A positive surprise from the interim DPS hike (+11% y-o-y),highlighting SHKP’s solid recurring income and balance sheet
FY16e contracted sales target for Hong Kong revised down,but 2HFY16 property sales well locked-in
Adjusting our target price to HKD146 (from HKD147)
A positive dividend surprise. SHKP reported 1HFY16 underlying earnings ofHKD9,298m, up 10% y-o-y on higher property sales and rental, and in-line with ourestimate of HKD9,189m. A positive surprise came from the interim DPS hike, +11% y-o-yto HKD1.05/share, the first hike since FY10. Management remains hopeful that the c10%increase in the DPS will be sustained into the full-year DPS, which we estimate wouldimply a FY16e dividend yield of 4.2%. We believe the DPS increase, despite uncertaintiesin the Hong Kong residential market, highlights SHKP’s solid business, anchored byrecurring income, such as gross rental (+9% y-o-y in 1HFY16), and a healthy balancesheet (gearing of 12.4% as of end-2015). SHKP reported a steady book NAV, +0.3% h-o-hto HKD157.50 as of end-2015. With the stock trading at a 0.56x PB, 49% below theaverage 1.1x PB since 1997 and close to the historical low of a 0.51x PB, we believeSHKP offers a favourable risk-reward profile, making it one of our preferred stocks.
Hong Kong contracted sales target revised down, but 2HFY16 property saleswell locked-in. SHKP revised down the FY16e Hong Kong contracted sales target toHKD27bn (from HKD33bn), owing to slower volume in the primary residential marketand the delayed launch of Grand YOHO Phase 1 in Yuen Long by a few months (fromFY16 to FY17). SHKP maintained the China sales target of HKD5bn. SHKP hasachieved HKD11.3bn and HKD3.1bn contracted sales in Hong Kong and China (42%and 62% of targets), respectively. SHKP kicked off primary launches in Hong Kong in2HFY16 with Twin Regency (total 523 units) in Yuen Long on 26 February, which soldc83% of the first batch of 138 units over the first two days since launch, according toSing Tao Daily. Property sales bookings in 2HFY16 are well locked-in, with c99% ofthe units sold (weighted average basis) from Century Link I & II, The Wings IIIA andImperial Kennedy in Hong Kong. These projects represent 82% of Hong Kongresidential completion in 2HFY16 by area.
We maintain our Buy rating with a fair value target price of HKD146 (fromHKD147). We lower our FY16-18e earnings by 3-6% and our NAV by 1%, reflectingthe updated Hong Kong residential completion and sales assumptions. Our fair valuetarget price of HKD146 is based on target discount of 25% or 0.5 SD below average to ourNAV estimate of HKD195 (from HKD196). We believe SHKP is well-positioned againstsector headwinds, given a solid primary sales track record, a quality and growing rentalportfolio, and prudent capital management. The stock trades at a 55% NAV discount (or51% after assuming a 10% fall in Hong Kong asset prices), wider than the levels from theEuro crisis in 2011 and the global financial crisis in 2008 (c42% NAV discount). Potentialcatalysts include sustainable primary sales momentum. Key downside risks includedelays in primary launches, a lower-than-expected ASP in property sales, and/or risingHong Kong commercial cap rates.