We forecast lower FY15e underlying earnings on lowerproperty sales and the absence of disposal gains
Investors will likely focus on contracted sales target for FY16eand dividend policy
Maintain Buy with a target price of HKD37 (from HKD43)
FY15e underlying earnings expected to be lower y-o-y. Kerry Properties will reportFY15 results on 18 March. We forecast FY15e underlying earnings (excluding revaluationgains) of HKD3,494m, compared to consensus estimate of HKD3,556m. Our FY15eearnings forecast implies a 20% y-o-y earnings decline reflecting higher rental income,mainly from China, which were more than offset by lower property sales contributions(with bookings from only one new HK residential project in FY15 vs three in FY14) and anabsence of disposal gain (recognized in FY14 related to Lions Rise mall). In FY15, weexpect property sales contributions from Dragons Range (40%-owned), 1 & 3 Ede Roadand 8 LaSalle in HK as well as China projects, e.g. in Shenyang, Chengdu, Changsha,Putian and Hangzhou. We forecast final DPS of HKD0.60, bringing full-year DPS toHKD0.90, flat y-o-y (vs consensus estimate of HKD0.87) and implying a 37% payout (vs.30% in FY14).
Key investors’ focus during results briefing, in our view, will include: 1) FY16contracted sales target following the target of HKD12bn set for FY15 (HKD6bn fromHK), 2) upcoming primary launch plans in HK, e.g. Mantin Heights in Ho Man Tin (1,429units) and sales strategies for remaining units of The Bloomsway (c37% of total 1,100units sold since launch in November 2015 on our estimates); 3) pre-leasing progress ofKerry Central, Hangzhou scheduled for completion from 2016, 4) the company’s sharebuyback plans (first repurchase in January 2016) and dividend policy, as well as 5)landbank replenishment plans in HK.
Maintain Buy rating with a revised target price of HKD37 (from HKD43). We revisedown our FY15-17e earnings by 9-14% reflecting our revised residential salesassumptions, e.g. lower ASP for The Bloomsway launched in 2H15, as well as updatedFX assumptions. Our revised TP reflects our lower NAV estimate (-8% to HKD67 onlower value attributable to China assets and selected HK residential projects) and atarget discount of 44% (from 40% after updating the historical NAV discount series),based on 0.5SD below the historical average discount (unchanged). We believe KerryProperties as a semi-China property stock, with 50% of the GAV contributed by Chinaassets, is well-positioned to benefit from any improvement in sentiment in China’sproperty market (a potential stock catalyst), while the stock trades at a steep 69% NAVdiscount or 0.36x Jun-15 PB, close to the historical low of 0.32x since 2003. Keydownside risks: slower-than-expected residential sales momentum in Hong Kong andChina and delays in China investment property projects.