Investors likely to turn focus on China operations and gearing trends in 2013
FY12 results in-line with a 9% y-o-y DPS uplift
Maintain OW rating and target price of HKD47, implying 32% potential return
Two focuses in 2013. The latest company update shows two areas of KPL's operations which would likely become investors' focus in FY13, in our view, and serve as potential catalysts to narrow the 49% NAV discount that KPL trades at.
1 China operations to play a bigger role in FY13. KPL expects China contributions to account for 45% of contracted sales target in FY13, up from c.30% in the past few years. Specifically, KPL targets FY13 contracted sales of HKD11bn, including HKD5bn from China. On rental front, Jingan Kerry Centre in Shanghai remains a key project launch in FY13. Pre-leasing has reached 61%/96% for office/ retail portions while the mall opening is scheduled for around 3Q13. In our view, KPL meeting sales and project completion targets will help strengthen investors' confidence in its China strategy.
2 Operations under a higher gearing of 39%. KPL won the tender for the Homantin (HMT) residential site in HK (1.1mn sf GFA) for HKD11.69bn on 13 March. We estimate the acquisition to drive KPL's gearing up by 17pp to 39% from 22% as of end-2012 (vs the company's target of 35% over the development cycle). In light of macro/policy headwinds in the HK and China physical markets, we believe a down trend in KPL's gearing will help restore the market's confidence over KPL's financial flexibility.
No surprises from FY12 results FY12 underlying earnings of HKD4,695mn, up 28% y-o-y, spot on with ours and consensus estimates. The earnings growth is driven by higher contributions from across divisions- property sales, net rental and logistics. KPL declared a final DPS of HKD0.55 (+17% y-o-y), bringing full-year DPS to HKD0.95 (+9% y-o-y). BVPS rose 7% h-o-h to HKD49.2.
Maintain target price of HKD47 and OW rating. We revise down our FY13-14e earnings by 8% each after assuming slower inventory sales. Our earnings estimates are 5% above consensus. We tweak our forward NAV up by 1% to HKD70.5, after rolling it forward by one-year and including the HMT site, offset by a higher net debt. Our target price remains unchanged at HKD47, based on a 33% (unchanged) discount to forward NAV