Strong contracted sales YTD likely to continue. Despite swings in homebuyers’sentiment in the Hong Kong residential market YTD, SHKP has achieved strongsales from the seven major residential launches since November 2015, accumulatingsales of c2,220 units, representing 93% of launched and 86% of total units on averageand fetching more than HKD22bn, on our estimates (more details in table on p. 3). Weestimate FY16 contracted sales to exceed HKD29bn in Hong Kong for SHKP, wellabove the company’s revised target of HKD27bn set from interim results in February2016. More important, we expect SHKP’s contracted sales momentum to continue in2H CY16e with upcoming launches, including Lime Gala (650 units) in Shau Kei Wanand Grand YOHO (1,128 units) in Yuen Long, supporting the SHKP share price.
Potential catalyst from Grand YOHO launch. Grand YOHO in Yuen Long consists of1,128 units sized at 498-1,734sf in four towers. The project sits atop the YOHO malland enjoys proximity to the Yuen Long MTR station and a bus terminal, which shouldappeal to potential buyers. SHKP uploaded its sales brochure on 10 August and plansto release its first price list in the near-term (Hong Kong Economic Times, 11 August).
Strong FY16e earnings growth driven by property sales. SHKP reports FY16eresults on 8 September. We forecast FY16e underlying earnings of HKD23,733m (vsconsensus of HKD23,553m). This represents 20% y-o-y growth, mainly on higherproperty sales and +6% y-o-y net rental income growth. In 2H FY16e, we expectproperty sales recognized mainly from Ultima Phase 2, Century Link Phase I & II,The Wings IIIA and Imperial Kennedy in Hong Kong as well as mainland projects,e.g. in Shanghai and Guangzhou, following major project bookings in 1H FY16 fromUltima Phase 1 and Park Vista Phase 1A in Hong Kong, as well as Shanghai ArchPhase 1 and Shanghai Cullinan in China. We forecast FY16e DPS of HKD3.68, up10% y-o-y, following an interim DPS hike of +11% y-o-y.
Maintain Buy rating with a target price of HKD146. We lift our FY16-18e earnings2-6% reflecting the updated HK residential sales, e.g. for Ultima Phase 2. Our targetprice of HKD146 is based on a 25% target discount (0.5 SD below average) to ourunchanged NAV estimate of HKD195. 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 an NAV discount of 43%,similar to levels during the euro crisis in 2011 and the Global Financial Crisis in 2008(c42% NAV discount). Key downside risks include delays in primary launches,lower-than-expected ASP in property sales and/or rising HK commercial cap rates.