsee a further uplift in rental earnings. SHKP has decided to retain theentire Xujiahui Centre project (7.6m sf) in Shanghai for long-terminvestment upon completion given its superb location.
Strong project launch pipeline. Gearing was low at 11% as at endJun-15. Even after factoring in the recent acquisition of Yuen LongStation project and URA’s To Kwa Wan project, SHKP’s financialposition remains very comfortable, enabling the company to continueits proactive land banking strategy. YTD, it has acquired five sites inHK, bringing its development land bank to 23.7m sf. This should besufficient to support its property development division for >5 years.The rate of residential completions is expected to be higher at >3m sfp.a. on average for the next 3 years In FY15, SHKP beats its salestarget of HK$35bn to achieve contracted sales of >HK$37.5bn, withnearly HK$32bn from HK. Net order book stood at HK$26.8bn as atend Jun-15. For FY16, SHKP targets to sell HK$38bn worth ofproperties (HK$33bn from HK and HK$5bn from China). Since Jul-15,SHKP has generated contracted sales of HK$5bn in HK, mainly fromUltima Ph 1 & Century Link Ph 2, and c.HK$1bn in China. SHKP has astrong project launch pipeline with a diversified product mix for therest of FY16. It plans to launch King’s Hill in Sai Ying Pun and ParkVista Ph 1 in Yuen Long in 1HFY16 followed by a waterfront projectin Tseung Kwan O, Church Lane project in Shau Kei Wan & GrandYOHO Ph 1 in Yune Long in 2HFY16.
BUY with HK$140 TP. The stock is trading at 48% discount to ourassessed current NAV, near the low end of its historical trading range.Given its attractive valuation, we believe major shareholder KwokFamily may increase its stake in the company. Any price weaknesspresents a good opportunity for long-term investors to accumulatethe stock. We maintain our BUY call with HK$140 TP, based on a30% discount to our Jun 2016 NAV estimate.