On 19 Jan, NWD’s CEO Mr. Adrian has provided a detailed business update and outlook. We suggest investors to analyze it from a mainland angle as its growth engine (recurring income of K11) has shifted to mainland with foreseeable leasing GFA growth towards 2026 (20% 2022-26 CAGR). Moreover, management is also determined to expand its DP business via multiple channels and accelerate its asset turnover. This could be positively reflected in a mid-to-long term as the future of mainland property may be the game of high-quality names like NWD.
Why the mainland angle: Mainly because 1) mainland (development + IP) already contributed 61% of its FY21 operating profits. If we look at the overall OP level, the segments other than development and IP are offsetting each other. So the key drivers would be mainland and then followed by HK. 2) Mainland is the growing engine for its K11’s rental income as its leasing GFA may reach 2.5mn sq m by 2026 from current 1mn sq m. This is also the key to support its dividend. 3) On the development side, NWD has a stable sales target of HK$20bn but may see upside after its quick-win strategy.
Fast growing of mainland’s K11 leasing GFA at 20% CAGR in 2022-26:
Company expects to expand its current K11 GFA in mainland to 2.5mn sq m by 2026 from current 1mn sq m. This would include some key projects such as Qianhai and Prince Bay in Shenzhen and Hangzhou projects. This would provide a strong recurring income growth, which could start to cover its dividend starting from FY24E. The growing presence of K11 and its artistic highlights could further boost its branding premium for the rents growth.
Now a consolidator in mainland’s residential market via M&A and K11 complex projects: Despite the headwinds, NWD has taken advantage of its financial position to adopt a proactive strategy on M&A to expand its land bank.
In Dec 2021, it has acquired 3 fast-track urban renewal projects in Shenzhen/Guangzhou with total development area of 867k sq m (or >HK$20bn sellable resources). With developers’ liquidity crisis to continue, NWD may obtain more high-margin projects from M&A channel and this could boost its presence and sales outlook in the mid-to-long term. Another channel would be complex projects using its K11 brands. As of Jun 2021, it has a land bank of 5.6mn sq m, 90% in Tier 1-2 cities and 60% in GBA region.
Further asset disposal to deleverage and ease dividend concern.
Company is committed to gradually lower its gearing to 40-43% level from 51% as of FY21. This would imply continuous non-core asset disposal in FY22E.
NWD guided another HK$8-10bn disposal following HK$18bn in FY21.