Time to bring the focus back to its fundamentals again —Kerry Properties’ share price has reacted negatively post the spinoff of Kerry Logistics Network while, for 2014, we believe investors should bring the focus back to its fundamentals again, especially on its property-leasing segment . This year we should see full-year rental contributions from the Jingan Kerry Centre in Shanghai , while property sales in China should also gr ow on more saleable resources. Property development and investment in HK should also see a steady performance. The stock is trading at a cheap 68 % discount to its FY14 NAV of HK$7 9. 23/sh, which is close to the bottom of its historical trading range. We see decent upside on its improving fundamentals in the property segments. Reiterate Buy.
Factoring in our new TP on Kerry Logistics Network — We have initiated coverage on Kerry Logistics Network (KLN) today with a Buy rating and a TP of HK$ 1 6.0 /sh. Compared to our previous valuation of its logistics business (100% stake) before the spinoff at HK$10.2bn, our current valuation for only a 42.5% KLN stake post spinoff has reached HK$11. 5 bn, indicat ing significant NAV enhancement on the spinoff. Kerry has benefited from lower gearing and clearer group structure, which focuses mainly on pr operty development and investment after the spinoff.
Achieved HK$5.5bn contracted sales in HK during 2013 — In 2H13, Kerry has nearly sold out Bayview in To Kwa Wan for HK$2.06bn. The developer has also achieved decent inventory sales in Lions Rise (HK$2.55bn), The Altitude (HK$370mn) and SOHO189 (HK$560mn). Altogether Kerry has delivered contracted sales of HK$5.5bn in HK . In China, Kerry has achieved contracted sales of HK$5.2bn for 2013, slightly above its target of HK$5bn.
New TP at HK$39. 62/sh , based on a 50% NAV discount — We have factored in the impact of KLN spinoff, a 10% d r op in HK home prices and rolled forward our NAV to end -2014 at HK$79. 23/sh (end -13 NAV of HK$75.99/sh ). Our TP is based on a higher 50% NAV discount (from 45% previously), giving c. 56% upside .