KPL launched The Bloomsway recently. We recently visited The Bloomsway show flats. Theproject is Kerry Properties (KPL’s) first major HK primary launch since November 2014. Webelieve the launch of The Bloomsway will enhance investor confidence in KPL’s achievement of itsFY15 contracted sales target (72% achieved as of October 2015). Together with the recentimprovement in KPL’s residential sales momentum in China, we believe more primary launches inHK (ie, The Bloomsway followed by the Ho Man Tin project in 1H16) could help narrow KPL’ssteep 69% NAV discount. We include photos from our property visit in this note.
Major HK primary launch for KPL in 2015. The Bloomsway is a low-density developmentin So Kwun Wat, Tuen Mun, consisting of c939,600 sq ft buildable GFA and 1,100 units. Theproject offers a wide variety of unit types, ranging from one to four-bedroom units and houses(sized 308-2,877sf), which, in our view, should cater to different demand, eg from first-timehomebuyers and/or families with students from the Harrow International School Hong Kongand the Chu Hai College of Higher Education (new campus under construction) locatedadjacently. We estimate The Bloomsway contributes to 4% of NAV and 27%/15% of FY16-17eearnings (although this will be affected by sales and completion of Ho Man Tin project), basedon our assumed blended ASP of HKD13,000psf and sales of 60/90% of total units byFY16/FY17e.Key driver of FY15e contracted sales. As of October 2015, KPL has achieved contracted sales ofHKD3.5bn/HKD5.1bn in HK/China, representing 58%/85% of FY15 target (vs. 45%/57% achievedas of August). As of today, KPL has launched 333 units of The Bloomsway, involving salesproceeds of HKD2.5bn (before discounts) on our estimates, which, if all sold, would put KPL ontrack to meet its HKD6bn FY15 contracted sales target for HK.We have a Buy rating and a target price of HKD43. Our TP is based on a 40% discount to ourrevised NAV estimate HKD73. We view Kerry Properties as a semi-China property stock, with 53%of the GAV contributed by China assets, which we expect to benefit from any improvement insentiment in China’s property market as well as completions of KPL’s investment properties pipelinein China. The stock trades at a 69% NAV discount, the steepest among the Hong Kong propertystocks we cover Key downside risks: slower-than-expected residential sales momentum inHong Kong and China and delays in China investment property projects.