Results highlight
1H FY19 underlying profit was HK$5.4 bn, up 29% yoy vs. ourestimate of HK$4.0 bn, largely due tfaster-than-expected HongKong development property （DP） sales bookings and recognitionof non-core asset sales.
Attr. segment results （including JVs and associates） saw a 52%yoy increase tHK$12.3bn, drivemainly by higher salesrecognitioiHK and a low-base iprior interim comps, withdevelopment profit at HK$8.9b（up 87% yoy）。 Rental profit wasup 22% tHK$1.2bn, partly helped by the phased opening ofVictoria Dockside. The services and infrastructure segmentstogether contributed HK$2.3bn, largely flat yoy.
BVPS was up 6% hoh tHK$21.51, partly helped by a HK$6bnpositive revaluatioithe company’s IP portfolio.
Interim DPS kept flat yoy at HK￠14.
Key takeaways from the briefing:
Hong Kong development sales
NWD achieved HK$4.1bicontracted sales for the fiscalyear tFebruary, inclusive of the disposals of twonon-core industrial buildings iKwuTong, versus itfiscal-year target of HK$10bn.
Management sees stabilizatioithe market environmentwhere it intends tseize the window and re-accelerateproperty launches iHK from 2QCY19E onward, withc.1,600 units being potentially available withithecalendar year （across three new projects plus unsoldinventories）， while the massive 3,090-unit Tai Wai Stationproject will be targeted for pre-sale iCY2020E.
Amid the aforesaid expectation, management sees its current fiscal yeartarget of HK$10bachievable, and looks for aincrease tthe c.HK$15bnrange iFY20E othe back of the Tai Wai Statioproject launch.
Victoria Dockside
Shopping mall pre-leasing is ongoing and reached a c.80+% level, with spotrents ranging at HK$110 tHK$130 per sq ft LFA, and a target opening inAug/Sep 2019.
Leasing of the residential apartments has just begun. Othe hotel front, thecompany expects the food and beverage business tramp-up before theroom side of the business, with soft-opening i2QCY19. For more detailsrefer tour takeaway note for their investor day iJanuary 2019 note, hostedat their Victoria Dockside project.
Whethe project approaches the second lease term, management expectsHK$2.0-2.5bgross rentals for the entire project （excluding hotels） versus itsFY18 gross rentals of only HK$1.9bn, which could help raise the share ofrecurring income iits earnings mix notably. With the ramp-up of VictoriaDockside and the potential additioof FTLife, management expects traiseits recurring income mix tthe 50-60% level ithe medium term.
As disclosed by management, the Victoria Dockside project has a grossdevelopment value （GDV） of HK$63botheir book （GS est. c.HK$61binFY20E NAV）， or at c.HK$5.9/share.
China
Overall sales proceeds grew by 8% yoy tHK$9.3bn, drivemainly by a muchhigher ASP othe project mix. Going forward, management expects morepickup isales momentum next year wheit starts tpre-sale the ShenzhenPrince Bay project.
NWD’s China team has beeactive iland banking especially ithe GreaterBay Area - for e.g. iNov 2018, NWD signed a cooperative agreement withthe Guangzhou MetrGroup tdevelop a mix-use project iHanxi Village,Guangdong. NWD acquired 65% stake ithe project for a total considerationof c.Rmb4,781mn. As of Dec-2018, of the group’s c.5.7 msq m GFAlandbank （excl. carpark） for major projects, 49% are located ithe Greater BayArea.
Othe non-core disposal front, management has identified c.HK$5bworthof assets for potential sale ithe near-term.
Investment view, valuatioand risks
While the flat yoy interim DPS was iline with our forecast, we think that mighthave come ilower thastreet expectatiowith reference tthe questions beingraised during analyst briefing.
Oone hand, management believes NWS has enough resources tcompletethe FTLife transactio（NWS announced the HK$21.5bacquisitioof FTLife back ilate 2018）， and there is nplaat the moment tconduct any equityfund raising.
Othe other hand, management guided that its HK development profitscheduled for booking iJun-FY19E is already largely secured amid its activesales back iearly CY2018.
Management reiterated that NWD’s steadily growing dividend policy will bemaintained, while the full year DPS level will depend othe earnings deliveryi2H FY19E. Iour model, we are looking for a 4% increase ifull year FY19EDPS tHK$0.50. （vs. Bloomberg consensus of +6.5 %yoy）We revise FY19E/ 20E/ 21E EPS by +12/-3/+4% othe aforesaid results, of which alarger uptick iFY19E was partly driveby factoring-ithe gains from sale of twonon-core industrial buildings iKwuTong and factoring ibookings iHK.
We alsrevise up our FY20E NAV by 4% tHK$27.61 partly due thigher NWSH（0659.HK, not covered）’s market value and updates tthe development scheduleacross HK and China. Our new 12-month NAV-based target price is HK$13.00 （fromHK$12.50）， at the same 55% target discount.
Trading at a 53% discount tNAV vs. its 5-year historical average and -1SD of52/60% post QE, we keep our Neutral rating oNWD.
Key risks: Better-than-expected China sales; abrupt change igovernment policies.