China / Hong Kong Industry Focus
HK Property Sector
Refer to important disclosures at the end of this report
DBS Group Research . Equity
Resilience amid uncertainty
•
Mass market projects and small-sized units remain
in the market limelight
•
Office sector to exhibit steady growth; retail
market challenges remain
•
Inexpensive valuations for developers & landlords;
prefer SHKP, Swire Properties & New World
•
Interest rate movements to dictate the
performance of REITs
Market view. With developers’ reasonable pricing
strategy expected to continue to push sales, mass market
projects/small-sized units should see broadly stable prices,
and continue to outperform luxury homes/larger-sized
flats in 2015. The office leasing market should see
modest growth, with Central leading the pack. Increasing
office supply in Kowloon East should exert some
downward rental pressure, especially for strata-titled units.
Challenges in the retail market should remain while
suburban malls should continue to fare better.
Stock recommendation. We see room for developers'
share price upside, with new project launches as key
catalysts. We like SHKP for its attractive valuations and
strong execution. Re-rating of Cheung Kong, led by the
group's restructuring, is only halfway through. Other
preferred developers include New World, Wheelock and
Sino Land. Hang Lung Properties is oversold and hence
we upgrade to BUY. Office landlord Swire Properties is
attractively valued and should trade higher. Interest rate
movements will dictate the sector performance of REITs.
23 January 2015
HSI: 24,113
ANALYST
Jeff YAU CFA (852) 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN (852) 2971 1932
allen_chan@hk.dbsvickers.com
Recommendation and valuation
Code
Pric e
Mk t
14- J an
Cap
HK $ HK $bn
Rec om
Propert y Dev elopers
Cheung Kong
1 HK
Hang Lung Props
101 HK
Henderson Land
12 HK
K Wah Int'l
173 HK
Kerry Props
683 HK
Lai Sun Dev
488 HK
MTR Corp
66 HK
New World Dev
17 HK
Sino Land
83 HK
SHKP
16 HK
Tai Cheung
88 HK
Wheelock & Co.
20 HK
Wing Tai Props
369 HK
142.40
21.25
53.30
4.24
27.75
0.176
33.00
9.21
12.42
121.20
6.42
40.75
4.91
330
95
160
12
40
4
192
82
75
342
4
83
7
166.00
24.80
55.00
5.71
32.95
0.25
34.75
11.05
14.58
142.00
7.44
44.25
5.91
Buy
Buy
Hold
Buy
Buy
Buy
Hold
Buy
Buy
Buy
Buy
Buy
Buy
Propert y Inv est ors
Great Eagle
41 HK
HK Land @
HKL SP
Hy san Dev
14 HK
Swire Props
1972 HK
Wharf
4 HK
26.05
7.40
36.65
24.15
60.55
17
17
39
141
183
28.90
8.05
40.90
28.70
64.90
Hold
Buy
Buy
Buy
Buy
3.60
8.07
2.70
3.54
50.25
21
15
4
6
115
3.72
8.75
2.88
3.73
53.35
Hold
Buy
Buy
Buy
Buy
REIT s
Champion REIT
2778 HK
F ortune REIT
778 HK
Prosperity REIT
808 HK
Sunlight REIT
435 HK
The Link REIT
823 HK
@ denominated in USD
Source: Thomson Reuters, DBS Vickers
www.dbsvickers.com
ed-TH/ sa- CW
12- m
t arget
HK $
Analyst
Hong Kong Property
Jeff Yau, CFA
jeff_yau@hk.dbsvickers.com
Table of Contents
(852) 2820 4912
Allen Chan
(852) 2971 1932
allen_chan@hk.dbsvickers.com
Investment summary
3 Residential
4 Office
14 Retail
21 Property Developers
28 Property Investors
41 REITs
46 Appendix: Asset breakdown
51 Appendix: NAV sensitivities
53 Stock Profiles
56 Cheung Kong (1 HK)
56 Hang Lung Properties (101 HK)
58 Henderson Land (12 HK)
60 K Wah International (173 HK)
62 Kerry Properties (683 HK)
64 Lai Sun Development (488 HK)
66 MTR Corporation (66 HK)
68 New World Development (17 HK)
70 Sino Land (83 HK)
72 Sun Hung Kai Properties (16 HK)
74 Tai Cheung (88 HK)
76 Wheelock & Company (20 HK)
78 Wing Tai Properties (369 HK)
80 Great Eagle (41 HK)
82 Hongkong Land (HKL SP)
84 Hysan Development (14 HK)
86 Swire Properties (1972 HK)
88 Wharf Holdings (4 HK)
90 Champion REIT (2778 HK)
92 Fortune REIT (778 HK)
94 Prosperity REIT (808 HK)
96 Sunlight REIT (435 HK)
98 The Link REIT (823 HK)
100 Note: Prices used as of 14 January 2015
Covered photo (from left):
Century Link (SHKP);
Laguna Plaza (Fortune REIT);
One HarbourGate (Wheelock & Co)
China / Hong Kong Industry Focus
HK Property Sector
Investment summary
Residential
Strong subscription for the new batch of Housing Ownership
Scheme (HOS) projects launched recently is a testament to solid
housing demand for mass market/small-sized units among local
end-users. Yet, given the gradual rise in private residential
supply and a possible interest rate hike, we expect developers
to continue with their reasonable pricing strategy to push
home sales. Against this backdrop, we forecast that prices for
mass market projects/small-sized units will remain broadly
stable in 2015. They should continue to outperform luxury
homes/large-sized flats which could see a mild price correction
of 5% as their demand is still suppressed by the government's
cooling measures. That said, even allowing for an interest rate
hike, any sharp fall in home prices seems unlikely for the years
to come, given continued household income improvement,
higher construction costs and rising residential rents.
Office
The office market should be experiencing a period of modest
growth. Overall office rents are expected to grow 0-5% in
2015, with the exception of Kowloon East. Central should lead
the pack on the back of tight new supply in future years.
Kowloon East could see mild downward rental pressure with
increased competition among strata-titled units and new space
converted from old industrial buildings. In recent years, a
growing number of large enterprises are seeking to buy the
whole office tower with high specifications to consolidate their
operations that are scattered across different locations. This
trend is anticipated to continue and should support the office
sales market.
we forecast retail sales value to rise 3-4% in 2015, partly led by
inflation. Overall, retail rents should rise 0-3% with suburban
malls continuing to outperform. High street shops should see
downward rental pressure, especially those in fringe areas.
Property Developers
Property developers are trading at 12-78% discounts to our
current NAV estimates. This translates into an average discount
of 29%, which is close to 1SD below mean valuation. The
current sector valuation remains undemanding from the
historical perspective. Despite limited NAV growth potential,
we still see room for share price upside with new project
launches to serve as key catalysts. Within this sector, we prefer
SHKP due to its compelling valuation and strong execution. Rerating of Cheung Kong, led by the group restructuring, is only
halfway through with further upside expected. Other preferred
developers include New World, Wheelock & Co and Sino Land.
Wheelock’s stake in Wharf has exceeded its own market
capitalisation. Any restructuring move that unlocks the value of
its stake in Wharf could prompt further re-rating. We believe
Hang Lung Properties is oversold and hence upgrade the stock
to BUY.
Property Investors
Property investors are trading at a 33% discount to our current
NAV estimate on a weighted average basis, against its 10-year
average of 27%. Sector valuation remains undemanding.
Within the sector, we like Swire Properties for its attractive
valuation and steady earnings profile. Hongkong Land, Hysan
Development and Wharf are also on our BUY list. Great Eagle
is in an investment phase. We do not expect any imminent
catalyst to narrow its steep discount to NAV.
Retail
REITs
Buoyant inbound tourism was mainly driven by the growth in
the number of same-day Mainland Chinese visitors, which
boosted the sales of necessities. But this did not translate into a
corresponding rise in overall retail sales. Ongoing anticorruption campaign in China should continue to weigh on the
demand for expensive luxury goods in Hong Kong.
Depreciation of other currencies may induce more people to
buy somewhere else instead of Hong Kong. Demand for
consumer staples should stay resilient. All factors considered,
Following the sector rally, the five REITs we cover are now
trading at FY15 distribution yields of 3.6-6.1% or 4.1% on a
weighted average basis. The yield of the Hong Kong 10-year
Exchange Fund Note has eased further to 1.54% now and
yield spread stands at 2.6% against its average of 2.9%.
Favourable rental reversions for decentralised office properties
and suburban malls should continue to drive DPU growth. But
the sector performance of REITs, as a bond-like investment,
should be primarily dictated by interest rate movements, in our
opinion.
Page 3
China / Hong Kong Industry Focus
HK Property Sector
Residential
Monthly primary market transactions – volume
Strong end-user demand, buoyant first-hand market. In
2H14, the housing market heated up further, thanks to solid
demand from local end-users. This, coupled with property
developers’ reasonable pricing, fuelled a sharp recovery in
the primary market activities. In many cases, developers
offered to sell their new projects at prices similar to the
secondary market prices for comparable projects in the area.
This helped draw strong buying interest.
No of units
3,000
2,500
Dec-14
12M14
-13.4% y-o-y
70.2% y-o-y
58.6% m-o-m
2,000
1,500
1,000
Yearly primary market transactions – volume
0
No. of units
1H
35,000
2H
30,000
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
500
25,000
Source: Centaline Property Agency
20,000
As a consequence, the transaction volume in the primary
market soared 70.2% to c.16,600 units in 2014, the highest
since 2007. Total transaction values climbed 92.7% to
HK$178bn.
15,000
10,000
5,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
Source: Centaline Property Agency
Yearly primary market transactions – value
HK$m
1H
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2H
In 2H14, SHKP and Wheelock offered three mass-market
projects in Tseung Kwan O for sale, with overwhelming
response. So far, c.95% of total units have been snapped
up. Meanwhile, Cheung Kong’s launch of Mont Vert in Tai
Po saw >85% of units being taken up.
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Single-block residential developments in urban areas, which
comprise mainly small-sized units, also attracted strong
market interest due to their relatively low lump sum. The
Hong Kong Housing Society sold out all units at Heya
Delight and Heya Star, both in Cheung Sha Wan, when
launched in Dec 14. Henderson Land’s launches of High
One Grand and High One nearby were similarly greeted
with satisfactory initial response.
Source: Centaline Property Agency
Page 4
Mass market projects/small-sized units more popular. Of
note, mass market projects were more affordable and
therefore sought after by homebuyers who are now mainly
local end-users or first-time buyers.
Undeniably, the government’s cooling measures dented the
buying interest of overseas and corporate buyers who used
to be key purchasers of luxury homes. Restrictive mortgage
policy for high-value flats also reduced their marketability.
That said, sales response to their launches was better than
originally envisaged. Kerry Properties offered two upmarket
developments, One & Three Ede Road in Kowloon Tong and
8 La Salle in Ho Man Tin, in Aug and Oct respectively. To
date, 60-70% of their respective units have been sold. One
& Three Ede Road also fetched a very high ASP of
HK$36,000psf on saleable area basis.
China / Hong Kong Industry Focus
HK Property Sector
Capitalising on improved sentiments in the residential
market, Hang Lung Properties re-launched HarbourSide atop
Kowloon Station and sold >260 units at an ASP of
HK$30,000psf on saleable area basis. Total sales proceeds
exceeded HK$8bn.
New project launches since Jul 14
L au n c h
J ul-14
J ul-14
J ul-14
J ul-14
A ug-14
A ug-14
A ug-14
A ug-14
A ug-14
A ug-14
A ug-14
Sep-14
Sep-14
Sep-14
Oct-14
Oct-14
Oct-14
Oct-14
Oct-14
Nov -14
Nov -14
Nov -14
Nov -14
Nov -14
Nov -14
Dec-14
Dec-14
Dec-14
Dec-14
Dec-14
Dec-14
Dec-14
J an-15
J an-15
Pro jec t
May fair By The Sea II
Paxton
Metro6
Mont V ert Ph 1
339 Tai Hang Road
Tw elv e Peaks
Le Riv iera
1 & 3 Ede Road
The Wings IIIA
The Hudson
High One Grand
No. 1 South Lane
Kensington Hill
A rezzo
Double Cov e Starv iew Prime
Pav ilia Hill
8 La Salle
Mont V ert Ph 2
Deauv ille
The Wings IIIB
Dragons Range
The Parkside
High One
The A ustine PLA CE
Homantin Hillside
Hey a Delight
L.Harbour 18
Billionaire Luxe
H Bonaire
A V A 128
Upton
Hey a Star
Century Link
The Nov a
L o c at io n
D ev elo p er T o t al
Tai Po
Sino Land
Ho M an Tin
Easy knit Group
Hung Hom
Hong Kong F erry
Tai Po
Cheung Kong
Tai Hang
Lai Sun Dev
The Peak
SHKP
Shau Kei Wan
Hip Shing Hong
Kow loon Tong
Kerry Properties
Tseung Kw an O
SHKP
Kennedy Tow n
Lee Shau Kee F amily
Cheung Sha Wan
Henderson Land
Kennedy Tow n
Chinese Estates
Sai Ying Pun
Wheelock & Co.
Mid-Lev els
Sw ire Properties
Ma On Shan
Henderson Land/New World
North Point
New World Dev elopment
Ho M an Tin
Kerry Properties
Tai Po
Cheung Kong
Ting Kau
SHKP
Tseung Kw an O
SHKP
Shatin Kerry Props/Sino Land/Manhattan Realty
Tseung Kw an O
Wheelock
Cheung Sha Wan
Henderson Land
J ordan
Hanison Construction
Hung Hom
Wing Tai Props/ Nan F ung
Sham Shui Po
Hong Kong Housing Society
To Kw a Wan
Yau Lee
Kow loon City
Chinachem
A p Lei Chau
Henderson Land
Western District
Priv ate dev eloper
Sai Ying Pun
Emperor International
Sham Shui Po
Hong Kong Housing Society
Tung Chung
SHKP
Sai Ying Pun
COLI/URA
U n it s U n it s
545
49
95
1,071
9
12
98
41
960
134
110
92
75
127
1,092
358
56
279
33
326
973
591
187
42
173
130
84
36
106
63
125
175
1,407
255
s o ld % s o ld A SP ( H K $ p s f )
409
75%
12,600
11
22%
26,800
58
61%
16,300
900
84%
8,200
1
11%
38,811
2
17%
111,673
68
69%
17,000
29
71%
36,300
939
98%
12,300
108
81%
18,400
81
74%
14,700
89
97%
22,850
51
68%
20,300
80
63%
27,000
584
53%
12,200
270
75%
27,000
35
63%
26,000
258
92%
8,650
28
85%
19,000
270
83%
12,500
573
59%
13,200
570
96%
12,000
130
70%
16,800
11
26%
21,600
7
4%
21,100
130 100%
12,200
46
55%
16,600
10
28%
16,900
13
12%
19,500
63 100%
22,000
77
62%
23,700
175 100%
12,200
946
67%
10,000
40
16%
19,900
Source: Company, Local news, DBS Vickers
Page 5
China / Hong Kong Industry Focus
HK Property Sector
Yearly secondary market transactions – volume
Yearly secondary market transactions – value
HK$m
600,000
1H
2H
500,000
400,000
300,000
200,000
100,000
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Secondary market just improved modestly. On the other
hand, the secondary market did not recover as strongly as
the primary market. The implementation of demand-side
management measures have raised the cost of residential
transactions which, coupled with the prevailing low interest
rate, make many homeowners hold on to their existing
properties. This reduces the availability of flats for sale in the
secondary market. In 2H14, monthly transaction in the
secondary market averaged 4,100 units. Overall, c.42,800
residential units changed hands in the secondary market in
2014, up 17.5% y-o-y. Total transaction values grew just
13.5% to HK$238bn as the transaction mix was skewed
towards small units. Despite modest volume pick-up, the
secondary market volume in 2014 not only lagged behind
its 20-year average but was also the second lowest in the
past decade.
Source: Centaline Property Agency
No. of units
1H
160,000
2H
140,000
Monthly secondary market transactions – volume
120,000
No of units
14,000
Dec-14
60,000
12,000
14.2% m-o-m
40,000
10,000
20,000
8,000
0
6,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
80,000
Source: Centaline Property Agency
59.5% y-o-y
17.5% y-o-y
4,000
2,000
0
Source: Centaline Property Agency
Page 6
12M14
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
100,000
China / Hong Kong Industry Focus
HK Property Sector
Home prices edging higher. Secondary home prices ended
2014 11% higher to reach a new high, according to CentaCity Leading Index. This was led by mass market projects
which registered a stronger price growth of 14%. Moreover,
prices for small- to medium-sized units grew by 13% in
2014, outperforming the large-sized flats by 7%.
Centa-City Leading Index (small/medium-sized units)
140
Home price growth
2014: +13%
2013: +3%
2012: +24%
2011: +7%
2010: +19%
2009: +31%
2008: -16%
2007: +24%
130
120
110
100
Centa-City Leading Index (overall)
90
80
Home price growth
2014: +11%
2013: +3%
2012: +21%
2011: +8%
2010: +19%
2009: +30%
2008: -15%
2007: +24%
75
Jul 14
Jul 13
Jan 14
Jul 12
Jan 13
Jul 11
Jan 12
Jul 10
Jan 11
Jul 09
85
40
Jan 10
95
50
Jan 09
105
Jul 08
115
60
Jul 07
125
70
Jan 08
135
Jan 07
145
Source: Centaline Property Agency
65
55
Jan 07
Jul 07
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Jan 14
Jul 14
45
Source: Centaline Property Agency
Centa-City Leading Index (large-sized units)
Home price growth
2014: +6%
2013: +1%
2012: +14%
2011: +5%
2010: +21%
2009: +27%
2008: -16%
2007: +27%
140
130
120
Centa-City Leading Index (mass)
110
100
Home price growth
2014: +14%
2013: +3%
2012: +24%
2011: +8%
2010: +19%
2009: +31%
2008: -16%
2007: +22%
60
Jul 14
Jul 13
Jan 14
Jan 13
Jul 12
Jul 11
Jan 12
Jul 10
70
Jan 11
60
Jan 10
80
Jul 09
90
70
Jul 08
100
80
Jan 09
110
90
Jan 08
120
Jul 07
130
Jan 07
140
Source: Centaline Property Agency
50
Jul 14
Jul 13
Jan 14
Jan 13
Jul 12
Jul 11
Jan 12
Jul 10
Jan 11
Jan 10
Jul 09
Jul 08
Jan 09
Jan 08
Jul 07
Jan 07
40
Source: Centaline Property Agency
Page 7
China / Hong Kong Industry Focus
HK Property Sector
Developers lining up for project launches. In 2015, Tseung
Kwan O will continue to be the focus of the primary market.
Cheung Kong will sell Lohas Park Package 3 and is applying
for pre-sales consent for The Beaumount II. K.Wah is
applying for pre-sale consent of two Tseung Kwan O
projects, including Twin Peaks and Corinthia by the sea. In
view of strong response to the launch of The Parkside,
Wheelock & Co also plans to sell its second project in
Tseung Kwan O.
They offer mainly small-sized units which are popular
among homebuyers.
SHKP is selling Century Link Ph 1 in Tung Chung with
overwhelming market response. It is applying for pre-sale
consent for Acappella Ph 1 in Yuen Long for sale. These two
mass market developments altogether provide c.2,500 units.
Besides, the first phase of its Ho Man Tin project, when
launched in mid-15, should steal the limelight in the luxury
market.
New World's key project launches include Skypark and The
Clearwater Bay. Located in the heart of Mongkok with
excellent transportation link, Skypark contains mainly smallsized flats which are well sought after in the prevailing
market. The Clearwater Bay will offer the largest supply of
new units in Sai Kung in more than a decade.
China Overseas Land also has a strong project launch
pipeline in 2015. This China-based company is currently
launching The Nova in Sai Ying Pun for sale. Other projects
up for sale include a luxurious house project in Chung Hom
Kok, and Marina South in Ap Lei Chau.
Hot on the heels of strong response to the launches of High
One and High One Grand, Henderson Land plans to release
more single-block residential projects in urban areas in 2015.
The consortium equally owned by Wharf and Nan Fung has
obtained the pre-sale consent for Mount Nicholson Ph 1-3
on the Peak. This superbly located low-density development
offers 67 luxury units.
Page 8
China / Hong Kong Industry Focus
HK Property Sector
Expected major project launches in 2015
Pro jec t / L o t n o
L o c at io n
Ch eu n g K o n g
Lohas Park Package 3 - Hemera
The Beaumount II
Stars by the Harbour
La Lumiere
The Zumurud
SHK P
Century Link
Acappella Dev elopment Ph 1A
Acappella Dev elopment Ph 1B
Acappella Dev elopment Ph 1C
KIL 11175 Ph 1
Sin o L an d
Botanica Bay
Corinthia by the sea
Lot 676 in DD Peng Chau
Lot 726 in DD4 Mui Wo
53 Conduit Road
New Wo rld Dev elo p men t
Sky park
The Clearwater Bay
The Parkhill
Des V oeux Road West project
Double Cov e Ph 4
Double Cov e Ph 5
Hen d erso n L an d
Double Cov e Ph 4
Double Cov e Ph 5
J ones Hiv e
Li Tak Street
Ma Tau Wai Road
K erry Pro p ert ies
TMTL 423
Wh eelo c k
TKOTL 125
Ch in a O v erseas L an d & In v est men t
My Place
Marina South
NKIL 6498
No 2 Cape Driv e
K . Wah In t ern at io n al
Corinthia by the sea
Twin Peaks
Wh arf
Peninsula East
Mount Nicholson (Ph 1-3)
Sw ire Pro p ert ies
Lot 724 & 726 in DD332
Ch in ac h em ( u n list ed )
Inv erness Park
M an h at t an R ealt y (u n list ed )
1 Tsing Lung Road
CSI Pro p ert ies
Lai Ping Road 39-77
Ch eu k Nan g
One Kowloon Peak Ph 1
One Kowloon Peak Ph 2
UR A
De Nov o
L o c at io n
St ak e T o t al n o .
(% ) o f u n it s
R emark
NT
NT
Kln
Kln
Kln
Tseung Kwan O
Tsueng Kwan O
Hung Hom
Hung Hom
Kowloon City
85
100
100
100
80
1,648
872
321
216
228
Presale consent obtained in J an 14
Presale consent pending approv al
Presale consent pending approv al
Presale consent obtained in Dec 14
Presale consent pending approv al
NT
NT
NT
NT
Kln
Tung Chung
Yuen Long
Yuen Long
Yuen Long
Ho Man Tin
100
100
100
100
100
1,407
499
362
166
256
NT
NT
NT
NT
HK
Cheng Sha
Tseung Kwan O
Peng Chau
Mui Wo
Mid-Lev els
100
60
100
100
100
16
544
54
50
27
Occupation permit obtained in Oct 13
Presale consent pending approv al
Presale consent pending approv al
Presale consent pending approv al
Presale consent pending approv al
Kln
NT
NT
HK
NT
NT
Mongkok
Sai Kung
Yuen Long
Western District
Ma On Shan
Ma On Shan
100
63
100
80
59
59
439
680
141
191
474
178
Presale consent pending approv al
Presale consent pending approv al
Presale consent pending approv al
J V with Henderson Land
J V with Henderson Land
J V with Henderson Land
NT
NT
HK
Kln
Kln
Ma On Shan
Ma On Shan
Tai Hang
Tai Kok Tsui
To Kwa Wan
59
59
75
100
100
474
178
119
>400
c.300
J V with New World
J V with New World
J V with Soundwill Holdings
Old lease
Old lease
NT
Tuen Mun
100
c.1,000
NT
Tseung Kwan O
100
c.400
Kln
HK
Kln
HK
To Kwa Wan
Ap Lei Chau
Kowloon Tong
Chung Hom Kok
100
100
100
100
168
114
10
7
Presale consent obtained in Oct 14
Presale consent pending approv al
Presale consent pending approv al
Occuption permit obtained in J an 14
NT
NT
Tseung Kwan O
Tseung Kwan O
40
100
544
374
J V with Sino Land
Presale consent pending approv al
Kln
HK
Yau Tong
The Peak
100
50
256
67
Presale consent pending approv al
Presale consent obtained in Nov 14
NT
Cheung Sha
100
28
Presale consent pending approv al
Kln
Kowloon Tong
100
134
Pre-sale consent obtained in Dec 14
NT
Tuen Mun
100
75
Pre-sale consent obtained in F eb 14
NT
Shatin
100
20
Presale consent obtained in J ul 14
NT
NT
Tsuen Wan
Tsuen Wan
100
100
49
5
Pre-sale consent obtained in Dec 14
Pre-sale consent obtained in Dec 14
Kln
Kai Tak
100
484
Presale consent pending approv al
Presale consent
Presale consent
Presale consent
Presale consent
On sale
pending approv al
pending approv al
pending approv al
pending approv al
Source: Company, Local news, DBS Vickers
Page 9
China / Hong Kong Industry Focus
HK Property Sector
The government offered the first batch of five new HOS
projects for sale since the government announced the
resumption of the production of HOS flats in its Policy
Address in Oct 2011. Two projects are in Shatin with the
remaining three in Tsuen Wan, Tsing Yi and Yuen Long.
These projects altogether provide 2,160 units, featuring
434-511sf in saleable area, with targeted completion in
2016-17.
The offer prices of these projects will be set at 70% of
comparable private residential projects in the area and lie
between HK$5,600psf and HK$6,100psf. For the “White
form” applicants eligible to apply for new HOS units, the
maximum monthly income is capped at HK$46,000 for a
household with two or more persons, with an asset limit of
HK$1.01m. For a single-person household, the limits will be
halved.
For a HK$2.5m HOS flat, assuming an effective mortgage
rate of 2.15%, LTV ratio of 90% and 20-year repayment
period, the monthly mortgage repayment would be
HK$11,543, which represents 25% of the maximum
monthly income ceiling for an eligible household with two
or more persons. These flats appear affordable for eligible
applicants who would otherwise be potential buyers of lowend private residential projects.
On the other hand, private residential supply is expected to
be higher for the years to come, with an estimated 16,500
units to be completed per annum on average from 2015-17.
Coupled with a potential interest rate hike, we believe that
developers will continue their reasonable pricing approach
in launching their new projects in 2015. Therefore, the
primary market will remain the limelight of the residential
market. We forecast about 16,000-17,000 new homes to
be sold in 2015.
Page 10
Private residential supply
No of units
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
Strong housing demand among local end-users. Near term,
local end-users have strong aspirations to buy flats. This is
best illustrated by >110,000 applicants (mainly White form
applicants) for the new batch of Home Ownership Scheme
(HOS) projects.
Completions
Average completion (1996-2013)
Source: DBS Vickers
Secondary market transactions, however, should remain at
40,000-50,000 units in 2015 as existing homeowners will
not be under strong pressure to sell, even with higher
interest rates, barring any economic shock.
Mass market projects/small-sized units should continue to
outperform. All factors considered, we forecast prices for
mass market projects and small- to medium-sized units to
be broadly stable in 2015. Demand for luxury homes or
large-sized units, however, are constrained by the Buyers’
Stamp Duty and restrictive mortgage policy. Developers
could be flexible in pricing to push sales and hence, we
expect a mild price correction of 5%.
Downside risk not excessive even after allowing for interest
rate hike. With home prices spiralling upward, the current
affordability ratio has risen to 52.5% in Dec 14 from 49.4%
a year earlier, according to Centaline Property Agency.
Market expects the US Fed to raise the Fed fund rate in
2015. If so, Hong Kong is likely to follow in its footsteps,
given the dollar peg. Assuming the effective mortgage rate
increases to 4.4%, the average since Jun 1997, by end-2017,
the affordability ratio would rise to c.64% based on our
estimate. If so, a c.22% fall in residential price is required to
bring down the affordability ratio to c.50%. Having said
that, continued household income improvement could help
moderate the deterioration in housing affordability caused
by higher interest rates. Our analysis shows that if the
household income grows 3% p.a. till 2017, a c.15% decline
in home prices are already sufficient for the affordability
ratio to return to 50%, given our projected interest rate hike.
Besides, construction costs and housing rents should remain
on an upward trajectory, making any sharp price fall unlikely.
Overall, downside risk on home prices should not be
excessive, barring any external demand shock.
China / Hong Kong Industry Focus
HK Property Sector
Residential rents
Housing affordability – private households
Dec-14
53.5%
52.5%
HK$psf
30
Nov-14
52.8%
51.7%
25
Prime base
120%
100%
HIBOR base
80%
20
60%
15
40%
Prime base
HIBOR base
Source: Centaline Property Agency
Jul-14
Jul-13
Jan-14
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Hong Kong
New Territories East
Overall
Jan-11
Jan-10
Jul-09
Jul-08
Jan-09
Jul-07
Jan-08
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
5
Jan-07
10
20%
0%
Dec-14
Overall: 0.4% m-o-m
11.6% y-o-y
Kowloon
New Territories West
Source: Centaline Property Agency
Median monthly domestic household income growth
Yoy, %
15
10
5
0
(5)
(15)
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
(10)
Source: CEIC
Page 11
China / Hong Kong Industry Focus
HK Property Sector
Expediting land supply for housing development. In 2014,
the government sold 29 residential or residential/commercial
sites through tender for a total of HK$39.7bn. It is
estimated that these sites could altogether provide >11,700
flats upon completion, with c.48% stemming from Tin Shui
Wai and Kai Tak.
MTRC and Urban Renewal Authority (URA) have been
accelerating the launch of residential projects for tendering,
in line with the government's policy direction.
In Oct and Nov 14, MTRC awarded the development rights
of the Tai Wai Station and Lohas Park Package 5 to New
World Development and Wheelock & Co respectively. New
World won the tender of Tai Wai Station project after
outbidding eight other developers. The Tai Wai Station
project will offer 2,900 residential units atop a retail mall.
Total GFA of 2.7m sf splits into 2.05m sf for residential
purpose and 0.65m sf for retail use.
Lohas Park Package 5 will provide c.1,600 units in three
residential towers with 1.1m sf GFA. The land premium was
reportedly fixed at HK$2.064bn or HK$1,874psf, c.9%
below that for Lohas Park Package 4 which went to SHKP in
Apr 14. This is despite the fact that Package 5 is closer to
Lohas Park MTR Station than Package 4. Overall, MTRC
successfully tendered out three developments in 2014 which
altogether will provide 6,100 units upon completion.
Urban Renewal Authority (URA) also successfully awarded
the redevelopment rights of five projects in Sham Shui Po,
To Kwa Wan and Kwun Tong. Combined, these
redevelopment projects will provide >3,100 residential flats
when completed. Overall, we estimate that some 21,000
units could be built on the sites sold via tender by the
government, MTRC and URA. This is higher than the
average number of completions and take-ups during 19962014. This has yet to take into account those from the
redevelopment of old buildings. Land supply has normalised
with the government’s efforts, pointing to rising housing
supply in 4-5 years' time.
Sino Land and Cheung Kong return to acquisition mode in
2H14, Sino Land purchased two sites in Kwun Tong and
Fanling. In Sep 14, Sino Land joined forces with Chinese
Estates to secure the URA's Kwun Tong Town Centre
project (Development Areas 2 and 3) through tender. This
also marked Sino Land's largest land acquisition since 2010.
Sino Land has a 90% stake in this redevelopment project,
Page 12
with the balance held by Chinese Estates. The tender of this
redevelopment project was withdrawn in late Jul because
four tender proposals failed to meet the requirements set by
URA. Following the tender withdrawal, URA revised some of
its tender terms and project requirements, and offered the
project for tender again in Aug 14. Strategically located
close to Kwun Tong MTR station, Kwun Tong Town Centre
project (Development Areas 2 and 3) provides 1.85m sf GFA
including 1.5m sf for residential use. A total of 2,000
residential units are expected to be built. Shortly after the
successful bid for the Kwun Tong Town Centre
redevelopment, Sino Land won the tender for a
residential/commercial lot in Fanling with a bid of HK$730m
or HK$3,478psf.
Elsewhere, Cheung Kong won the tender for URA’s
redevelopment project in Sham Shui Po in Dec 14. This was
the first site acquisition the company has made in more than
two years.
Small developers stepping up land banking Moreover, smallsized developers have remained active in building their land
banks. Unlisted Billion Development turned active in land
banking in 2H14. It paid a total of HK$6.5bn for two lots, in
Tsuen Wan and Tai Po, that will provide c.1,400 units upon
completion. This makes it among the top three land
purchasers in 2014. Wang On, Far East Consortium,
Kowloon Development and CSI Properties also successfully
bid for new sites in 2H14. We attribute this to the
government’s increased supply of small residential lots.
New China-based enterprise makes residential foray. China
City Construction became the latest and also new Chinabased company joining the bandwagon of venturing into
the Hong Kong residential sector. This China state-owned
enterprise teamed up with Hong Kong-listed Chun Wo to
secure a residential lot on the Ma On Shan waterfront for
HK$2.14bn, and holds a 90% stake.
SHKP was the largest land purchaser. For the full year of
2014, SHKP remained the most active developer in the land
market. Including the Tuen Mun site acquired in Nov 14,
SHKP has secured a total of six lots in Tin Shui Wai, Tuen
Mun, Ma On Shan and Tseung Kwan O, with a total land
premium of >HK$10bn. These projects are expected to be
skewed towards the mass market segment.
China / Hong Kong Industry Focus
HK Property Sector
Residential land sale in 2014
D at e
Pro jec t / L o t N o
L o c at io n
L o c at io n
U s ag e
GF A
STTL 603
TMTL 508
TMTL 509
NKIL 6525
Shatin
Tuen Mun
Tuen Mun
Kai Tak
NT
NT
NT
Kln
R
R/C
R/C
R
26,899
213,116
167,262
519,789
NKIL 6526
NKIL 6527
Lot 1681 in DD 243
STTL 581
Lot 682 in DD Peng Chau
SIL 854
STTL 604
RBL 1198
TMTL 499
TPTL 214
NKIL 6541
IL 9048
STTL 599
TSWTL 33
TSWTL 34
TWTL 393
STTL 598
TMTL 513
TMTL 512
F SSTL 255
TPTL 213
TMTL 515
STTL 601
Kai Tak
Kai Tak
Sai Kung
Ma On Shan
Peng Chau
Shau Kei Wan
Shatin
Shouson Hill
Tuen Mun
Tai Po
Kai Tak
Wanchai
Ma On Shan
Tin Shui Wai
Tin Shui Wai
Tsuen Wan
Ma On Shan
Tuen Mun
Tuen Mun
F anling
Tai Po
Tuen Mun
Ma On Shan
Kln
Kln
NT
NT
NT
HK
NT
HK
NT
NT
Kln
HK
NT
NT
NT
NT
NT
NT
NT
NT
NT
NT
NT
R
R
R
R
R
R
R/C
R
R
R
R/C
R
R
R/C
R/C
R/C
R
R/C
R
R/C
R
R
R
YTIL 42
Lot 758 in DD 332
Yau Tong
Lantau
Kln
NT
M T R C T en d er
A pr-14
Lohas Park Package 4
Oct-14
Tai Wai MTR Station Dev elopment
Nov -14
Lohas Park Package 5
Tseung Kw an O
Shatin
Tseung Kw an O
G o v ern men t T en d er
J an-14
F eb-14
F eb-14
F eb-14
F eb-14
F eb-14
Mar-14
Mar-14
Mar-14
A pr-14
A pr-14
May -14
May -14
May -14
May -14
May -14
J un-14
J ul-14
J ul-14
A ug-14
A ug-14
A ug-14
A ug-14
Sep-14
Nov -14
Nov -14
Dec-14
Dec-14
Dec-14
U R A T en d er
Mar-14
A pr-14
Sep-14
Dec-14
Dec-14
Shun Ning Road project
San Shan Road/Pau Chung Street
project
Kw un Tong Tow n Centre project
(Dev elopment A reas 2 & 3)
Hai Tan Street / Kw eilin Street & Pei Ho
Street Dev elopment Scheme
229 A -G Hai Tan Street
L an d
Premiu m
( sf ) ( H K $ m)
L an d
Premiu m
(HK $ psf )
D ev elo p ers
Est . n o
o f u n it s
210
456
430
2,911
7,811
2,139
2,571
5,600
20
370
290
805
551,338
600,830
8,026
430,556
14,063
46,145
52,539
87,672
154,000
730,869
413,011
14,531
200,209
1,219,012
1,039,793
1,066,928
115,089
80,496
13,487
209,907
715,799
475,678
387,500
2,939
3,923
160
1,826
21
434
148
2,708
233
2,412
2,520
233
704
2,221
1,968
3,940
428
427
156
730
2,543
1,051
2,138
5,331
6,529
19,936
4,241
1,493
9,396
2,817
30,889
1,512
3,300
6,102
16,034
3,515
1,822
1,893
3,693
3,719
5,306
11,599
3,478
3,553
2,209
5,517
R
R
313,875
36,264
1,582
290
5,040
7,997
Priv ate dev eloper
Nan F ung
SHKP
K&K Property (priv ate
dev eloper)
K.Wah Int'l
Poly Property Group
Priv ate dev eloper
SHKP
V ice Chairman of A gile
Wing Tai Props
F ar East Consortium
Emperor Int'l led consortium
Chun Wo led consortium
Great Eagle
Wheelock
Hopew ell
Wang On-led consortium
SHKP
SHKP
Billion Dev elopment
Wang On-led consortium
CSI Properties
Priv ate dev eloper
Sino Land
Billion Dev elopment
SHKP
China City Construction,
Chun Wo
Kow loon Dev elopment
Property F und
NT
NT
NT
R
R/C
R
1,316,459
2,702,815
1,101,500
2,710
2,856
2,064
2,059
1,393
1,874
SHKP
New World
Wheelock
1,600
2,900
1,600
Sham Shui Po
To Kw a Wan
Kln
Kln
R/C
R/C
75,100
113,388
Paliburg Hldgs, Regal Hotels
Lai Sun Dev elopment
110
144
Kw un Tong
Kln
R/C
1,853,561
Sino Land, Chinese Estates
2,000
Sham Shui Po
Kln
R/C
611,820
Cheung Kong
845
Sham Shui Po
Kln
R/C
39,200
F ar East Consortium
69
855
930
5
450
10
100
55
25
140
600
630
40
380
1,330
1,140
790
300
125
10
250
600
735
400
345
20
Source: Lands Department, Local press, DBS Vickers
Page 13
China / Hong Kong Industry Focus
HK Property Sector
Office
Office rental growth of submarkets (11M14)
%
9.0
2.0
1.6
1.4
Overall
Kowloon East
Tsimshatsui
HK East
(0.5)
Source: Jones Lang LaSalle
8.0
Dec-14: 4.2%
7.0
6.0
5.0
4.0
3.0
2.0
1.0
Jul-14
Jul-13
Jan-14
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Jan-11
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
0.0
Source: Jones Lang LaSalle
On the back of improving vacancy, office rents rose
modestly in 2H14, bringing the overall office rent growth
for 11M14 to 2% (1H14: 1.3%).
Office rental index – Overall
4Q00 = 100
250
(QoQ,%)
3Q14: +0.7%
2Q14: +0.8%
200
1Q14: +0.5%
4Q13: -0.7%
150
100
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
50
0
2.6
2.6
Wanchai/ CWB
Office vacancy – Overall
%, yoy
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
Central
Improvement in office take-up. The office market registered
modest growth going into 2H14, with vacancies tightening
further. Net take-up of office space amounted to 0.405m sf
in 2H14, according to Jones Lang LaSalle. It was considered
an improvement when compared to net absorption of
0.319m sf in 1H14 and net withdrawal of 0.269msf in 2013.
FIBERS sector remains the key source of leasing demand in
2014. As a consequence, the overall vacancy rate had once
fallen to as low as 3.9% in Sep 14 from Jun 14's 4.4%. But
due to the completion of Octagon in Tsuen Wan, the
vacancy rate rose slightly to 4.2% in Dec 14.
Source: Jones Lang LaSalle
Page 14
Central rents grew moderately with tighter vacancy. Central
office market continued its moderate recovery in 2H14.
According to Jones Lang LaSalle, office rents in Central rose
0.7% from Jul to Nov 14, following the 1.9% increase in
1H14. This was primarily led by strong demand for top
grade office buildings. Against this backdrop, vacancy in
Central fell to 3.7% in Dec 14 from Jun 14's 4%. In 2014,
China-based financial institutions have been expanding or
establishing their presence in Hong Kong to gear up for the
Shanghai-Hong Kong Stock Connect scheme launched in
Oct 14. Though their space requirements were relatively
small, their office take-ups contributed to tighter vacancy in
Central, especially at top grade office buildings. On the
other hand, vacancy in Central is concentrated in a handful
of buildings such as Citibank Plaza. Some landlords have
thus adopted innovative approaches to boost the occupancy.
For example, Champion REIT brought in a medical centre to
the low zone of Citibank Plaza, the first of its kind at this
Grade A office development.
China / Hong Kong Industry Focus
HK Property Sector
Office vacancy rate – Tsim Sha Tsui
Office vacancy rate – Central
%
6.0
Dec-14: 3.7%
5.0
%
8.0
7.0
6.0
4.0
5.0
Dec-14: 1.1%
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
Source: Jones Lang LaSalle
Office rental index – Central
4Q00 = 100
300
(QoQ,%)
3Q14: +0.4%
250
2Q14: +1.2%
1Q14: +0.6%
200
4Q13: -1.6%
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Source: Jones Lang LaSalle
Planned redevelopment pushes down vacancy in Island East.
The planned redevelopment of Cornwall House and
Warwick House played a crucial role in driving leasing
activities in Island East, where the vacancy rate was just
1.3% in Dec 14 as affected tenants are seeking new office
accommodation in the area. Some are even looking to move
across the harbour to Kowloon East.
Office vacancy rate – Island East
%
4.5
Dec-14: 1.3%
2.5
2.0
1.5
1.0
0.5
Jul-14
Jan-14
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
0.0
Jan-09
Most submarkets stage rental growth. Office vacancy rates
in key submarkets further tightened in 2H14 on the back of
solid demand and limited new supply. This fuelled continued
office rental growth in these markets with the exception of
Kowloon East. Particularly in Tsim Sha Tsui, where vacancy
rate improved to just 1.1% in Dec 14, office rents grew
2.6% during 11M14, which coupled with Central, is the key
contributor of the 2% growth in overall office rental in
11M14.
3.0
Jul-08
Source: Jones Lang LaSalle
3.5
Jan-08
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
4.0
Jul-13
50
Jan-13
100
Jul-12
150
0
Jan-08
Jul-14
Jul-13
Jan-14
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Jan-11
Jul-09
Jan-10
Jan-09
Jul-08
Jan-08
0.0
Source: Jones Lang LaSalle
Page 15
China / Hong Kong Industry Focus
HK Property Sector
Cornwall House (Swire Props)
Source: DBS Vickers
Kowloon East office sees marginally low rents... Among the
submarkets, Kowloon East is the only one with marginally
lower office rents. Of note, supply of strata-titled office
units there has been growing in recent months. Taking
advantage of the government's revitalisation policy for
industrial buildings, some landlords have obtained the
approval to convert their industrial properties in Kowloon
East for office use. After completing upgrading works, these
"office" buildings are gradually released onto the market
for leasing. The latest examples include Pioneer Place and
SML Tower, both in Kwun Tong. We estimate that the
office supply, led by the conversion of industrial buildings,
exceeds 0.7m sf. This could exert some pressure on office
rents for Kowloon East this year. As such, Kowloon East
should underperform other decentralised locations and
Central in 2015.
SML Tower
Source: DBS Vickers
Pioneer Place
Source: DBS Vickers
Page 16
China / Hong Kong Industry Focus
HK Property Sector
… but slightly higher prices. However, office prices in
Kowloon East inched up slightly in 2H14, despite marginally
lower rents there. In 11M14, the Kowloon East offices
registered a 1.6% growth in capital values, outperforming
all other submarkets. Office yields edged down slightly,
which is in contrast to other submarkets in which marginal
yield expansion was seen.
KOHO (New World Development)
Office capital value growth of submarkets (11M14)
1.6
1.3
Overall
Kowloon East
0.6
Tsimshatsui
0.3
HK East
0.3
Wanchai/ CWB
0.7
Central
%, yoy
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Source: Jones Lang LaSalle
Moderate rental growth expected with the exception of
Kowloon East. For 2015, we project that office rents will
grow 0-5% with the exception of Kowloon East. Central
should outperform other submarkets, given tight new
supply. China-based companies should continue to support
the leasing demand in Central, but demand from foreign
financial-related institutions should see no major recovery.
Low vacancy in Island East and Tsim Sha Tsui should lend
support to rentals. Kowloon East offices could see a mild
rental correction of 3-5% due to increased competition
from strata-titled units and new space converted from old
industrial buildings. Small-floor plate offices should be more
adversely affected.
Source: DBS Vickers
Strata-titled office sales went well. SHKP continued with its
sale of strata-titled One Harbour Square in Kwun Tong in
2H14. So far, seven floors have already been sold. Buyers
include Nine Dragons and Overseas Chinese Town which
purchased for their own use. Besides, SHKP offered W50, an
office development in Wong Chuk Hang, for pre-sale on a
strata-title basis in Aug 14. Like other nearby office projects,
W50 was almost sold out (at an ASP of HK$13,000psf)
within a short period after its launch.
New World bought office building in Kwun Tong. In Oct 14,
New World Development acquired KOHO in Kwun Tong,
which is an office building converted from industrial status,
with GFA of 200,000sf. Total consideration was reportedly
HK$1.6bn or HK$8,000psf. New World plans to retain part
of KOHO for its own use with the unused portion for rental.
The company intends to relocate some operations scattered
across different locations, including Central, to KOHO after
its completion in mid-2015. This will not only result in rental
savings but will also help free up some of its own prime
space in Central, currently occupied by these operations, for
rental purposes.
Page 17
China / Hong Kong Industry Focus
HK Property Sector
One Harbour Square (SHKP & Wong’s International)
Unlisted Billion Development launched an office
development (STTL 412) in Shatin for strata-title sale in Sep
14. Market response has been encouraging with >90% of
office units being snapped up at an ASP of HK$6,800psf.
The project is located near Shek Mun MTR Station of Ma On
Shan Extension. Scheduled for completion in late 2015, this
office development will provide GFA of 351,980sf. Billion
Development acquired this office site for HK$680m or
HK$1,932psf in 2011. Profit margin is expected to be
decent. Elsewhere, Billion Development has another larger
office development (STTL 463) in the neighbourhood, which
is also earmarked for future sale.
Tai Cheung has also started to sell its Metropole Square
(0.43msf) in the area on a strata-title basis. After obtaining
government approval to convert this building from industrial
to office/shop use, Tai Cheung spent HK$100-150m to
upgrade the building.
Source: DBS Vickers
Page 18
China / Hong Kong Industry Focus
HK Property Sector
One HarbourGate in focus. In 2015, One HarbourGate,
developed by Wheelock & Co, should be the focus of office
sales market. Situated on the Hung Hom harbourfront, One
HarbourGate comprises two office towers and two retail
blocks with a total GFA of 0.59m sf. The entire development
is targeted for completion in 2016. Wheelock & Co is
applying for pre-sale consent for this office development
and intends to sell this development on an en bloc basis. In
the previous two years, Wheelock sold two office towers at
One Bay East to Manulife Financial and Citi.
area from 2019-2020. Wharf T&T Square is largely vacant
and will be demolished for office redevelopment in 2015.
NKIL 6512
In recent years, a growing number of large corporations are
preferring to consolidate their scattered operations under
one roof to improve productivity. With limited opportunity
to secure sufficient space in any leased building, they seek
to buy the entire building as a long-term solution for their
office accommodation. In particular, some new builds in
Kowloon East offer high specifications that suit their needs
well.
One HabourGate is an iconic landmark office development
with full view of Victoria Harbour. This makes it an ideal
brand showcase for big corporates, China enterprises in
particular.
Source: DBS Vickers
Wharf T&T Square (Wharf)
One HarbourGate (Wheelock)
Source: DBS Vickers
In Jan 15, Hon Kwok Land acquired a business site in Kwai
Chung through government tender for HK$687m or
HK$3,012psf. The site is located close to Dorsett Regency
Tsuen Wan on Castle Peak Road, which is a 15-minute walk
from Tai Wo Hau MTR Station. When completed, the
project will offer 228,033sf GFA of space. Hon Kwok Land
intends to build a Grade B office building with warehouse
facilities. The government is now offering a business site in
Kwun Tong (NKIL 6512) for tender which will close on 23
Jan. With close proximity to the under-construction One Bay
East, this lot will provide 883,888sf of office area upon
completion. This, coupled with the redevelopment of Wharf
T&T Square, will constitute the bulk of office supply in the
Source: DBS Vickers
Page 19
China / Hong Kong Industry Focus
HK Property Sector
Office supply
Pro jec t
2014
10 Shing Yip Street
Billion Plaza 2
The Octagon
2015
10-12 Queen's Road Central
One Bay East
52-56 Tsun Yip Street
15-17 Chong Yip Street
2 Ng F ong Street
A IL 354, 41 Heung Yip Road
W50
2016
Wing On Life Building Redev elopment
Wing On Central Building Redev elopment
One HarbourGate
NKIL 6314
STTL 463
STTL 412
2017 and bey ond
New World Centre redev elopment
A sian House redev elopment
Sunning Plaza/Sunning Court
redev elopment
Techno Centre Redev elopment
NKIL 6311
NKIL 6312
KTIL 174
KTIL 761
Redev elopment of Wharf T&T Square
NKIL6512
8-10 Wong Chuk Hang Road
34 Wong Chuk Hang Road
A IL 309
NKIL 6410
KCTL495
* Including retail GFA
Source: DBS Vickers
Page 20
L o c at io n
G F A (sf )
D ev elo p ers
R emark s
Kw un Tong
Cheung Sha Wan
Tsuen Wan
246,310
207,717
340
Billion Dev elopment (Unlisted)
Billion Dev elopment (Unlisted)
Priv ate dev eloper
F or sale
On sale
F or lease
Central
114,000
Kw un Tong 1,024,700
Kw un Tong
371,176
Kw un Tong
266,447
San Po Kong
314,214
Wong Chuk Hang
323,958
Wong Chuk Hang
120,000
Shanghai Commercial Bank
Wheelock & Co
Billion Dev elopment (Unlisted)
Billion Dev elopment (Unlisted)
Billion Dev elopment (Unlisted)
Cheung Kong
SHKP
F or ow n use
Completely sold
On sale
F or sale
F or sale
Completely sold
A lmost sold out
Central
Central
Hung Hom
Kow loon Bay
Shatin
Shatin
81,700
90,000
590,000*
852,501
430,395
351,980
Chinachem
Chinachem
Wheelock & Co
Goldin F inancial
Billion Dev elopment (Unlisted)
Billion Dev elopment (Unlisted)
Tsim Sha Tsui
Wan Chai
TBD
314,000
New World Dev elopment
Chinachem
Causew ay Bay
460,000*
Hy san Dev elopment
Quarry Bay
Kow loon Bay
Kow loon Bay
Kw un Tong
Kw un Tong
Kw un Tong
Kw un Tong
Wong Chuk Hang
Wong Chuk Hang
Wong Chuk Hang
Cheung Sha Wan
Kw ai Chung
2,000,000
333,121
550,030
471,229
660,301
513,000
883,888
382,500
166,400
139,000
193,535
228,033
Sw ire Properties
Priv ate dev eloper
Sw ire Properties
SHKP/Wong's International
Mapletree Inv estment
Wharf
TBA
Sw ire Properties/China Motor Bus
Priv ate dev eloper
Priv ate dev eloper
F irst Group (Unlisted)
Hon Kw ok Land
A pply ing for pre-sale consent
F or sale
Largely sold
China / Hong Kong Industry Focus
HK Property Sector
Retail
Marginal retail sales growth. In 11M14, total retail sales value
in Hong Kong grew by a marginal 0.2% y-o-y to HK$445bn,
substantially lower than the 11% in 2013 and 9.8% in 2012.
However, there were some signs of improvement going into
2H14. Since Aug 2014, total monthly retail sales value
increased for four consecutive months by 1.4-4.8% y-o-y,
which compares favourably with 1H14's 1.3% y-o-y drop. This
was despite the disruption led by the "Occupy Central"
movement which lasted for more than two months.
The yearly decline in sales value for jewellery, watches/clocks
and valuable gifts has narrowed in recent months, as the highbase effect from "gold rush" in the previous year has gradually
subsided. In 11M14, jewellery, watches/clocks and valuable
gifts posted a 13.4% drop in sales value.
Retail sales value growth – jewellery/watches
Yoy, %
Nov-14: -2% y-o-y
80
11M14: -13.4% y-o-y
60
Retail sales value growth
Yoy, %
40
20
Nov-14: 4.1% y-o-y
40
0
11M14: 0.2% y-o-y
(40)
20
10
Jan-Feb 08
May-08
Aug-08
Nov-08
Mar-09
Jun-09
Sep-09
Dec-09
Apr-10
Jul-10
Oct-10
Jan-Feb 11
May-11
Aug-11
Nov-11
Mar-12
Jun-12
Sep-12
Dec-12
Apr-13
Jul-13
Oct-13
Jan-Feb 14
May-14
Aug-14
Nov-14
(20)
30
0
Source: CEIC
The launch of iPhone boosted the retail sales in recent months.
Retail sales value of consumer durable goods resumed its
positive growth since Sep 14. Due to the new launch of iPhone
6, sales value of other consumer durable goods, the subcategory under which iPhone falls into, recorded sharp growths
of 35.4-70.2% y-o-y in Sep-Nov 14. This gave a strong boost
to retail sales value of consumer durable goods and led to the
narrower yearly decline in overall sales value in recent months.
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
(20)
Jan-08
(10)
Source: CEIC
Yearly retail sale value growth
Retail sales value growth – Consumer durable goods
Yoy, %
25
Yoy, %
50
20
Nov-14: 14.3% y-o-y
11M14: 2.1% y-o-y
40
15
30
10
20
10
5
0
(20)
11M14
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
(5)
Jan-Feb 08
May-08
Aug-08
Nov-08
Mar-09
Jun-09
Sep-09
Dec-09
Apr-10
Jul-10
Oct-10
Jan-Feb 11
May-11
Aug-11
Nov-11
Mar-12
Jun-12
Sep-12
Dec-12
Apr-13
Jul-13
Oct-13
Jan-Feb 14
May-14
Aug-14
Nov-14
(10)
0
Source: CEIC
Source: CEIC
Page 21
China / Hong Kong Industry Focus
HK Property Sector
Retail sales value growth – Other consumer durable goods
Nov-14: 35.3% y-o-y
Yoy, %
18
16
14
12
10
8
6
4
2
0
(2)
11M14: 19.5% y-o-y
150
100
50
(50)
Jan-Feb 08
May-08
Aug-08
Nov-08
Mar-09
Jun-09
Sep-09
Dec-09
Apr-10
Jul-10
Oct-10
Jan-Feb 11
May-11
Aug-11
Nov-11
Mar-12
Jun-12
Sep-12
Dec-12
Apr-13
Jul-13
Oct-13
Jan-Feb 14
May-14
Aug-14
Nov-14
0
Nov-14: 3.5% y-o-y
11M14: 5% y-o-y
Jan-Feb 08
May-08
Aug-08
Nov-08
Mar-09
Jun-09
Sep-09
Dec-09
Apr-10
Jul-10
Oct-10
Jan-Feb 11
May-11
Aug-11
Nov-11
Mar-12
Jun-12
Sep-12
Dec-12
Apr-13
Jul-13
Oct-13
Jan-Feb 14
May-14
Aug-14
Nov-14
Yoy, %
200
Retail sales value growth – supermarket items
Source: CEIC
Source: CEIC
Growth of consumer staples sales remained stable. As in the
previous years, consumer staples continue to see steady sales
value growth. For example, sales value of supermarket items
registered a 5% growth in 11M14, partly driven by inflation.
Elsewhere, total restaurant receipts rose 4.9% y-o-y in 3Q14
mainly on increased prices. This translated into a 4.1% y-o-y
growth for 9M14.
Value growth of total restaurant receipts – overall
Yoy, %
8
7
6
Inflation
%
8
5
4
Nov-14 5.1 %
3
Oct-14 5.2 %
2
6
1
4
0
2
(1)
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
0
(2)
(4)
Source: CEIC
Page 22
Jan/14
Jan/13
Jan/12
Jan/11
Jan/10
Jan/09
Jan/08
Jan/07
Jan/06
Jan/05
Jan/04
Jan/03
(6)
Source: CEIC
Buoyant inbound tourism led by China visitors... In 11M14,
total visitor arrivals reached 55.2m, up 12.4%. This was mainly
led by a 16.3% increase in Mainland tourist arrivals which
made up 77.7% of the total. Despite the "Occupy Central"
movement, growth in Mainland tourist numbers has not
abated. On the other hand, tourist arrivals for other countries
posted negative growth during Oct-Nov 14. As a result, the
cumulative y-o-y growth for 11M14 narrowed to a marginal
0.9%.
China / Hong Kong Industry Focus
HK Property Sector
Jul-14
Jul-13
Jan-14
Jul-12
Jan-13
Jul-14
Jan-14
Jul-13
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Jan-11
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
(20)
Jul-11
(10)
Jan-12
0
Jul-10
10
Jan-11
20
Nov-14: -7.1% y-o-y
11M14: 0.9% y-o-y
Jul-09
30
30
25
20
15
10
5
0
(5)
(10)
(15)
(20)
Jan-10
40
Yoy, %
Jul-08
Nov-14: 15.7% y-o-y
11M14: 12.4% y-o-y
Jan-09
Yoy, %
50
Visitor arrival growth – Non-China
Jan-08
Visitor arrival growth – overall
Source: CEIC
Source: CEIC
Visitor arrival growth – China
Yoy, %
Nov-14: 24.1% y-o-y
11M14: 16.3% y-o-y
60
50
40
30
20
10
0
Jul-14
Jul-13
Jan-14
Jul-12
Jan-13
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
(20)
Jan-08
(10)
Source: CEIC
Page 23
China / Hong Kong Industry Focus
HK Property Sector
Retail sale value growth – medicines & cosmetics
Yoy, %
35
36.0
2005
41.3
46.2
59.4
51.6
58.1
56.7
36.4
40
2004
45
37.9
50
44.4
55
48.5
60
35
Source: CEIC
11M14
2013
2012
2011
2010
2009
2008
2007
2006
30
11M14: 9.8% y-o-y
30
25
20
15
10
5
0
China day-trippers as a % of total China visitor arrivals
%
Nov-14: 10.3% y-o-y
Jan-Feb 08
May-08
Aug-08
Nov-08
Mar-09
Jun-09
Sep-09
Dec-09
Apr-10
Jul-10
Oct-10
Jan-Feb 11
May-11
Aug-11
Nov-11
Mar-12
Jun-12
Sep-12
Dec-12
Apr-13
Jul-13
Oct-13
Jan-Feb 14
May-14
Aug-14
Nov-14
… did not translate into corresponding retail sales growth. The
number of same-day travellers from China grew 19.2% y-o-y
to 25.5m, which accounted for a significant part of the
increase in inbound tourism from Mainland China. These daytrippers made up 59.4% of total Mainland tourist arrivals in
11M14, up from 58.1% in 2013 and 56.7% in 2012. They
usually spend less than overnight visitors and buy daily
necessity goods and mid-priced products. The changing profile
and pattern of cross-border consumption of Mainland Chinese
tourists explains the divergence of inbound tourism and retail
spending. Barring any major revision to the government’s
current policy to curtail the influx of China day-trippers, the
trend is expected to continue. This should continue to benefit
suburban malls near the border and the "Medicines and
Cosmetics" trade.
Source: CEIC
The ongoing anti-corruption campaign in China should
continue to weigh on the demand for expensive luxury goods
in Hong Kong. Besides, the depreciation of other currencies
may induce more people to buy in other countries instead of
Hong Kong. These make any swift sales recovery of luxury
product less likely in 2015. On the other hand, continued
growth of same-day Mainland Chinese visitors should help
support the sales of necessities. Improving housing sales could
augur well for local spending on fixture and furniture. But
household income growth remains the key to driving local
consumption of other big ticket items. All factors considered,
we forecast retail sales value to rise 3-4% in 2015, partly led by
inflation.
GDP growth
%
10
3Q14: 2.8% y-o-y
8
6
4
2
0
(2)
(4)
(6)
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
(8)
(10)
Source: CEIC
Page 24
China / Hong Kong Industry Focus
HK Property Sector
Median monthly domestic household income growth
Yoy, %
15
10
5
0
(5)
(15)
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
(10)
Despite lacklustre retail sales growth in 2014, mid-tier fashion
brands are still keen on store expansion in Hong Kong. Uniqlo
is a case in point. In Nov 14, this Japanese fast fashion retailer
opened a new store at Langham Place Mall. In Dec 14, it
opened another store at Lok Fu Plaza. This was also its first
store in The Link REIT’s portfolio. This illustrates that the midtier retailers are still seeking to further penetrate into the local
retail market. International luxury brands, however, have been
adjusting their store strategy. Faced with waning demand led
by anti-corruption crackdown in China, they no longer open
multiple small shops on fringe streets in core shopping areas.
Instead, they are still willing to open flagship stores in prime
locations to showcase their products.
Uniqlo at Lok Fu Plaza (The Link REIT)
Source: CEIC
Source: DBS Vickers
Page 25
China / Hong Kong Industry Focus
HK Property Sector
Suburban malls continue to outperform street-front shops
According to Jones Lang LaSalle, retail rents of prime shopping
centres became broadly stable in 2H14 after rising 0.9% in
1H14. On the other hand, rents for high-street shops retreated
by 0.6% in 2H14. This almost wiped out the rental growth of
0.8% recorded in 1H14. Capital value of high-street shops also
came off marginally in 2H14, in tandem with rents.
has improved to >90% from 84% at the time of acquisition.
More importantly, Lions Rise Mall could form a retail cluster
with The Link REIT’s two other malls nearby, Lung Cheung
Plaza and Wong Tai Sin Plaza. Synergetic benefits are
anticipated.
Lions Rise Mall (The Link REIT)
Retail rental index
3Q14 2Q14
High street shops
-0.6
0.2
Overall prime
shopping centres
0.1
0.2
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
1Q08=100 (QoQ, %)
160
150
140
130
120
110
100
90
80
Source: Company
High street shops
Overall prime shopping centres
Source: CEIC
With expected modest retail sales growth and pragmatic
expansion approach adopted by retailers, we are projecting the
overall retail rents to rise 0-3% in 2015. Suburban malls
continue to fare better. Rents for shopping centres in prime
locations with diversified retail offerings should hold up. High
street shops should face some rental pressure. In particular,
shops rents on fringe streets in core retail areas will see greater
rental correction of as much as 20%+, given lack of interest
from high-paying international brands.
Retail REITs made strategic acquisitions. In 2H14, both Fortune
REIT and The Link REIT made property acquisitions in the retail
market. While differing in initial property yields, both
acquisitions produce synergetic benefits with the respective
REIT's other nearby properties. Both REITs could enjoy greater
flexibility in tenant mix management after the acquisitions.
In Aug 14, The Link REIT agreed to buy Lions Rise Mall in Wong
Tai Sin from Kerry Properties for HK$1.38bn or HK$10,925psf.
This marked The Link REIT’s third and largest acquisition since
its listing in 2005. The mall is situated beneath 968-unit Lions
Rise project. It is conveniently located within 3-minute walk
from the Wong Tai Sin MTR Station. Completed in 2012, Lions
Rise Mall has GFA of 126,319sf. Key tenants include
supermarkets and restaurants. The mall is under-rented with
passing rents >50% below the neighbouring Wong Tai Sin
Plaza. As such, its initial property yield was low at 2.4%. With
>50% of leases up for renewals in 2015, there should be room
for rental uplift and yield improvement. Committed occupancy
Page 26
In Dec 14, Fortune REIT bought Laguna Plaza in Lam Tin for
HK$1.92bn or HK$11,755psf from a property fund, which
acquired the mall from Hang Lung Properties for c.HK$1.5bn in
2H12. Currently, committed occupancy stands at c.96.7%.
Based on the acquisition price, the initial net property yield is
c.5% (including the newly committed leases) which appears
attractive. Built in May 1991, Laguna Plaza is the major retail
component of mega-sized private housing estate, Laguna City.
The property offers GRA of 163,203sf with 150 car park lots.
Laguna Plaza is a community mall. Its key tenants include
supermarket, fast food outlets and restaurants which mainly
serve the daily needs of some 8,000 households in Laguna City.
Laguna Plaza should also yield operational synergy with
Fortune REIT's other nearby mall , Centre de Laguna. Postacquisition, Fortune REIT plans to integrate and reposition
these two malls.
China / Hong Kong Industry Focus
HK Property Sector
of HK$13,800psf or HK$18,750psf, excluding c.90,000sf for
building public vehicle park.
Laguna Plaza (Fortune REIT)
The site is conveniently located right next to East Tsim Sha Tsui
Station and adjacent to Sheraton-Hong Kong Hotel. Henderson
Land intends to build a Ginza-type retail tower, which will
provide a total GFA of 339,709sf upon its scheduled
completion in 2019. The total development cost is c.HK$6.5bn.
We estimate the initial rental yield at 3.8% assuming average
monthly retail rent of HK$65psf on GFA basis and including
income from signage.
Middle Road site (Henderson Land)
Source: DBS Vickers
The Link REIT rationalised its retail property portfolio. The Link
REIT continues to optimise its portfolio by selling five additional
non-core retail arcades via private tender for HK$1.72bn in
Sep14. Exit yield averaged 4.3%, which, albeit higher than
those of four properties divested in May 14, remained
attractive to The Link REIT. Buyers are local high net worth
investors. It is found that these investors have no difficulty in
absorbing assets with market value of <HK$500m. But it may
be challenging for them to absorb a property once its values
exceeds HK$1bn.
Details of five retail properties sold through the second
private tender by The Link REIT
N o Pro p ert y
L o c at io n
IF A
N o . o f Sellin g Prem
Carp ark
(sf )
Pric e
Ex it
y ield
( H K $ m)
(% )
(% )
1,045
93
41
24
4.7
Choi Ha
Kow loon Bay 21,438
205
163
80
2.4
3
Siu Lun
Tuen Mun 32,022
463
318
28
4.2
4
Tin Ping
Sheung Shui 61,722
471
544
22
4.6
5
Tsui Lam
Po Lam 87,723
711
650
27
4.5
1
Choi F ai
2
Choi Hung
Source: Company
Henderson Land to build a Ginza-type retail tower in Tsim Sha
Tsui. Henderson Land Development secured the Middle Road
site in Tsim Sha Tsui through tender in Sep 14. The winning bid
of HK$4.688bn translates into an accommodation value (AV)
Source: DBS Vickers
MTRC is expanding its retail portfolio. In the Tai Wai Station
project tender, MTRC finally decided to retain ownership of the
retail portion upon completion. MTRC will pay a land premium
of HK$7.5bn or HK$11,494psf but the construction cost will
be borne by New World Development which was awarded the
development rights of Tai Wai Station project. The mall will
provide GFA of 0.65m sf. Given its direct link with Tai Wai
Station (an interchange of East Rail, Ma On Shan Extension &
the future Shatin-Central Link), this mall is set to become a key
new supply when completed in 2019/20. In 2014, MTRC
strengthened its retail portfolio by adding two projects
(Maritime Square extension & Tai Wai Station) to its
development pipeline.
While more new retail malls such as the redevelopment of New
World Centre and Sunning Court/Sunning Plaza are anticipated
to come onstream gradually from 2018 onwards, new supply
of retail facilities in key shopping areas is limited in the next
couple of years. It will stem from 2-3 Ginza-type retail towers
in Causeway Bay. Limited near-term new supply should lend
some support to retail rents.
Page 27
China / Hong Kong Industry Focus
HK Property Sector
Property Developers
Share price performance
Perf o rman c e ( % )
1 - mt h 3 - mt h 6 - mt h 2 H14 2 0 14 Y T D
Cheung Kong
Hang Lung Group
Hang Lung Properties
Henderson Land
K Wah Int'l
Kerry Properties
Lai Sun Dev elopment
MTR Corp
New World Dev
Sino Land
SHKP
Tai Cheung
Wing Tai Properties
8.1
(1.1)
(2.1)
3.1
(1.6)
(2.6)
(3.8)
4.4
3.5
(0.5)
6.9
(0.2)
(0.4)
8.6
1.7
(5.2)
6.5 9.3
(7.3) (16.9) (16.1) (10.1) (0.7)
(7.2) (10.0)
(9.0) (11.2) (2.3)
3.8
17.8
19.7 35.0 (1.8)
(6.0) (22.0) (23.3) (10.0) 3.2
6.7
(0.2)
3.9
4.6 (1.4)
(9.7)
(5.4)
(4.9) (16.2) 0.0
8.0
11.5
6.5
8.3 3.8
(0.5)
1.8
1.1
(3.2) 3.3
0.2
(1.1)
(1.9) 18.1 (0.8)
6.9
15.2
11.3 20.3 2.5
0.8
9.7
11.3
8.7 0.6
(2.4)
3.2
5.3
5.0 (1.8)
Wheelock and Co.
Sec t o r av erag e
10.4
4. 7
8.8
5.0
23.9
7. 2
3.7
5.8
4.6
6.8
3.3
8.3
HSI Index
HSP Index
11.9
1.5 12.6
4 . 3 1 2 . 3 3 .2
1.8
5.1
1.3
7.2
2.2
4.6
Source: Thomson Reuters
In 2H14, share prices of property developers rose modestly by
4.3% on a weighted average basis, outperforming the broad
market (+1.8%) and property investors (+0.1%). Within the
property developer sector, the stock performance was mixed.
Henderson Land was the best performer, with a stock price
appreciation of 19.7%, partly because its major shareholder
Lee Shau Kee kept raising his stake in the company. Meanwhile,
Wheelock's share price also went up, by 11.9%, as the
company achieved a stellar property sales performance.
Plagued by the disappointing share price performance of
Galaxy Entertainment (-29.6%), K.Wah International's share
price tumbled 23.3% in 2H14, making it the worst-performing
property developer during the period. Overshadowed by the
lacklustre share price performance of listed associate Hutchison
Whampoa (-15.8%), Cheung Kong lost 5.2%,
underperforming its peers. But the counter staged a strong
rally following the announcement of a major group
restructuring in early Jan 15, and regained the lost ground.
Meanwhile, property developers we cover are trading at
discounts of 12-78% to their respective assessed current NAVs,
or 29% on a weighted average basis. This represents c.1SD
below the mean valuation. The current sector valuation
appears undemanding from the historical viewpoint. Despite
limited NAV growth expected, we see room for share price
upside with new project launches to serve as key catalysts.
Page 28
Within the sector, we prefer SHKP because of its appealing
valuation and as continued roll-out of new launches should
help unlock its NAV. Re-rating of Cheung Kong, led by the
group restructuring, is only halfway through with further
upside expected. Other preferred property developers include
Wheelock, New World and Sino Land. We also believe Hang
Lung Properties is oversold and hence upgrade the stock to a
BUY.
SHKP launched Century Link Ph 1 in Tung Chung in early Jan
15, to tap the strong market demand for small- to mediumsized units. Market response has been overwhelming with 946
units sold. Since Jul 14, SHKP has achieved contracted sales of
>HK$21bn in Hong Kong. Despite a string of land purchases in
2014, SHKP’s gearing is estimated to improve to c.12%,
thanks to proceeds from the exercise of warrants. Hence, SHKP
is well positioned to capture land acquisition opportunities in
the market. Its rental income base should be further
strengthened with the upcoming addition of new investment
properties, which points to better earnings quality. The stock,
trading at a 33% discount to our assessed current NAV, is
attractively valued. BUY with HK$142 TP.
After the completion of the recently announced group
restructuring, existing shareholders of Cheung Kong will
directly own stakes in two separate listed companies, CKH
Holdings and CK Property. This would remove the layer of
holding company discount on the asset currently held indirectly
through Hutchison, which warrants a higher valuation. The
restructuring will also create a clear delineation of businesses
undertaken by CKH Holdings and CK Property. CKH will
emerge as a global conglomerate while CK Property will be a
pure property play. The clear business focus should improve
the investment appeal for these new entities. Elsewhere, the
transfer of HK$55bn cash from CK Property to CKH Holdings
under the restructuring would allow better use of financial
resources within the group. BUY with HK$166 TP.
New World achieved a stellar sales performance in Hong Kong.
The Pavilia Hill, launched in Oct 14, has been substantially sold.
Hence, its FY15 contracted sales target has been met. Given
robust project pre-sale, we estimate that New World has
locked in >90% of our projected development earnings from
Hong Kong for FY15. This points to lower development income
risk. The company is applying for pre-sale consent of Skypark in
Mongkok and The Clearwater Bay in Sai Kung, which should
go on sale in 1H15. The successful bid for the Tai Wai Station
project helped replenish its development land bank and sustain
future development income. The stock is trading at a 52%
discount to our assessed current NAV. A higher valuation is
warranted, given the company’s improving execution. Its
prospective dividend yield of 4.6% is the highest among its
peers and should lend support to its share price. BUY with
HK$11.05 TP.
China / Hong Kong Industry Focus
HK Property Sector
Wheelock & Co. beat its FY14 sales target to attain contracted
sales of c.HK$18.7bn. Launched in Nov 14, The Parkside has
been largely pre-sold with pre-tax margins estimated at c.20%.
Thanks to the overwhelming response to its project launch, the
company’s near-term development earnings should be well
secured. In Nov 14, Wheelock won the tender of Lohas Park
Package 5 in Tseung Kwan O to further replenish its land bank.
In 2015, Wheelock plans to offer One Harbour Gate on the
Hung Hom waterfront for sale, which should attract strong
market attention. The stock is trading at a 30% discount to our
assessed current NAV. BUY with HK$44.25TP.
Sino Land’s launch of Dragons Range in Shatin has received
good response. The Avenue and Mayfair by the Sea I & II have
been substantially sold. This means that the company’s nearterm development income is largely locked in. The company
returned to acquisition mode recently. Sino Land won the
tender for URA’s Kwun Tong redevelopment project, followed
by a Fanling site. The Kwun Tong project marked its largest
acquisition since 2010. Yet, with strong property sales
proceeds, Sino Land should remain in net cash position and be
well poised to pursue more accretive acquisitions. Trading 43%
below our assessed current NAV, the stock looks attractive.
BUY with HK$14.58 TP.
Kerry Properties achieved contracted sales of c.HK$11bn in
Hong Kong in 2014. The launch of One and Three Ede Road, 8
La Salle and Dragons Range received good initial response,
while The Summa has been sold out. The company intends to
offer the Tuen Mun development for sale in late 2015. On the
other hand, residential sales in China has remained slower. Preleasing of retail portion of Tianjin Kerry Centre, which is
scheduled to open for business in 1H15, is progressing. This
mall should make its maiden rental contribution in FY15. In
Hong Kong, Branksome Grande in Mid-levels is now fully
vacated for extensive renovation. The stock is trading at a 61%
discount to our appraised current NAV. BUY with HK$32.95 TP.
Capitalising on improved sentiment in residential market, Hang
Lung Properties sold c.HK$10bn worth of inventory units in
Hong Kong, with the bulk stemming from HarbourSide. This
not only produces a hefty development profit but also
generates capital to fund its commercial property development
in China. Riverside 66 in Tianjin opened for business in Sep 14,
with c.90% of retail space having been committed. Meanwhile,
pre-leasing activities of Olympia 66 in Dalian have begun. Hang
Lung Properties has been unlocking the value of its key
investment properties with the aid of asset enhancement
works. It has commenced enhancement works at its Causeway
Bay portfolio and plans to renovate Plaza 66 in Shanghai. The
stock is trading at a 42% discount to our assessed current NAV.
Trading opportunity has emerged despite the challenging
outlook of retail property sector in China. Upgrade to BUY with
HK$24.8 TP.
Henderson Land’s launches of Double Cove Starview Prime,
High One and High One Grand were greeted with satisfactory
initial response. More single-block residential developments are
expected to be released onto the market in 2015. In Sep 14,
Henderson Land secured the Middle Road site in Tsim Sha Tsui
through tender. It will be developed into a Ginza-type retail
tower. The stock is trading at a 33% discount to our appraised
current NAV. Though the current valuation is not stretched, we
do not foresee any near-term catalyst to narrow its NAV
discount and sustain its outperformance. HOLD with HK$55 TP.
MTRC is expediting the launch of property projects for tender
to align with the government's decision of raising the land
supply. MTRC successfully tendered out three projects (Tai Wai
Station project and Lohas Park Packages 4 & 5) in 2014 and
Lohas Park Package 6 in Jan 15. These projects should
underpin its development earnings in FY19-21. For the Tai Wai
Station project, MTRC will retain the ownership of the retail
portion with the payment of HK$7.5bn land premium. This,
coupled with the Maritime Square Extension in Tsing Yi, should
lead to its rental earnings expansion in the medium term. But
the stock, trading 12% below our assessed current NAV, is
fairly valued. HOLD with HK$34.75 TP.
K.Wah International sold over 30 luxury apartments at Grand
Summit in Shanghai, which should be its key development
earnings producer in FY14-15. Part of Grand Summit is
retained for leasing with maiden rental contributions expected
in FY15. In Hong Kong, decent profits are derived from
inventory sales at Chantilly and Marinella. K.Wah plans to sell
two residential projects in Tseung Kwan O in 2015. This should
help improve its financial strength. The stock is trading at 60%
below our assessed current NAV. BUY with HK$5.71 TP.
Wing Tai Properties’ trophy asset, Landmark East in Kwun
Tong, achieved robust average rental reversion of 48% in
1H14. With current spot rent (>HK$30psf) higher than expiring
rents, favourable rental reversion should continue upon
renewals. Its development pipeline of five projects, providing
total attributable GFA of 0.47msf, should be sufficient for the
coming four years. The company is financially healthy with
gearing remained at comfortable 16.8% as of Jun 14. The
stock is trading 67% below our assessed current NAV. BUY
with HK$5.91 TP.
After completing the upgrading works, Tai Cheung has
commenced the strata-titled sale of Metropole Square in Shatin.
The entire retail arcade at its 35%-held Sheraton-Hong Kong
Hotel has been leased to SOGO Department Store, which
should boost the hotel’s earnings and in turn be positive for Tai
Cheung. Sitting on a net cash holding of HK$1.93bn as of Sep
14, Tai Cheung should be able to maintain its generous
dividend policy and is well positioned to pursue opportunistic
land acquisitions. The stock is trading at a 65% discount to our
estimated current NAV. Excluding net cash, the discount to
NAV stands at 79%. BUY with HK$7.44 TP.
Aided by continued positive rental reversion and contributions
from new investment properties such as 100 Leadenhall Street
Page 29
China / Hong Kong Industry Focus
HK Property Sector
in London, Lai Sun Development’s rental earnings base is set to
strengthen, pointing to better earnings quality. The company
has also been re-building its residential landbank, with
additions of two residential/ commercial sites since late 2012.
With a 78% discount to our estimated current NAV, the
stock’s valuation appears undemanding, which should help
limit the downside risk on share price. BUY with HK$0.25 TP.
Discount to NAV – property developers sector average
%
30
20
+2SD: 6%
10
0
+1SD: -7%
(10)
Average: -20%
(20)
-1SD: -33%
(30)
-2SD: -47%
(40)
Jan/15
Jan/14
Jan/13
Jan/12
Jan/11
Jan/10
Jan/09
Jan/08
Jan/07
Jan/06
(60)
Jan/05
(50)
Source: Thomson Reuters, DBS Vickers
Peers valuation
Co mp an y
Cheung Kong
Hang Lung Props
Henderson Land
K Wah Int'l
Kerry Props
Lai Sun Dev
MTR Corp
New World Dev
Sino Land
SHKP
Tai Cheung
Wheelock & Co.
Wing Tai Properties
Co d e
1
101
12
173
683
488
66
17
83
16
88
20
369
Mkt
F YE
Cap
HK $bn
HK
HK
HK
HK
HK
HK
HK
HK
HK
HK
HK
HK
HK
Source: Thomson Reuters, DBS Vickers
Page 30
Dec
Dec
Dec
Dec
Dec
J ul
Dec
J un
J un
J un
Mar
Dec
Dec
330
95
160
12
40
4
192
82
75
342
4
83
7
L as t
Pric e
HK $
142.40
21.25
53.30
4.24
27.75
0.176
33.00
9.21
12.42
121.20
6.42
40.75
4.91
12-m
PE
PE
t arg et R ec o m F Y 1 5 F Y 1 6
HK $
x
x
166.00
24.80
55.00
5.71
32.95
0.25
34.75
11.05
14.58
142.00
7.44
44.25
5.91
Buy
Buy
Hold
Buy
Buy
Buy
Hold
Buy
Buy
Buy
Buy
Buy
Buy
10.0
13.3
17.4
15.1
14.9
20.3
20.2
11.2
17.5
17.0
15.3
8.4
15.8
10.4
22.3
16.3
8.6
15.3
18.4
22.4
10.2
15.9
14.8
7.6
7.8
21.8
D ec - 1 5
NA V
HK $
187.6
38.2
84.6
11.4
73.3
0.83
40.1
20.1
22.4
189.3
18.6
63.2
14.8
D isc . t o
D ec - 1 5 Y ield Y ield
NA V F Y 15 F Y 16
%
%
%
(24)
(44)
(37)
(63)
(62)
(79)
(18)
(54)
(45)
(36)
(66)
(36)
(67)
2.8
3.5
2.0
3.5
2.9
1.4
2.9
4.6
4.0
2.8
4.7
2.9
2.7
3.0
3.5
2.0
3.5
2.9
1.4
2.9
4.6
4.0
2.8
4.7
2.9
2.7
China / Hong Kong Industry Focus
HK Property Sector
Cheung Kong – Discount to NAV
Cheung Kong – Discount to NAV band
%
20
HK$
Hang Lung Properties – Discount to NAV
Jan-15
Jan-14
60
+2SD: 23%
50
+1SD: 5%
-52%
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
0
Jan-08
-30%
10
-2SD: -49%
Jan-07
-9%
30
20
-1SD: -31%
Jan-06
35%
13%
40
Average: -13%
Henderson Land – Discount to NAV
Henderson Land – Discount to NAV band
HK$
120
100
+2SD: 7%
Average: -25%
60
-23%
40
-43%
-63%
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
0
Jan-09
Jan-08
-2SD: -56%
Jan-07
-2%
20
-1SD: -41%
Jan-06
18%
80
+1SD: -9%
Jan-05
%
30
20
10
0
(10)
(20)
(30)
(40)
(50)
(60)
(70)
Jan-13
Hang Lung Properties – Discount to NAV band
HK$
Jan-05
%
40
30
20
10
0
(10)
(20)
(30)
(40)
(50)
(60)
Jan-12
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-05
(50)
Jan-06
-2SD: -41%
(40)
Jan-11
-1SD: -30%
(30)
Jan-10
(20)
Jan-09
(10)
-4%
-16%
-28%
-39%
Jan-08
+1SD: -9%
Average: -19%
8%
Jan-07
0
240
220
200
180
160
140
120
100
80
60
40
Jan-06
+2SD: 2%
Jan-05
10
Source: Thomson Reuters, DBS Vickers
Page 31
China / Hong Kong Industry Focus
HK Property Sector
K Wah Int’l – Discount to NAV
K Wah Int’l – Discount to NAV band
%
HK$
(35)
(40)
(45)
(50)
(55)
(60)
(65)
(70)
(75)
(80)
(85)
8.0
+2SD: -45%
7.0
+1SD: -53%
6.0
Average: -60%
5.0
-1SD: -67%
-2SD: -74%
-44%
-53%
4.0
-62%
3.0
-71%
-80%
Kerry Properties – Discount to NAV
%
40
Kerry Properties – Discount to NAV band
HK$
MTR Corp. – Discount to NAV
HK$
5
0
(5)
(10)
(15)
(20)
(25)
(30)
(35)
40
38
36
34
32
30
28
26
24
22
Average: -16%
-1SD: -21%
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
-2SD: -26%
Source: Thomson Reuters, DBS Vickers
Page 32
Jan-15
Jan-14
2%
-5%
-13%
-20%
-27%
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
+1SD: -10%
Jan-13
MTR Corp. – Discount to NAV band
%
+2SD: -5%
Jan-12
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
-2SD: -80%
-77%
Jan-11
(80)
Jan-10
(60)
-50%
Jan-09
-1SD: -56%
Jan-08
Average: -32%
(40)
3%
-24%
Jan-07
(20)
30%
Jan-06
+1SD: -8%
0
100
90
80
70
60
50
40
30
20
10
0
Jan-05
+2SD: 17%
20
(100)
1.0
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
2.0
China / Hong Kong Industry Focus
HK Property Sector
New World Development – Discount to NAV
New World Development – Discount to NAV band
HK$
%
0
(10)
(20)
(30)
(40)
(50)
(60)
(70)
(80)
(90)
35
+2SD: -15%
30
+1SD: -31%
25
Average: -47%
-1SD: -63%
15
-22%
-42%
-61%
-81%
5
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
0
Sino Land – Discount to NAV band
HK$
%
60
30
40
Average: -25%
(20)
-1SD: -46%
-73%
SHKP – Discount to NAV
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
0
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
-45%
10
5
-2SD: -67%
(60)
-17%
15
Jan-05
(40)
12%
20
+1SD: -5%
0
40%
25
+2SD: 16%
20
SHKP – Discount to NAV band
HK$
270
+2SD: 19%
-1SD: -37%
-12%
120
-34%
70
-55%
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
20
Jan-09
Jan-08
-2SD: -56%
Jan-07
9%
170
Average: -18%
Jan-06
30%
220
+1SD: 1%
Jan-05
%
40
30
20
10
0
(10)
(20)
(30)
(40)
(50)
(60)
-2%
10
-2SD: -78%
Sino Land – Discount to NAV
(80)
20
Source: Thomson Reuters, DBS Vickers
Page 33
China / Hong Kong Industry Focus
HK Property Sector
Tai Cheung – Discount to NAV
Tai Cheung – Discount to NAV band
HK$
%
(20)
14
(30)
12
+2SD: -44%
(40)
(60)
-1SD: -69%
-2SD: -78%
(70)
(80)
-61%
6
-72%
-83%
0
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
2
Wheelock & Co. – Discount to NAV
Wheelock & Co. – Discount to NAV band
%
20
HK$
%
(40)
Jan-15
Jan-14
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Wing Tai Properties – Discount to NAV
Jan-13
-2SD: -56%
(60)
-47%
Jan-12
(50)
Jan-11
-1SD: -43%
(40)
-15%
-31%
Jan-10
Average: -31%
(30)
Jan-09
(20)
1%
Jan-08
+1SD: -18%
17%
Jan-07
(10)
Jan-06
+2SD: -6%
0
90
80
70
60
50
40
30
20
10
0
Jan-05
10
Wing Tai Properties – Discount to NAV band
HK$
8.0
(45)
7.0
+2SD: -54%
+1SD: -58%
(55)
Average: -62%
(60)
-1SD: -66%
(65)
-2SD: -70%
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
(70)
Source: Thomson Reuters, DBS Vickers
Page 34
-51%
-56%
6.0
-61%
5.0
-65%
4.0
-70%
3.0
2.0
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
(50)
(75)
8
4
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
(90)
-49%
10
+1SD: -52%
Average: -61%
(50)
-38%
China / Hong Kong Industry Focus
HK Property Sector
Price to book chart
Cheung Kong
x
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Hang Lung Properties
x
3.0
2.5
2.0
Average: 1.33x
1.5
Average: 0.95x
1.0
0.5
Henderson Land
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
0.0
K Wah International
x
1.4
x
2.5
1.2
2.0
1.0
1.5
0.8
0.6
Average: 0.68x
Average: 0.79x
1.0
0.4
0.5
0.2
Jan-13
Jan-14
Jan-15
Jan-14
Jan-15
Jan-12
Jan-11
Jan-10
Jan-13
Kerry Properties
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
0.0
Jan-05
0.0
MTR Corporation
x
3.0
x
2.5
2.5
2.0
2.0
1.5
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
0.0
Jan-08
0.0
Jan-07
0.5
Jan-06
0.5
Jan-05
Average: 1.33x
1.0
Jan-06
Average: 1.03x
1.0
Jan-05
1.5
Source: Thomson Reuters, Company
Page 35
China / Hong Kong Industry Focus
HK Property Sector
Price to book chart (continued)
New World Development
x
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Sino Land
x
3.0
2.5
2.0
1.5
Average: 0.58x
Average: 1.01x
1.0
0.5
Jan-15
Jan-15
Jan-13
Jan-12
Jan-11
Jan-14
x
2.5
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
Jan-14
Sun Hung Kai Properties
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
0.0
Tai Cheung
x
1.4
1.2
1.0
0.8
0.6
Average: 0.71x
0.4
Average: 1.1x
0.2
Wheelock & Co.
x
0.45
1.0
0.40
0.8
0.35
Source: Thomson Reuters, Company
Jan-13
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
0.15
Jan-06
0.0
Jan-05
0.20
Jan-11
0.25
0.2
Page 36
Jan-12
Average: 0.33x
0.30
Average: 0.62x
0.4
Jan-11
Wing Tai Properties
x
1.2
0.6
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
0.0
China / Hong Kong Industry Focus
HK Property Sector
Policy chart
Hang Seng Property Index
Centa-City Leading Index
140
40,000
30,000
25,000
(4) (5)
(1)
20,000
(3)
(6)
(8)
(17)&(18)
(10)&(11)
(9)
(20)
(14) (16)
(12)
(10)&(11)
120
110
(19)
100
90
80
70
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
15,000
(7)
(2)
(20)
130
(6)
(5)
(3)
(1) (2)
(13)
(7) (8)
(19)
(15)(17)&(18)
(9)
(4)
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
35,000
(14)
(15)
(16)
(13)
(12)
H S Pro p ert y In d ex Perf o rman c e ( % )
1 - d ay 1 - w k 2 - w k 1 - mt h 3 - mt h
(1) 23-F eb-10
Raise stamp duty rate for properties v alued at more than HK$20m from 3.75% to
4.25%
Put up sev eral urban residential sites in the application list for sale in the next tw o
y ears if they are not triggered for sale
Liase w ith MTRC and URA to increase the supply of small to medium sized units
Explore means to rev italise the Home Ow nership Scheme secondary market
(2) 19-A pr-10 Introduced new guidelines for sale of flats
Initiated the auction of tw o luxury sites in Ho Man Tin and The Peak
(3) 13-A ug-10 Low er the max. LTV ratio for residential properties v alued at > HK$12m at 60%
Low er the max. LTV ratio for non ow ner-occupied residential properties to 60%
Standardise the max. debt serv icing ratio of mortgage applicants to 50% from 5060%
Prohibition of confirmor transaction for first-hand uncompleted flats
(4) 13-Oct-10 Introduce a new subsidised housing scheme (My Home Purchase Plan) to assist the
sandw ich class to purchase flats
Remov e real estate from qualified inv estment asset classes for inv estment
(5) 19-Nov -10 Introduce a special stamp duty , ranging from 5 to 15% of property v alues, on
top of the current stamp duty , on residential properties resold w ithin 2 y ears after
purchase
A ny deferred pay ment of current stamp duty no longer allow ed
Low er the max.LTV ratio for self-use residential properties v alued at > HK$12m
to 50% from 60%
Low er the max.LTV ratio for self-use residential properties v alued at HK$8-12m
to 60% from 70%
Cap the LTV ratio for non-ow ner occupied residential properties, properties held
by company and industrial and commercial properties at 50%
(6) 23-F eb-11 Proactiv ely increase land supply in F Y11/12
Housing land av ailable could prov ide 30,000-40,000 priv ate residential units
(7) 10-J un-11 The max. LTV ratio for residential properties v alued at HK$10-12m is low ered to
50% from 60%.
The max. LTV ratio for residential properties v alued at HK$7-10m is 60% with the
max. loan amount capped at HK$5m.
The max. LTV ratio for residential properties v alued at <HK$7m remains at 70%,
but the max. loan amount is capped at HK$4.2m
The applicabe max. LTV ratio w ill be lowered by at least 10 ppts regardless of
property ty pes or v alues if the principal income of mortgage loan applicants is not
deriv ed from Hong Kong
The max. LTV ratio for properties under the net w orth-based mortgage will be
lowered from 50% to 40%
0.5
4.1
7.9
5.5
(6.2)
0.1
(1.6)
(5.4)
(10.4)
(3.5)
(2.6)
(2.3)
(3.0)
3.1
1.2
0.1
(1.8)
1.8
(0.0)
(2.5)
(4.9)
(2.5)
(5.6)
(7.1)
(0.6)
3.4
6.1
2.3
1.5
(0.3)
(2.6)
(0.7)
4.4
(8.5)
16.7
Source: Thomson Reuters, Centaline Property Agency, DBS Vickers
Page 37
China / Hong Kong Industry Focus
HK Property Sector
Policy chart (continued)
Hang Seng Property Index
Centa-City Leading Index
140
40,000
30,000
25,000
(4) (5)
(7)
(2)
(1)
(3)
20,000
(8)
(17)&(18)
(10)&(11)
(9)
(20)
(14) (16)
(12)
(10)&(11)
120
110
(19)
100
90
80
70
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
15,000
(6)
(20)
130
(6)
(5)
(3)
(1) (2)
(13)
(7) (8)
(19)
(15)(17)&(18)
(9)
(4)
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
35,000
(14)
(15)
(16)
(13)
(12)
H S Pro p ert y In d ex Perf o rman c e ( % )
1 - d ay 1 - w k 2 - w k 1 - mt h 3 - mt h
(8) 12-Oct-11
3.0
(0.1)
2.9
2.4
2.9
(9)
1.0
0.5
8.3
12.9
19.0
3.5
7.8
9.5
12.8
19.4
1.7
7.5
6.2
7.6
15.8
(0.5)
(1.2)
1.0
(1.3)
8.7
(3.7)
0.1
(1.5)
2.8
15.4
(10)
(11)
(12)
(13)
Introduced the modified Home Ow nership Scheme
Modified the My Home Purchase Plan
30-A ug-12 Relaunch 830 unsold HOS units
Offers c.1,000 units under the rev ised "My Home Purchase Plan" in Tsing Yi for
pre-sale in 2013
Expedites the approv als for pre-sale consent
Redev elop Chai Wan F actory Estate into 180 PRH units and the URA w ill roll out
tw o pilot schemes on tw o industrial building redev elopments
Initiates the sales of 6 sites in application list and tender Tsuen Wan TW 6
dev elopment in 4Q12
06-Sep-12 Unv eiled the "Hong Kong Property for Hong Kong Residents" policy . Tw o
projects (c.1,100 units) to be built on Kai Tak New Dev elopment A rea can only
be sold to Hong Kong residents
08-Sep-12 Gov ernment planned to allow ow ners to conv ert their industrial buildings into
small-sized residential units w ithout pay ing land premium. There w ere an
estimated of 700 eligible industrial buildings.
14-Sep-12 Tightened mortgage lending rule for second home buy ers
The max. debt serv ice ratio (DSR) is low ered from 50% to 40% in base case
scenario and the maximum DSR is low ered from 60% to 50%.
LTV ratio for buy ers w ith income deriv ed mainly outside Hong Kong is low ered
10 ppts to 30-50%
The max. LTV ratio for mortgage loans assessed based on net w orth of applicants
is low ered to 30% regardless of proeprty v alues.
The max. loan tenure for all properties is limited to 30 y ears
26-Oct-12 Introduced Buy er's Stamp Duty (BSD), equiv alent to 15% of property v alues on
top of current stamp duty , for all-non Hong Kong permanent residents and
corporate homebuy ers
Modified the Special Stamp Duty (SSD) on residential properties w ith restriction
period extended from 2 y ears to 3 y ears and applicable tax rate increased to 1020% of property v alues from 5-15%
Source: Thomson Reuters, Centaline Property Agency, DBS Vickers
Page 38
China / Hong Kong Industry Focus
HK Property Sector
Policy chart (continued)
Hang Seng Property Index
Centa-City Leading Index
140
40,000
30,000
25,000
(4) (5)
(7)
(2)
(1)
(3)
20,000
(8)
(17)&(18)
(10)&(11)
(9)
(20)
(14) (16)
(12)
(10)&(11)
120
110
(19)
100
90
80
70
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
15,000
(6)
(20)
130
(6)
(5)
(3)
(1) (2)
(13)
(7) (8)
(19)
(15)(17)&(18)
(9)
(4)
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
35,000
(14)
(15)
(16)
(13)
(12)
H S Pro p ert y In d ex Perf o rman c e ( % )
1 - d ay 1 - w k 2 - w k 1 - mt h 3 - mt h
(14) 16-J an-13
(15) 22-F eb-13
(16) 29-A pr-13
(17) 27-J un-13
(18) 04-J ul-13
36 designated GIC sites and other Gov ernment sites (27 ha) w ill be conv erted for
housing dev elopment to prov ide 11,900 flats
13 sites in Green Belt areas (57 ha) are considered suitable for rezoning into
residential use
16 pieces of industrial land (30 ha) are considered suitable for rezoning for
residential dev elopment
Gov ernment w ill expedite adminstrativ e approv al procedures for 55 residential
projects (45,000 units) for w hich planning applications are approv ed
Take forw ard the planning of Kam Tin South West Rail Kam Sheung Road Station
and Pat Heung Station Maintenance Depot (8,700 units)
Gov ernment expedite the dev elopment of four projects including the former
Diamond Hill Squatter A rea, former Cha Kw o Ling Kaolin Mine, former Lamma
Quarry and A nderson Road Quarry .
Double stamp duties on A LL properties of >HK$2m increases to as much as 8.5%
of purchase prices. F or transaction v alued at HK$2m or below , the stamp duty
w ill increase from HK$100 to 1.5% of trasaction v alue.
In stress-testing mortgage applicants?repay ment ability , banks are required to
assume a mortgage rate increase of 300bps instead of the existing 200bps for all
ty pes of property
The max. LTV ratio for mortgage loans for all commercial and industrial properties
shall be low ered by 10% from the existing applicable lev els.
The max. LTV ratio for mortgage loans for all standalone car park space shall be
set at 40% w ith max. tenor of 15 y ears
Only mortgage loans of properties v alued at HK$4m or below ?(dow n from
HK$6m currently ) is eligible for the maximum Mortgage Insurance Programme
cov er of 90% of LTV ?
Stamp duties w ill be charged on signing S&P agreements for non-residential
properties instead of upon the execution of a conv ey ance
The Residential Properties (F irst-hand Sales) Ordinance comes into effectiv e.
Gov ernment extends the pre-sale period of priv ate residential flats to 30 months
from 20 months before project completion.
Gov ernment rev ised the plot ratios from 3.5 to 6 for Kw u Tung A rea and from 2
to 6 for F anling North. This should increase number of residential flats to 60,700
from 47,300.
The proportion of public housing in the new dev elopment areas w ill rise to 60%
(47% of the land).
F or priv ate housing, "Hong Kong people for Hong Kong property " measure w ill
be adopted as far as possible.
1.0
0.3
1.1
(2.6)
(9.2)
(0.3)
1.1
(0.2)
(6.6)
2.9
(0.1)
2.1
1.4
(0.5)
0.0
4.5
(3.5)
5.9
(8.3)
10.6
2.2
5.0
3.6
8.6
10.6
Source: Thomson Reuters, Centaline Property Agency, DBS Vickers
Page 39
China / Hong Kong Industry Focus
HK Property Sector
Policy chart (continued)
Hang Seng Property Index
Centa-City Leading Index
140
40,000
25,000
20,000
15,000
(7)
(2)
(1)
(3)
(6)
(8)
(17)&(18)
(10)&(11)
(9)
(20)
(14) (16)
(12)
(10)&(11)
120
110
(19)
100
90
80
70
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
30,000
(4) (5)
(20)
130
(6)
(5)
(3)
(1) (2)
(13)
(7) (8)
(19)
(15)(17)&(18)
(9)
(4)
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
35,000
(14)
(15)
(16)
(13)
(12)
H S Pro p ert y In d ex Perf o rman c e ( % )
1 - d ay 1 - w k 2 - w k 1 - mt h 3 - mt h
(19) 13-May -14 Gov ernment proposed to extend the w aiv er period for homebuy ers to obtain
refund for Double Stamp Duty . Local homebuy ers w ho sell their existing flats
w ithin six months after the execution of a conv ey ance on sale of new flats,
instead of signing the prov isional sales & purchase agreement could qualify for the
refund
(20) 31-Oct-14 The gov ernment announced to offer fiv e new Home Ow nership Scheme projects
for pre-sale w ith applications to commence in late 2014 and balloting in Mar
2015.
Source: Thomson Reuters, Centaline Property Agency, DBS Vickers
Page 40
1.8
1.2
2.4
4.8
0.0
(2.7)
(0.9)
0.3
13.9
n.a.
China / Hong Kong Industry Focus
HK Property Sector
Property Investors
Share price performance
Perf o rman c e ( % )
1 - mt h 3 - mt h 6 - mt h 2 H1 4 2 0 1 4 Y T D
Great Eagle
HK Land
Hy san Dev elopment
Swire Properties
Wharf Holdings
(0.2)
8.8
4.1
3.6
9.3
0.0
8.8
1.8
0.4
9.6
Sec t o r av erag e
6.9
3.7
5.8
HSI Index
HSP Index
(9.1) (10.9)
8.3
1.3
(0.3)
(4.5)
1.0
1.1
7.5
0.4
(4.9)
14.6
3.7
16.8
(5.6)
3.2
9.5
5.8
5.5
8.1
6.0
4.8
0.1
6.6
7.4
4.6
6.8
3.3
8.3
1.8
5.1
1.3
7.2
2.2
4.6
Source: Thomson Reuters
Overall, property investors delivered a relatively stable share
price performance in 2H14 and underperformed the property
developers/REITs as well as the Hang Seng Index. Two office
landlords, Swire Properties and Hongkong Land, staged slightly
better performances, amid a steady office market. This was
followed by Wharf which rose by a marginal 0.4%. Great Eagle
was the worst performing stock with its share price down
10.9% in 2H14.
Property investors are now trading at a 33% discount to our
current NAV estimates on a weighted average basis, which
compares favourably to its 10-year average of 27%. The sector
valuation remains undemanding. Within the sector, we like
Swire Properties the most in view of its appealing valuations
and steady outlook of Island East office markets. Great Eagle is
still in the investment phase, and hence we do not expect any
near-term catalyst to narrow its large discount to NAV.
Swire Properties' Island East office portfolio is virtually fully
leased with favourable rental reversions set to continue. Pacific
Place Office saw its occupancy recovering to 95% in Sep 14
but the mall registered a marginal decline in retail sales in
9M14. The Sep launch of Arezzo in Mid-levels met with
satisfactory initial market response. Other upmarket projects
such as Mount Parker Residences are largely sold, supporting
its FY14 development income. Trading 35% below our
assessed current NAV, the counter is attractively valued in view
of the company's asset mix and earnings quality. BUY with
HK$28.70 TP.
Despite its current negative rental reversion, we are positive on
the Central office market outlook, led by tight new supply. This
would benefit Hongkong Land. The company is developing a
commercial project (WF CENTRAL) and an office project in
Beijing which should augment its rental income when
completed in 2016-17. Despite earnings volatility, regional
residential investments give additional growth impetus to the
company and diversify its earnings base. The stock is trading at
a 26% discount to our assessed current NAV, against its 10year average of 20%. BUY with US$8.05 TP.
In 11M14, Wharf achieved Rmb20.2bn contracted sales in
China, representing 88% of its FY14 sales target of Rmb23bn.
The virtually fully-let Chengdu IFS Mall enjoys strong footfall
with 97% of its shops opened for business. The first office
tower there is 40% committed with another 26% of space
under the final stages of lease discussions. Retail sales at
Harbour City and Times Square grew 4.5% and 14.4%
respectively in 11M14, which compares favourably with the
city average. Following the recent rally, the counter is now
trading at 32% discount to our estimated current NAV. We
keep our BUY rating at this stage with a TP of HK$64.9 but a
better entry point would be seen if its share price goes 5%
lower.
Hysan Development's office occupancy stands high at c.97%.
About 28% of its office floor area is scheduled for roll over in
2015, with rental reversion expected to moderate to 10-15%.
In 11M14, overall retail tenant sales rose 18-20%, although
Lee Gardens hub, which houses mainly luxury brands, saw
marginally lower tenant sales. Foundation works of the
Sunning Plaza/Sunning Court redevelopment are underway
with project completion targeted for late 2017. Armed with a
healthy balance sheet, Hysan Development is exploring
investment opportunities in Hong Kong and overseas. The
counter is trading 41% below our assessed current NAV. BUY
with HK$40.90 TP.
In 2014, Great Eagle spent c.HK$4.4bn to acquire a residential
site in Pak Shek Kok, a hotel in downtown Washington and a
66.67% stake in Langham Xintiandi, and committed to acquire
The HUB Hotel for Rmb865m. Following this wave of
acquisitions, Great Eagle still sits on an estimated >HK$2bn of
net cash. The company should continue to be on a buying
spree, in our view. The stock is trading at a 64% discount to
our appraised current NAV. Yet, we do not see any near-term
re-rating catalyst and maintain our HOLD call with a
HK$28.9TP.
Page 41
China / Hong Kong Industry Focus
HK Property Sector
Peers valuation
Co mp an y
Great Eagle
HK Land @
Hy san Dev
Swire Props
Wharf
Co d e
41 HK
HKL SP
14 HK
1972 HK
4 HK
Mkt
F YE
Cap
HK $bn
Dec
Dec
Dec
Dec
Dec
@ denominated in USD
Source: Thomson Reuters, DBS Vickers
Page 42
17
17
39
141
183
L ast
Pric e
HK $
26.05
7.40
36.65
24.15
60.55
12-m
PE
PE
t arg et R ec o m F Y 1 5 F Y 1 6
HK $
x
x
28.90
8.05
40.90
28.70
64.90
Hold
Buy
Buy
Buy
Buy
10.0
19.1
17.8
19.9
13.9
9.6
20.0
17.6
21.6
12.8
Dec - 1 5
NA V
HK $
72.3
10.7
62.9
38.3
92.7
Disc . t o
D ec - 1 5 Y ield Y ield
NA V F Y 1 5 F Y 1 6
%
%
%
(64)
(31)
(42)
(37)
(35)
2.8
2.4
3.4
2.6
3.2
2.8
2.4
3.5
2.6
3.4
China / Hong Kong Industry Focus
HK Property Sector
%
HK$
0
(10)
(20)
(30)
(40)
(50)
(60)
(70)
(80)
(90)
60
+2SD: -30%
+1SD: -41%
-25%
40
-39%
-2SD: -76%
-82%
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
-67%
10
0
Jan-05
-53%
20
-1SD: -64%
Hongkong Land – Discount to NAV
Hongkong Land – Discount to NAV band
HK$
+2SD: 14%
10
12
+1SD: -3%
0
11%
10
(10)
-7%
8
(20)
-1SD: -37%
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
0
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
-2SD: -54%
Jan-07
(60)
-62%
2
Jan-06
(50)
-44%
4
Jan-05
(40)
-25%
6
Average: -20%
(30)
(70)
50
30
Average: -53%
%
20
Jan-15
Great Eagle – Discount to NAV band
Jan-15
Great Eagle – Discount to NAV
Jan-14
Jan/15
Jan/14
Jan/13
Jan/12
Jan/11
Jan/10
Jan/09
Jan/08
Jan/07
Jan/06
Jan/05
(70)
Jan-13
-2SD: -49%
(60)
Jan-12
-1SD: -37%
(50)
Jan-08
(40)
Property investors
become relatively
expensive
Jan-11
Average: -27%
Jan-07
(30)
Jan-10
(20)
Jan-07
+1SD: -14%
Jan-06
(10)
+2SD: -3%
Jan-06
30
25
20
15
10
5
0
(5)
(10)
(15)
(20)
0
Jan-09
Property developers
become relatively
expensive
%
Jan-05
%
Difference in the NAV discounts for property developers
and investors
Jan-08
Discount to NAV – property investors sector average
Source: Thomson Reuters, DBS Vickers
Page 43
China / Hong Kong Industry Focus
HK Property Sector
Hysan – Discount to NAV
Hysan – Discount to NAV band
%
HK$
0
63
+2SD: -15%
+1SD: -25%
(20)
(30)
Average: -36%
(40)
-1SD: -46%
-2SD: -56%
+2SD: -14%
+1SD: -22%
(20)
(25)
Average: -30%
(30)
-1SD: -37%
-2SD: -45%
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
(45)
Wharf – Discount to NAV
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
HK$
35
33
31
29
27
25
23
21
19
17
15
-13%
-21%
-28%
-36%
-43%
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
(5)
(15)
Jan-07
Swire Properties – Discount to NAV band
%
(10)
Jan-06
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Swire Properties – Discount to NAV
(40)
-69%
13
3
(35)
-54%
23
(70)
Wharf – Discount to NAV band
%
HK$
Source: Thomson Reuters, DBS Vickers
Page 44
Jan-15
Jan-14
Jan-13
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-06
Jan-05
Jan-07
-2SD: -50%
(60)
-66%
Jan-12
(50)
-50%
Jan-11
-1SD: -39%
Jan-10
Average: -27%
(40)
-33%
Jan-09
(30)
-17%
Jan-08
+1SD: -15%
(20)
-1%
Jan-07
+2SD: -4%
(10)
Jan-06
100
90
80
70
60
50
40
30
20
10
0
Jan-05
0
(70)
-40%
Jan-05
(60)
(50)
-25%
43
33
(50)
(80)
-10%
53
Jan-15
(10)
China / Hong Kong Industry Focus
HK Property Sector
Price to Book chart
Great Eagle
Hongkong Land
x
1.2
x
1.4
1.0
1.2
1.0
0.8
0.8
0.6
0.6
Average: 0.53x
Hysan Development
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-05
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
0.0
Jan-07
0.2
0.0
Jan-06
0.2
Jan-05
Average: 0.81x
0.4
Jan-06
0.4
Swire Properties
x
1.2
x
1.0
1.0
0.9
0.8
0.8
Average: 0.71x
0.7
Jan-15
Jul-14
Jan-15
Jan-15
Jan-14
Jan-14
Jan-14
Jul-13
Jan-13
Jan-13
Average: 0.7x
Jan-13
Jan-12
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
0.5
Jan-07
0.0
Jan-06
0.6
Jan-05
0.2
Jul-12
0.4
Jan-12
0.6
Wharf
x
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Average: 0.84x
Source: Thomson Reuters, Company
Page 45
China / Hong Kong Industry Focus
HK Property Sector
REITs
Hong Kong risk-free rate (yield of 10-year exchange
fund note)
Share price performance
%
Perf o rman c e (% )
3.5
2.5
2.0
1.5
1.542%
1.0
Jan-15
Jul-14
0.0
Jan-14
0.5
Jul-13
4.6
6.8
3.0
Jan-13
3.7
5.8
(1.1)
0.0
5.0
0.0
13.8
15.3
26.7
2.9
1.2
3.9
(9.8) (1.1)
7.3
n.a.
n.a. (1.5)
(5.6)
(5.4)
(9.7) 0.6
(4.9)
(4.1)
(9.3) 0.3
7.6
9.1
16.8
2.3
(1.0)
(1.9)
(8.1) 1.0
9.3
7.0
16.7
1.1
19.4
16.4
29.1
3.5
4.5
3.7
2.9
2.3
1 5 .6 1 3 .6 2 4 .9 2 .9
Jul-12
8.4
16.5
3.0
2.1
2.1
0.0
9.3
4.5
9.9
8.6
5.0
9 .4
Jan-12
3.2
4.8
(1.4)
0.9
0.6
0.0
(0.4)
0.5
0.0
3.2
2.3
3 .1
Jul-11
Champion REIT
F ortune REIT
Hui Xian REIT
J inmao Inv estments
Langham Hospitality
New Century REIT
Prosperity REIT
Regal REIT
Sunlight REIT
The Link REIT
Yuexiu REIT
Sec t o r av erag e*
Jan-11
1 - mt h 3 - mt h 6 - mt h 2 H1 4 2 0 1 4 Y T D
Source: Thomson Reuters
HSI Index
HSP Index
3.3
8.3
1.8
5.1
1.3
7.2
2.2
4.6
* DBSV coverage only
Following the unit price gain, the five REITs we cover are
trading at FY15 distribution yields of 3.6-6.1% or 4.1% on a
weighted average basis. On the other hand, the yield of the
Hong Kong 10-year Exchange Fund Note fell further to
1.542%. This translates into a current yield spread of 2.6% for
the sector, against its average of 2.9%.
Page 46
%
4.0
3.5
3.0
2.5
2.0
1.5
1.729%
1.0
0.5
Source: Bloomberg Finance L.P.
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
0.0
Jul-11
In 2H14, the unit prices of the five REITs under our coverage
gained 13.6% on a weighted average basis, mainly led by the
stellar performance of two retail REITs. This sector
outperformed not only the Hang Seng Index (+1.8%) but also
property developers (+4.3%) and property investors (+0.1%)
during the corresponding period. Within our coverage list, The
Link REIT was the best performer in 2H14, with its unit price up
16.4%. Divestment of nine non-core retail assets optimised the
portfolio, with the subsequent unit repurchase to support its
unit price performance. Its inclusion in the Hang Seng Index
further boosted its unit price. Fortune REIT also saw its unit
price increase 15.3%, as robust rental reversion continued to
support DPU growth. Despite the failed acquisition of AIA
Financial Centre, Sunlight REIT's unit price still rose 7% in
2H14.
US 10-year treasury bond yield
Jan-11
Source: Thomson Reuters
China / Hong Kong Industry Focus
HK Property Sector
enhancement works at Belvedere Square has commenced to
unlock its hidden value. Fortune REIT offers distribution yields
of 5.6-5.8% for FY15-16. We remain positive on its long-term
price appreciation potential, given its multiple growth engines.
BUY with HK$8.75 TP.
Sector yield spread
%
10
8.9%
8
6
+1SD: 4.5%
4
Average: 2.9%
2
-1SD: 1.4%
0
Oct-14
Mar-14
Jan-13
Aug-13
Jun-12
Apr-11
Nov-11
Feb-10
Sep-10
Jul-09
Dec-08
Oct-07
May-08
Mar-07
Jan-06
-0.7%
Aug-06
(2)
Source: Thomson Reuters, DBS Vickers
Going into 2015, rental reversions for retail facilities and
decentralised office properties should remain positive and be
the REITs’ key revenue growth driver. Asset enhancement
initiative should boost the rental value of the properties,
adding spice to the income increment.
Solid reversionary growth and ongoing asset enhancement
initiatives should continue to support The Link REIT's near-term
earnings expansion. Divestment of non-core retail properties
helped optimise its rental portfolio, while the subsequent unit
repurchase neutralised the DPU dilution that arose. The Link
REIT is carrying out due diligence for Longgang Vanke Mall in
Shenzhen, but its portfolio expansion in China should be
gradual. The Link REIT has just obtained the unitholders'
approval to modify its investment mandate to allow property
development. Currently, the Link REIT offers distribution yields
of 3.6-3.9% for FY15-16. This translates into yield spreads of
2.1-2.4%, against the average of 2%. BUY with HK$53.35 TP.
Fortune REIT completed the acquistion of Laguna Plaza in Lam
Tin in Jan 15. With initial property yield estimated at c.5%
(including income from the newly committed tenancies), this
fully debt-funded acquisition is yield accretive. Laguna Plaza
should also derive operational synergy with Fortune REIT's
other mall nearby, Centre de Laguna. Overall, this acquisition
fits in with Fortune REIT's investment strategy and would be
positive for its long-term growth. The HK$80m asset
Sunlight REIT’s key properties such as Sunlight Tower and
Sheung Shui Centre Shopping Arcade continue to benefit from
encouraging reversionary growth. The first phase of asset
enhancement initiatives at Metro City Ph 1 property, involving
facade and atrium upgrade, has recently been completed. This
will be followed by tenant reconfiguration in 2015. More
energy-saving measures will be introduced at Sheung Shui
Centre Shopping Arcade and Sunlight Tower to contain the
utility cost. Sunlight REIT offers distribution yields of 5.9-6.1%
for FY15-16. The REIT has repurchased 1m units since Nov 14.
Possible further unit buyback could lend support to its unit
price. BUY with HK$3.73TP.
Prosperity REIT's current portfolio occupancy stays high at 9798% with continued favourable rental increment upon lease
renewal. The HK$20m upgrading works at 9 Chong Yip Street
has been substantially completed, thus enhancing its
competitive edge. Following the debt refinancing in Nov 14,
Prosperity REIT has no refinancing need till 2017. Moreover,
HK$3.4bn of property assets became unencumbered upon
refinancing. This provides Prosperity REIT with greater financial
flexibility to pursue future acquisitions. Prosperity REIT is
trading at distribution yields of 6.1-6.2 % for FY15-16. BUY
with HK$2.88 TP.
Following the departure of BoAML and Nissan in 4Q14,
Champion REIT is striving to rebuild the occupancy at Citibank
Plaza which currently stands at <80%. Spot rate is firming up.
However, given high expiring rents, negative rental reversion is
seen upon lease renewal or new letting. Langham Place Office
Tower is virtually fully leased with space vacated by Ageas
Insurance being almost fully relet. For Langham Place Mall,
new cinema lease commenced in 2H14, and boosted the
passing rents remarkably. The REIT secured the green light
from its unitholders to modify the scope of its investment
strategy to include property development and investments in
certain financial instruments in Dec 14. Champion REIT is
trading at distribution yields of 5-5.4% in FY15-16. Maintain
HOLD at this stage with HK$3.72 TP.
Page 47
China / Hong Kong Industry Focus
HK Property Sector
Peers valuation
Co d e
F YE
Mkt
Cap
HK $m
L as t
Pric e
HK $
2778 HK
Dec
20,681
3.60
3.72
778 HK
Dec
15,142
8.07
8.75
87001 HK
Dec
18,224
3.44
J inmao Inv estments*
6139 HK
Dec
11,520
Langham Hospitality ^
1270 HK
Dec
6,836
New Century REIT^
1275 HK
Dec
808 HK
Dec
R EIT
Champion REIT*
F ortune REIT*
Hui Xian REIT@^
Prosperity REIT*
Regal REIT^
12-m
T arg et R ec o m
HK $
Y ield
F Y 14F
%
Y ield
F Y 15F
%
Y ield
F Y 16F
%
Pric e/ G earin g
BV
R at io
(x)
%
Hold
5.5
5.0
5.4
0.46
23.5
Buy
5.2
5.6
5.8
0.68
33.1
n.a.
NR
7.4
7.7
8.3
0.63
9.2
5.76
6.40
Buy
8.3
8.4
8.7
0.93
37.0
3.38
n.a.
NR
8.4
8.1
8.4
0.65
38.8
3,082
3.31
n.a.
NR
9.8
9.1
8.9
0.88
28.0
3,833
2.70
2.88
Buy
6.0
6.1
6.2
0.59
29.5
1881 HK
Dec
6,743
2.07
n.a.
NR
8.3
9.1
n.a.
0.43
31.8
Sunlight REIT*
435 HK
J un
5,780
3.54
3.73
Buy
5.6
5.9
6.1
0.50
24.3
The Link REIT*
823 HK
Mar 115,235
50.25
53.35
Buy
3.3
3.6
3.9
1.21
11.0
Yuexiu REIT^
405 HK
Dec
3.98
n.a.
NR
7.0
7.7
7.7
0.69
31.6
@ denominated in RMB
^ DPU based on consensus
Source: Thomson Reuters, *DBS Vickers
Page 48
11,143
0.0
Fortune REIT – Price to book NAV
x
1.4
%
25
1.2
20
1.0
0.8
15
0.6
0.4
0.2
0
The Link REIT – Price to book NAV
x
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
Aug/03
Jan/04
Jun/04
Nov/04
Apr/05
Sep/05
Feb/06
Jul/06
Dec/06
May/07
Oct/07
Mar/08
Aug/08
Jan/09
Jun/09
Nov/09
Apr/10
Sep/10
Feb/11
Jul/11
Dec/11
May/12
Oct/12
Mar/13
Aug/13
Jan/14
Jun/14
Nov/14
0
May/06
Sep/06
Jan/07
May/07
Sep/07
Jan/08
May/08
Sep/08
Jan/09
May/09
Sep/09
Jan/10
May/10
Sep/10
Jan/11
May/11
Sep/11
Jan/12
May/12
Sep/12
Jan/13
May/13
Sep/13
Jan/14
May/14
Sep/14
May/06
Sep/06
Jan/07
May/07
Sep/07
Jan/08
May/08
Sep/08
Jan/09
May/09
Sep/09
Jan/10
May/10
Sep/10
Jan/11
May/11
Sep/11
Jan/12
May/12
Sep/12
Jan/13
May/13
Sep/13
Jan/14
May/14
Sep/14
x
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Aug/03
Jan/04
Jun/04
Nov/04
Apr/05
Sep/05
Feb/06
Jul/06
Dec/06
May/07
Oct/07
Mar/08
Aug/08
Jan/09
Jun/09
Nov/09
Apr/10
Sep/10
Feb/11
Jul/11
Dec/11
May/12
Oct/12
Mar/13
Aug/13
Jan/14
Jun/14
Nov/14
Champion REIT – Price to book NAV
%
8
7
6
5
4
3
2
1
0
Nov/05
Mar/06
Jul/06
Nov/06
Mar/07
Jul/07
Nov/07
Mar/08
Jul/08
Nov/08
Mar/09
Jul/09
Nov/09
Mar/10
Jul/10
Nov/10
Mar/11
Jul/11
Nov/11
Mar/12
Jul/12
Nov/12
Mar/13
Jul/13
Nov/13
Mar/14
Jul/14
Nov/14
Nov/05
Mar/06
Jul/06
Nov/06
Mar/07
Jul/07
Nov/07
Mar/08
Jul/08
Nov/08
Mar/09
Jul/09
Nov/09
Mar/10
Jul/10
Nov/10
Mar/11
Jul/11
Nov/11
Mar/12
Jul/12
Nov/12
Mar/13
Jul/13
Nov/13
Mar/14
Jul/14
Nov/14
China / Hong Kong Industry Focus
HK Property Sector
Champion REIT – Yield vs Gov’t bond
%
30
25
20
15
10
5
Dividend Yield
Dividend Yield
Dividend Yield
HK 10-yr ex fund notes
Fortune REIT – Yield vs Gov’t bond
10
5
HK 10-yr exfund notes
The Link REIT – Yield vs Gov’t bond
HK 10-yr exc fund notes
Source: Thomson Reuters, DBS Vickers
Page 49
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
x
1.20
1.00
0.80
0.60
0.40
0.20
Page 50
%
20
18
16
14
12
10
8
6
4
2
0
0.00
Sunlight REIT – Price to book NAV
x
Source: Thomson Reuters, DBS Vickers
Jan/06
Jun/06
Nov/06
Apr/07
Sep/07
Feb/08
Jul/08
Dec/08
May/09
Oct/09
Mar/10
Aug/10
Jan/11
Jun/11
Nov/11
Apr/12
Sep/12
Feb/13
Jul/13
Dec/13
May/14
Oct/14
Dec/05
Jun/06
Dec/06
Jun/07
Dec/07
Jun/08
Dec/08
Jun/09
Dec/09
Jun/10
Dec/10
Jun/11
Dec/11
Jun/12
Dec/12
Jun/13
Dec/13
Jun/14
Dec/14
Prosperity REIT – Price to book NAV
Dec/06
Jun/07
Dec/07
Jun/08
Dec/08
Jun/09
Dec/09
Jun/10
Dec/10
Jun/11
Dec/11
Jun/12
Dec/12
Jun/13
Dec/13
Jun/14
Dec/14
Dec/06
Jun/07
Dec/07
Jun/08
Dec/08
Jun/09
Dec/09
Jun/10
Dec/10
Jun/11
Dec/11
Jun/12
Dec/12
Jun/13
Dec/13
Jun/14
Dec/14
China / Hong Kong Industry Focus
HK Property Sector
Prosperity REIT – Yield vs Gov’t bond
Dividend Yield
Dividend Yield
HK 10-yr ex fund notes
Sunlight REIT – Yield vs Gov’t bond
%
30
25
20
15
10
5
0
HK 10-yr ex fund notes
China / Hong Kong Industry Focus
HK Property Sector
Appendix: Asset breakdown
Property developers
G A V B reak d o w n ( % )
HK
Residential
Office
Retail
Hotel
Industrial
Others
F armland
China
Ov erseas
Listed subsidiaries. associates
& inv estments
Other assets
T o t al
G A V B reak d o w n ( % )
HK
Residential
Office
Retail
Hotel
Industrial
Others
F armland
China
Ov erseas
Listed subsidiaries. associates
& inv estments
Other assets
T o t al
Ch eu n g
K ong
34
16
4
4
9
0
0
0
12
4
H an g L u n g
Pro p s
52
16
12
22
0
0
2
0
48
0
H en d erso n
L an d
53
8
13
17
4
1
5
5
17
0
K . W ah
K erry Pro p s
L ai Su n
M T RC
29
25
1
4
0
0
0
0
55
0
40
28
5
6
0
0
1
0
51
2
86
11
37
29
7
0
2
0
0
12
41
10
6
22
0
0
3
0
2
0
50
0
31
16
7
2
0
0
100
0
100
0
100
0
100
1
100
0
100
58
100
N ew W o rld
D ev
Sin o L an d
SH K P
T ai Ch eu n g
W h eelo c k &
Co .
W in g T ai
Pro p s
67
22
4
20
17
0
1
2
15
0
85
29
17
33
2
3
1
0
7
6
75
23
19
23
5
1
2
1
20
2
97
36
24
8
28
0
0
0
0
2
28
17
8
2
0
0
0
0
0
6
89
17
60
0
6
6
0
0
5
3
18
1
3
1
67
2
0
100
0
100
1
100
0
100
0
100
0
100
* For New World Development, its stake in New World China Land is classified under "China" instead of "listed subsidiaries, associates and
investments
* For Wheelock & Co, its stake in Wheelock Properties (Singapore) is classified under "Overseas" instead of "listed subsidiaries, associates and
investments
Source: DBS Vickers
Page 51
China / Hong Kong Industry Focus
HK Property Sector
Property investors
G A V B reak d o w n (% )
HK
Residential
Office
Retail
Hotel
Industrial
Others
F armland
China
Ov erseas
Listed subsidiaries. associates &
inv estments
Other assets
T o t al
Source: DBS Vickers
Page 52
G reat Eag le
15
8
5
1
0
0
0
0
10
28
Ho n g k o n g L an d
62
0
51
10
1
0
0
0
18
20
Hy san
89
10
37
41
0
0
1
0
9
0
Sw ire Pro p s
80
7
50
17
4
1
2
0
17
3
W h arf
63
7
19
35
2
1
0
0
31
0
41
0
0
0
4
7
100
0
100
2
100
0
100
2
100
China / Hong Kong Industry Focus
HK Property Sector
Appendix: NAV sensitivities
Property developers
% in c reas e in N A V
if t h e f o llo w in g p ric es
ris e b y 1 0 %
Office -HK
Retail - HK
Residential - HK
Hotels - HK & ov erseas
Ch eu n g
K ong
H an g L u n g
Pro p s
H en d ers o n
L an d
K . W ah
K erry Pro p s
L ai Su n
M T RC
0.4%
0.5%
1.4%
1.0%
1.2%
2.2%
1.1%
0.0%
1.5%
1.9%
0.8%
0.4%
0.1%
0.6%
3.4%
0.1%
0.7%
0.7%
3.3%
0.5%
5.3%
4.2%
1.6%
0.0%
0.6%
2.6%
1.4%
0.0%
% in c reas e in N A V
if t h e f o llo w in g p ric es
ris e b y 1 0 %
Office -HK
Retail - HK
Residential - HK
Hotels - HK & ov erseas
N ew W o rld
D ev
Sin o L an d
SH K P
T ai Ch eu n g W h eelo c k &
Co
W in g T ai
Pro p s
0.5%
2.6%
1.8%
2.2%
1.4%
3.3%
1.9%
0.6%
2.1%
2.9%
2.5%
0.6%
2.1%
0.7%
2.9%
2.4%
0.8%
0.3%
2.2%
0.0%
G reat Eag le
Hongk ong
L an d
H y s an
Sw ire Pro p s
W h arf
0.5%
0.1%
1.1%
2.7%
5.8%
1.1%
0.0%
0.1%
4.1%
4.4%
1.1%
0.0%
5.6%
1.9%
0.6%
0.7%
2.4%
4.4%
0.9%
0.2%
7.2%
0.0%
2.2%
0.9%
Source: DBS Vickers
Property investors
% in c reas e in N A V
if t h e f o llo w in g p ric es
ris e b y 1 0 %
Office -HK
Retail - HK
Residential - HK
Hotels - HK & ov erseas
Source: DBS Vickers
Page 53
China / Hong Kong Industry Focus
HK Property Sector
This page has been left blank intentionally
Page 54
China / Hong Kong Industry Focus
HK Property Sector
STOCK PROFILES
Page 55
HK Property Sector
Cheung Kong
Bloomberg: 1 HK Equity | Reuters: 0001.HK
Refer to important disclosures at the end of this report
More than unlocking value
BUY HK$142.4 HSI: 24,113
Price Target: 12-Month HK$166
Potential Catalyst: Completion of Group restructuring
DBSV vs Consensus: Market has slightly higher earnings estimates for
FY14-15.
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
161.6
216
151.6
196
141.6
176
131.6
121.6
156
111.6
136
101.6
116
91.6
96
81.6
71.6
Jan-11
Jan-12
Jan-13
Cheung Kong (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
2013A *
Turnov er
EBITDA
Pretax Profit
Net Profit
EPS (HK$)
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Estimated NA V (HK$)
Discount to NA V (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
32,314
19,145
40,178
35,260
15.22
10
9.4
59.4
18.2
3.48
2.4
2
10.2
76
Jan-15
Jan-14
Relative HSI INDEX (RHS)
2014F ^
2015F
2016F
37,251
19,388
38,465
33,041~
14.27
(6)
10.0
11.9
18.0
10.83
7.6
3
9.0
58,376
22,843
40,372
32,834
14.18
(1)
10.0
16.2
15.3
4.06
2.8
1
8.6
171.3
(17)
38,385
17,554
37,157
31,744
13.71
(3)
10.4
(45.5)
19.9
4.30
3.0
2
7.8
187.6
(24)
Nil
14.82
S: 0
Nil
15.62
H: 1
Nil
15.35
B: 19
* Net profit included fair v alue changes on inv estment properties
^ F Y14 DPS includes special DPS of HK$7
~ Exclude Hutchison's gain on separate listing of HK electricity
business
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: A leading local property developer with 49.9%
stake in Hutchison Whampoa.
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 56
www.dbsvickers.com
ed-SGC / sa- AH
 Restructuring to unlock value
 CKH Holdings/CK Property a stronger duo
 BUY with HK$166 TP
Restructuring to unlock value. The Cheung Kong Group
has announced a major group restructuring that will
involve: 1) merging Cheung Kong and Hutchison into a
newly formed entity CKH Holdings, and 2) consolidating
the Group's property businesses under CK Property,
which would then be spun off by way of introduction.
Following the restructuring, the existing Cheung Kong
shareholders will have direct stakes in two listed
companies, CKH Holdings and CK Property. This would
remove the layer of holding company discount for
Cheung Kong’s stake in Hutchison, which should lift
valuation. CKH Holdings/CK Property a stronger duo. The
restructuring will create a clear delineation of businesses
between CKH Holdings and CK Property. CKH Holdings
will emerge as a global conglomerate with enhanced
infrastructure businesses, while CK Property will be a
pure property play with a strong foothold in Hong
Kong/China. This would eliminate the current business
overlaps between Cheung Kong and Hutchison. The clear
business focus would improve investment appeal for
these new entities, compared to Cheung Kong/Hutchison.
For example, CK Property could be a core holding for
property-centric investors in future. The transfer of
HK$55bn cash from CK Property to CKH Holdings under
restructuring would allow better redeployment of
financial resources within the group.
BUY with HK$166 TP. The restructuring is positive for
Cheung Kong/Hutchison, and the stock could trade up to
HK$166.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Li Ka-shing
J PMorgan Chase & Co.
F ree F loat (%)
A v g Daily V olume (m shrs)
2,316
329,822 / 42,541
43.33
5.49
56.67
3.9
HK Property Sector
Cheung Kong
Income Statement (HK$m)
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
Minority Interest
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
Balance Sheet (HK$m)
2013A
2014F
2015F
2016F
32,314
37,251
58,376
38,385
19,145
19,388
22,843
17,554
(325)
(351)
(379)
(409)
18,820 19,037 22,464 17,145
16,300
19,778
18,457
20,662
(306)
(350)
(550)
(650)
5,364
40,178 38,465 40,372 37,157
(4,206)
(5,124)
(6,902)
(5,113)
(712)
(300)
(636)
(300)
35,260 33,041 32,834 31,744
4
15
57
(34)
10
(6)
(1)
(3)
59.2
52.0
39.1
45.7
58.2
51.1
38.5
44.7
10.5
13.3
17.1
13.8
Cash Flow Statement (HK$m)
F Y D ec
2013A
EBIT
18,820
Tax Paid
(855)
Depr/A mort
325
Chg in Wkg Cap
(2,870)
Othr Non-Cash
(800)
O p erat io n al CF 1 4 , 6 2 0
Capex
(168)
A ssoc, MI, Inv smt
7,060
In v es t men t CF
6,892
Net Chg in Debt
(6,093)
New Capital
Div idend
(7,524)
Other financing CF
2,215
F in an c in g CF
(11,402)
Chg in Cash
10,110
Chg in Net Cash
16,203
F Y D ec
2013A
2014F
2015F
2016F
F ixed A ssets
38,754
55,842
56,765
57,966
Other LT A ssets
272,878
274,337
290,231
293,437
Cash/ST Inv estments
34,557
36,882
44,597
40,735
Other Current A ssets
82,648
76,804
79,748
105,022
T o t al A s s et s
428,837 443,866 471,341 497,161
ST Debt
2,438
6,238
10,038
13,838
Other Current Liab
13,028
13,978
14,928
15,878
LT Debt
39,452
39,652
37,852
36,052
Other LT Liab
1,098
1,098
1,098
1,098
Perpetual securities
9,048
9,048
9,048
9,048
Minority Interests
3,092
3,099
3,443
3,451
Shareholders' Equity
360,681
370,753
394,934
417,796
T o t al Cap it al
428,837 443,866 471,341 497,161
Share Capital (m)
2,316
2,316
2,316
2,316
Net Cash/(Debt)
(8,693)
(10,268)
(4,453)
(10,215)
Working Capital
101,739
93,471
99,380
116,042
Net Gearing (%)
2
3
1
2
Segmental Breakdown (HK$m)/ Key Assumptions
2014F
2015F
2016F
19,037
22,464
(4,524)
(6,302)
351
379
8,514
(2,194)
16,506
2,614
39,883 16,962
(16,000)
(1,000)
1,863
(14,137) (1,000)
4,000
2,000
(24,701)
(9,247)
(700)
(900)
(21,401) (8,147)
4,345
7,815
345
5,815
17,145
(4,513)
409
(24,524)
17,506
6,022
(1,000)
(1,000)
2,000
(9,784)
(1,000)
(8,784)
(3,762)
(5,762)
F Y D ec
2013A
2014F
2015F
2016F
27,589
Property sales
Property rental
1,960
Hotels and serv iced
suites
2,368
Property and project
management
397
T o t a l s ales
32,314
32,620
1,890
53,681
1,896
33,634
1,910
2,324
2,370
2,403
417
37,251
429
58,376
438
38,385
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 57
HK Property Sector
Hang Lung Properties
Bloomberg: 101 HK Equity | Reuters: 0101.HK
Refer to important disclosures at the end of this report
BUY HK$21.25 HSI: 24,113
Progressing amid market challenges
(Upgrade from Hold)
Price Target: 12-Month HK$24.80 (Prev HK$24.9)
Potential Catalyst: Low valuation
DBSV vs Consensus: Market has slightly lower earnings estimate for
FY15.
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
213
38.1
193
173
33.1
153
28.1
133
23.1
93
113
73
18.1
Jan-11
Jan-12
Jan-13
Hang Lung Properties (LHS)
53
Jan-15
Jan-14
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y Dec (HK $ m)
Turnov er
EBITDA
Pretax Profit
Net profit*
EPS (HK$)*
EPS Gth (%)
PE (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NAV (HK$)
Discount to NAV (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
2013A
2014F
2015F
2016F
9,138 16,946
6,268 11,544
6,679 11,792
5,050
9,063
1.13
2.02
(18)
79
18.8
10.5
16.6
9.0
0.75
0.75
3.5
3.5
1
Cash
4.2
7.1
14,465
9,411
9,431
7,150
1.59
(21)
13.3
11.1
0.75
3.5
Cash
5.3
36.8
(42)
8,458
5,904
5,875
4,275
0.95
(40)
22.3
17.6
0.75
3.5
1
3.1
38.2
(44)
77
1.49
B: 9
31
1.40
S: 2
New
1.45
H: 10
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property developer and investor
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 58
www.dbsvickers.com
ed- JS / sa- AH

Pre-leasing of Olympia 66 in Dalian commences

Brisk residential inventory sales in Hong Kong

Upgrade to BUY with HK$24.80 TP
Pre-leasing of Olympia 66 in Dalian commences. Riverside 66 in
Tianjin opened for business in Sep 14. About 90% of the retail space
has been committed with >70% already opened for business.
Despite relatively low initial yield of 4-5%, there should be scope for
yield enhancement through tenant remix in future given Hang
Lung's expertise and the mall's superb location. Pre-leasing for
Olympia 66 in Dalian has commenced. With 2.4m sf GFA, Olympia
66 will be the largest mall in Hang Lung's portfolio. In addition to
retail shops, entertainment facilities such as ice skating rink will be
included to enhance the appeal of Olympia 66. In 2015, Hang Lung
plans to rejuvenate Plaza 66 in Shanghai through a phased
renovation program so that it stays competitive against other new
malls.
Brisk residential inventory sales in Hong Kong. Hang Lung relaunched HarbourSide in Aug 14 and has since sold >260 units,
generating sales proceeds of >HK$8bn. Including c.150 units at The
Long Beach sold earlier, Hang Lung has reaped c.HK$10bn revenue
from inventory sales in FY14, with hefty pre-tax development
earnings estimated at >HK$6bn. Capital generated will be used to
fund its commercial property development projects in China. Besides,
Hang Lung has been taking proactive steps to add value to its key
rental properties. It has commenced enhancement works for its
Causeway Bay retail portfolio, which is being undertaken in phases
with total capex estimated at HK$300m and targeted completion in
late 2016. Renovation of Fashion Walk is currently underway to pave
way for tenant mix refinement. H&M will replace multiple shops to
open a 46,000sf flagship store at Hang Lung Centre by late-15.
BUY with HK$24.80 TP. The stock is trading 42% below our
assessed current NAV. Trading opportunity has emerged even after
allowing for challenges in China's retail property market due to the
anti-corruption campaign and rapid development of e-commerce.
Upgrade to BUY. Our TP of HK$24.80 is based on a 35% discount
to our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
M kt Cap (HK$m/US$m)
M ajor Shareholders (%)
Hang Lung Group
A berdeen A sset M anagement Plc
OppenheimerF unds, Inc.
F ree F loat (%)
A v g Daily V olume (m shrs)
4,485
95,313 / 12,294
53.21
6.22
5.01
35.56
3.7
HK Property Sector
Hang Lung Properties
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y D ec
F Y 13A
F Y 14F
F Y 15F
F Y 16F
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
Preference Div idend
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
Underly ing Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
9,138
16,946
6,268
11,544
(37)
(37)
6,231 11,507
53
55
395
230
6,679 11,792
(1,228)
(2,299)
(401)
(429)
5,050
9,063
24
85
(18)
79
(18.3)
79.5
68.6
68.1
68.2
67.9
14,465
9,411
(37)
9,374
57
0
9,431
(1,839)
(442)
7,150
(15)
(21)
(21.1)
65.1
64.8
8,458
5,904
(37)
5,867
58
(50)
5,875
(1,146)
(454)
4,275
(42)
(40)
(40.2)
69.8
69.4
F ixed A ssets
138,354 145,681 154,835 165,326
Other LT A ssets
1,045
1,066
1,088
1,110
Cash/ST Inv estments
34,321
39,617
40,249
39,398
Other Current A ssets
8,560
5,246
3,458
512
T o t al A s s et s
182,280 191,610 199,630 206,345
ST Debt
1,657
10,983
3,500
3,501
Other Current Liab
6,610
6,602
6,595
6,588
LT Debt
33,322
25,496
34,479
37,478
Other LT Liab
9,524
9,921
10,330
10,752
M inority Interests
6,633
6,907
7,180
7,452
Shareholders' Equity
124,534 131,701 137,545 140,574
T o t al Cap it al
182,280 191,610 199,630 206,345
Share Capital (m)
4,479
4,479
4,479
4,479
Net Cash/(Debt)
(658)
3,138
2,270
(1,581)
Working Capital
34,614
27,278
33,612
29,820
Net Gearing (%)
1
Cash
Cash
1
Cash Flow Statement (HK$m)
F Y 13A
F Y 14F
F Y 15F
F Y 16F
Segmental Breakdown (HK$m)/ Key Assumptions
F Y D ec
F Y 13A
F Y 14F
F Y 15F
F Y 16F
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
6,231
(897)
37
(363)
148
5,156
(9,852)
8,956
(896)
5,060
44
(3,436)
(1,109)
559
4,819
(241)
11,507
(2,299)
37
4,264
0
13,508
(5,229)
814
(4,415)
1,500
(3,789)
(1,508)
(3,797)
5,296
3,796
9,374
(1,839)
37
2,838
0
10,410
(6,451)
685
(5,766)
1,500
(3,806)
(1,707)
(4,013)
632
(868)
5,867
(1,146)
37
4,096
0
8,855
(7,717)
686
(7,031)
3,000
(3,818)
(1,857)
(2,675)
(851)
(3,851)
F Y D ec
F Y 13A
F Y 14F
F Y 15F
F Y 16F
Property Sales
Property Leasing
T o t al s ales
2,500
9,683
6,638
7,264
9,138 16,946
6,634
7,830
14,465
0
8,458
8,458
F Y 15F
0 to -5%
0 to 5%
0 to 3%
F Y 16F
0 to -5%
0 to 5%
0 to 5%
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 59
HK Property Sector
Henderson Land
Bloomberg: 12 HK Equity | Reuters: 0012.HK
Refer to important disclosures at the end of this report
Catalyst needed for further re-rating
HOLD HK$53.3 HSI: 24,113
Price Target: 12-Month HK$55 (Prev HK$52.1)
Potential Catalyst: n.a.
DBSV vs Consensus: Market has slightly higher earnings estimate for
FY14-15.

More single-block residential developments for sale

Secured a site in Tsim Sha Tsui for Ginza-type retail tower
development
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com

HOLD with HK$55 TP
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
213
57.5
193
52.5
173
47.5
153
42.5
133
37.5
113
32.5
93
27.5
Jan-11
Jan-12
Jan-13
Henderson Land (LHS)
73
Jan-15
Jan-14
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y Dec (HK$m)
Turnover
EBITDA
Pretax Profit*
Net Profit*
EPS (HK$)
EPS Gth (%)
PE (x)
P/Cash Flow (x)
EV/EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NAV (HK$)
Discount to NAV (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
2013A
2014F
2015F
2016F
23,289
6,014
10,270
8,938
3.04
24
17.5
(688.4)
32.7
0.96
1.8
17
4.17
20,953
6,078
10,550
9,062
3.02
(1)
17.6
42.6
32.4
1.08
2.0
16
3.96
20,460
6,422
10,719
9,181
3.06
1
17.4
52.6
30.6
1.08
2.0
17
3.85
79.5
(33)
19,994
6,576
11,208
9,803
3.27
7
16.3
41.3
29.9
1.08
2.0
17
3.98
84.6
(37)
2
3.13
B: 7
(4)
3.17
S: 4
New
3.24
H: 9
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property development, real estate
management, and property rental
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 60
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ed-TH / sa- AH
More single-block residential developments for sale.
The launch of Double Cove Starview Prime met with
satisfactory initial response, with some 55% of total units
having been sold, and ASP exceeding HK$12,000psf.
Henderson Land also offered High One Grand and High One
in Cheung Sha Wan for pre-sale. They comprise mainly smallsized units which drew strong market interest. In 2015,
Henderson Land plans to release more single-block residential
developments onto the market in addition to Double Cove Ph
4 and 5.
Secured a site in Tsim Sha Shui for Ginza-type retail
tower development. In Sep 14, Henderson Land won the
tender for the Middle Road site in Tsim Sha Tsui for
HK$4.688bn, after outbidding 17 other developers. Excluding
the area earmarked for 384 public parking spaces as required
in the lease, our estimated accommodation value is
c.HK$18,750psf. The site is situated right next to East Tsim
Sha Tsui Station and adjacent to Sheraton Hong Kong Hotel,
with 0.34m sf GFA for non-industrial use. Henderson Land
intends to build a Ginza-type retail tower which is targeted
for completion in 2019. In the area, Henderson Land is
currently joining forces with Lai Sun Development to develop
a commercial building on the Observatory Road that is
scheduled for completion in 3Q15.
HOLD with HK$55 TP. The stock is trading at a 33%
discount to our assessed current NAV. While the current
valuation is by no means stretched, we do not foresee any
imminent catalyst to narrow the NAV discount further.
Maintain HOLD with HK$55 TP, based on a 35% discount to
our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
3,000
Mkt Cap (HK$m/US$m)
159,918 / 20,627
Major Shareholders (%)
Lee Shau-Kee
69.4
Cameron Enterprise Inc.
7.68
Richbond Inv estment Limited
6
Silchester International Inv estors LLP
5.01
11.91
F ree F loat (%)
Av g Daily V olume (m shrs)
3.7
HK Property Sector
Henderson Land
Income Statement (HK$m)
F Y Dec
Turnov er
EBITDA
Depr/Amort
O pg Prof it
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net Prof it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
2013A
Balance Sheet (HK$m)
2014F
2015F
2016F
23,289
20,953
20,460
19,994
6,014
6,078
6,422
6,576
(197)
(195)
(199)
(203)
5,817
5,883
6,223
6,373
5,146
5,535
5,102
5,116
(649)
(450)
(650)
(700)
10,270 10,550 10,719 11,208
(1,244)
(1,250)
(1,282)
(1,305)
(88)
(238)
(257)
(100)
8,938
9,062
9,181
9,803
49
(10)
(2)
(2)
26
1
1
7
25.8
29.0
31.4
32.9
25.0
28.1
30.4
31.9
12.1
11.8
12.0
11.6
Cash Flow Statement (HK$m)
F Y Dec
F ixed Assets
Other LT Assets
Cash/ST Inv estments
Other Current Assets
T ot al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T ot al Capit al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
2013A
2014F
2015F
2016F
109,266 114,606 116,873 119,180
85,700
87,463
90,554
94,053
15,858
17,993
16,498
15,648
93,290
97,867 103,048 107,649
304,114 317,930 326,973 336,529
8,679
12,588
12,988
13,388
16,740
17,240
17,140
17,040
43,580
41,671
42,271
42,872
7,115
7,115
7,115
7,115
4,598
5,089
5,293
5,345
223,402 234,227 242,167 250,769
304,114 317,930 326,973 336,529
2,969
2,969
2,969
2,969
(38,344) (38,209) (40,704) (42,555)
83,729
86,033
89,418
92,868
17
16
17
17
Segmental Breakdown (HK$m)/ Key Assumptions
F Y Dec
2013A
2014F
2015F
2016F
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O perat ional CF
Capex
Assoc, MI, Inv smt
Inv est ment CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F inanc ing CF
Chg in Cash
Chg in Net Cash
5,817
(1,218)
197
(5,848)
(298)
(1,350)
33
698
731
4,416
(697)
(2,212)
1,507
888
(3,528)
5,883
(1,250)
195
(2,777)
450
2,501
(246)
3,353
3,107
2,000
(3,273)
(2,200)
(3,473)
2,135
135
6,223
(1,282)
199
(3,830)
450
1,760
(245)
2,056
1,811
1,000
(3,515)
(2,550)
(5,065)
(1,495)
(2,495)
6,373
(1,305)
203
(3,151)
450
2,571
(244)
2,036
1,792
1,001
(3,514)
(2,700)
(5,213)
(851)
(1,852)
F Y Dec
Sales of property
Rental income
Construction
Infrastructure
Hotel operation
Department stores
Others
T ot al sales
K ey assumpt ions
Residential price - HK
Office rental - HK
Retail rental - HK
2013A
2014F
2015F
2016F
15,743
4,994
1,290
0
194
399
669
23,289
12,924
5,351
1,367
0
194
427
689
20,953
11,936
5,697
1,436
0
232
448
710
20,460
10,979
6,064
1,508
0
242
471
731
19,994
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
Source: Company, DBS Vickers
Page 61
HK Property Sector
K. Wah International
Bloomberg: 173 HK Equity | Reuters: 0173.HK
Refer to important disclosures at the end of this report
Focusing on project sales
BUY HK$4.24 HSI: 24,113
Price Target: 12-Month HK$5.71 (Prev HK$5.77)
Potential Catalyst: Project launches
DBSV vs Consensus: Market has higher earnings estimates for FY1416.
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
217
6.3
197
177
5.3
157
4.3
137
117
3.3
97
2.3
77
1.3
Jan-11
Jan-12
Jan-13
K Wah Intl (LHS)
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y Dec (HK $m)
2013A *
Turnov er
EBITDA
Pretax Profit
Net Profit
Underling Profit
EPS (HK$)
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Estimated NAV (HK$)
Discount to NAV (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
57
Jan-15
Jan-14
7,288
2,682
3,004
1,647
1,389
0.61
(63)
7.0
(130.4)
8.7
0.15
3.5
14
7.0
2014F
2015F
2016F
2,148
921
1,059
558
558
0.20
(67)
20.9
(2.1)
25.4
0.15
3.5
43
2.0
4,647
1,482
1,588
783
783
0.28
38
15.1
7.9
15.8
0.15
3.5
37
2.7
10.5
(60)
8,664
2,000
1,935
1,371
1,371
0.49
75
8.6
3.4
11.7
0.15
3.5
29
4.7
11.4
(63)
(1)
0.34
B: 3
(17)
0.42
S: 0
(21)
0.62
H: 1
* Net profit included fair value changes on investment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property development & investment in Hong
Kong & China
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 62
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ed-TH/ sa- AH

Planned sales of two Tseung Kwan O projects

Rolling out project launches in China

BUY with HK$5.71 TP
Planned sales of two Tseung Kwan O projects. K.Wah
International sold three units at each of Chantilly at Shiu Fai
Terrace and Marinella in Aberdeen (35%) for total attributable
revenue of HK$440m in 2H14. The overall pre-tax margins are
estimated at 50%+. Continued sales of these two luxury
developments should dictate the company's near-term
development earnings from Hong Kong. Over 83% of total
units at Mayfair by the Sea I in Tai Po has been pre-sold since its
initial launch in Jun 14. Scheduled for completion in 2015, this
waterfront development is expected to be slightly profitable. In
2015, K.Wah plans to launch two residential projects in Tseung
Kwan O, Twin Peaks and Corinthia by the sea (a 40%-owned
JV with Sino Land), for pre-sale. Judging from the market
response to the recent launch of neighbouring projects such as
The Parkside, we are positive on their sales performance.
Rolling out project launches in China. K.Wah offered Grand
Summit, an upmarket project in Shanghai, for sale in Sep 14,
with over 30 units sold so far. ASP reached Rmb100,000psm.
Elsewhere, Silver Cove in Dongguan and J Metropolis Ph 2 in
Huadu were released onto the market in Nov 14 and Jan 15
respectively. In 2015, K.Wah intends to sell The J Wings in
Huadu. Elsewhere, K.Wah retains 113 apartments (29,000sm)
at Grand Summit for rental. Pre-leasing activity has commenced
already with maiden contributions expected in FY15. We
estimate that these units, if fully let, should yield an annual
rental income of c.Rmb100m.
BUY with HK$5.71 TP. Plagued by the lacklustre share price
performance of Galaxy Entertainment, K.Wah underperformed
the market by 26% in the previous six months. Meanwhile, the
stock is trading at a 60% discount to our assessed current NAV.
Valuation remains undemanding. K.Wah will focus on project
sales in 2015 which will not only unlock its NAV but also ease
its debt load. We maintain our BUY call. Our HK$5.71 TP is
based on a 50% discount to our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
2,787
Mkt Cap (HK$m/US$m)
11,817 / 1,524
Major Shareholders (%)
Lui family
60.67
Southeastern A sset Management, Inc.
9.03
Star II Limited
8.18
F av or Right Inv estments Limited
5.88
Premium Capital Profits Limited
5.72
F ree F loat (%)
39.33
A v g Daily V olume (m shrs)
1.5
HK Property Sector
K. Wah International
Income Statement (HK$m)
F Y Dec
Turnov er
EBITDA
Depr/Amort
EBIT
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net Prof it
Underly ing Prof it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Balance Sheet (HK$m)
2013A *
2014F
2015F
2016F
F Y Dec
2013A
2014F
2015F
2016F
7,288
2,682
(47)
2,636
140
5
224
3,004
(1,302)
(55)
1,647
1,389
118
(62)
37
36
2,148
921
(49)
872
147
40
1,059
(432)
(69)
558
558
(71)
(66)
43
41
4,647
1,482
(52)
1,430
147
10
1,588
(734)
(71)
783
783
116
40
32
31
8,689
2,023
(54)
1,969
0
(10)
1,959
(490)
(80)
1,389
1,389
87
78
23
23
F ixed Assets
Other LT Assets
Cash/ST Inv estments
Other Current Assets
T ot al A sset s
5,746
15,932
5,624
17,348
44,650
6,251
17,335
1,991
24,536
50,113
6,522
15,884
5,393
25,117
52,915
6,804
15,984
6,830
24,226
53,844
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T ot al Capit al
2,620
4,732
6,978
1,225
1,475
27,619
44,650
3,071
5,032
10,957
1,097
1,737
28,219
50,113
2,102
5,112
13,927
1,026
1,913
28,834
52,915
2,800
5,192
12,729
952
2,105
30,066
53,844
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
2,712
(3,974)
15,619
14
2,712
(12,037)
18,423
43
2,712
(10,636)
23,295
37
2,712
(8,699)
23,064
29
* Net profit included fair v alue changes on inv estment properties
Cash Flow Statement (HK$m)
Segmental Breakdown (HK$m)/ Key Assumptions
F Y Dec
2013A
2014F
2015F
2016F
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O perat ional CF
Capex
Assoc, MI, Inv smt
Inv est ment CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F inanc ing CF
Chg in Cash
Chg in Net Cash
2,636
872
(769)
(432)
47
49
(2,630)
(6,388)
(617)
(550)
(1,334) (6,449)
(2)
(40)
3,024
(1,166)
3,021 (1,206)
(1,997)
4,430
25
(202)
(408)
326
33
(1,849) 4,056
(162)
(3,599)
1,836
(8,029)
1,430
(734)
52
19
(600)
166
(40)
1,688
1,648
2,001
(414)
1,587
3,401
1,400
1,969
(490)
54
1,521
(650)
2,404
(40)
(10)
(50)
(500)
(417)
(917)
1,437
1,937
F Y Dec
2013A
2014F
2015F
2016F
Sale of properties
Rental income
Hotel operation
T ot al sales
6,924
274
90
7,288
1,749
298
101
2,148
4,231
313
103
4,647
8,160
398
106
8,664
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
K ey assumpt ions
Residential price - HK
Office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 63
HK Property Sector
Kerry Properties
Bloomberg: 683 HK Equity | Reuters: 0683.HK
Refer to important disclosures at the end of this report
Strong asset backing
BUY HK$27.75 HSI: 24,113
Price Target: 12-Month HK$32.95 (Prev HK$32.1)
Potential Catalyst: Project sales
DBSV vs Consensus: Market has higher earnings estimate for FY15.
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
214
45.5
194
40.5
174
154
35.5
134
30.5
114
94
25.5
74
20.5
Jan-11
Jan-12
Jan-13
Kerry Properties (LHS)
Forecasts and Valuation
F Y Dec ( H K $ m)
Jan-14
54
Jan-15
Relative HSI INDEX (RHS)
2014F
2015F
2016F
Turnov er
33,158 14,475
EBITDA
6,845
5,795
Pretax Profit
6,274
6,605
Net Profit*
4,413
4,329
3.00
EPS (HK$)*
3.06
EPS Gth (%)
(6)
(2)
PE (x)
9.1
9.3
P/Cash F low (x)
182.5
9.0
EV /EBITDA (x)
11.4
13.4
DPS (HK$)
0.90
0.80
Div Yield (%)
3.2
2.9
Net Gearing (%)
31
26
ROE (%)
6.0
5.6
Estimated NAV (HK$)
Prem (Disc) to NAV (%)
8,597
2,848
3,709
2,699
1.87
(38)
14.9
(7.5)
27.3
0.80
2.9
29
3.3
70.4
(61)
11,766
3,476
3,612
2,613
1.81
(3)
15.3
(125.9)
22.4
0.80
2.9
32
3.2
73.3
(62)
(9)
2.52
S: 1
New
2.77
H: 7
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
2013A
9
2.72
B: 10
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property developer and investor with a skewed
focus on luxury property and godown/logistics businesses
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 64
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ed-TH/ sa- AH

Encouraging property sales performance in Hong Kong

Growing contributions from expanding rental portfolio in China

BUY with HK$32.95 TP
Encouraging property sales performance in Hong Kong. Since
Aug 14, Kerry Properties has launched three residential developments
in Hong Kong for sale with positive market response. Over 70% and
60% of the luxury apartments at 1 & 3 Ede Road and 8 La Salle have
been taken up at higher-than-expected prices. With pre-tax
development margins estimated at >20%, these two luxury projects
provide the mainstay of near-term development income. The 40%owned Dragons Range also sold well with c.60% of total units being
snapped up at an ASP of c.HK$13,000psf. Including proceeds from the
disposal of Lions Rise Mall, Kerry has achieved c.HK$11bn in contracted
sales from Hong Kong in FY14. This not only exceeds its FY14 sales
target of HK$6.5bn but also helps make up the shortfall from China. In
FY14, the company has sold HK$3.6bn worth of properties in China,
against its full-year target of HK$5.5bn. Meanwhile, mortgage policy
easing has yet to boost the demand for upmarket projects which Kerry
focuses on. In Jan 15, the company acquired a commercial site in
Qianhai of Shenzhen for Rmb3.86bn or Rmb19,795psm.
Growing contributions from expanding rental portfolio in China.
With committed occupancy of office portion rising to >80%, Shanghai
Jingan Kerry Centre should see steadily growing rental income. About
75% of retail space at Tianjin Kerry Centre has been committed.
Average daily rent stands at Rmb3psm. This family-oriented mall is
scheduled to open for business in 1H15. Elsewhere, Kerry has
commenced the pre-leasing of its retail mall at Kerry Central in
Hangzhou. In Hong Kong, the company is carrying out the renovation
works at Branksome Grande in Mid-levels with capex of c.HK$200m.
Prior to renovation, rents at Branksome Grande was 30-40% lower
than the company's other luxury residential properties nearby. Despite
the temporary rental void, this initiative should boost its rental value
upon targeted completion in 4Q15.
BUY with HK$32.95 TP. The stock trades 61% below our assessed
current NAV. Such a low valuation should offer good downside risk
protection. Kerry will continue to sell units at 1& 3 Ede Road, 8 La Salle
and Dragons Range and plans to launch its Tuen Mun project in 2015
to unlock its NAV. BUY with HK$32.95 TP, based on a 55% discount to
our Dec 15 NAV estimate. A recovery in China residential sales could
possibly trigger further stock re-rating.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Kerry Group Limited
F ree F loat (%)
Av g Daily V olume (m shrs)
40,087
1,445
/ 5,170
57.0
43.0
1.9
HK Property Sector
Kerry Properties
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y D ec
2013A
2014F
2015F
2016F
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
33,158
6,845
(544)
6,300
571
(266)
6,605
(1,689)
(503)
4,413
(4)
(6)
20.6
19.0
25.6
14,475
5,795
(320)
5,475
1,148
(350)
6,274
(974)
(971)
4,329
(56)
(2)
40.0
37.8
15.5
8,597
2,848
(352)
2,496
1,613
(400)
3,709
(398)
(611)
2,699
(41)
(38)
33.1
29.0
10.7
11,766
3,476
(387)
3,089
993
(470)
3,612
(498)
(501)
2,613
37
(3)
29.5
26.3
13.8
F ixed A ssets
96,143
96,002
96,852
97,678
20,927
21,124
17,580
18,312
Other LT A ssets
Cash/ST Inv estments
11,662
15,887
14,699
13,436
Other Current A ssets
13,657
15,007
23,865
28,363
T o t al A s s et s
142,389 148,020 152,996 157,790
3,965
2,154
14,534
6,000
ST Debt
Other Current Liab
10,636
10,656
10,676
10,696
LT Debt
31,011
33,822
23,442
33,977
Other LT Liab
7,903
7,903
7,903
7,903
M inority Interests
13,120
14,091
14,702
15,204
75,755
79,395
81,740
84,011
Shareholders' Equity
T o t al Cap it al
142,389 148,020 152,996 157,790
Share Capital (m)
1,444
1,444
1,444
1,444
Net Cash/(Debt)
(23,482)
(20,257)
(23,445)
(26,710)
Working Capital
10,719
18,084
13,355
25,103
Net Gearing (%)
31
26
29
32
Cash Flow Statement (HK$m)
2013A
2014F
2015F
2016F
Segmental Breakdown (HK$m)/ Key Assumptions
F Y D ec
2013A
2014F
2015F
2016F
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
6,300
(1,055)
544
(6,506)
(1,461)
(2,177)
(4,867)
(423)
(5,290)
6,320
102
(1,832)
(351)
4,240
(3,228)
(9,548)
5,475
(974)
320
(630)
(2,060)
2,132
980
1,339
2,319
1,000
(1,226)
(226)
4,225
3,225
2,496
(398)
352
(8,089)
(1,572)
(7,211)
(400)
5,579
5,179
2,000
(1,156)
844
(1,188)
(3,188)
3,089
(498)
387
(3,698)
(1,697)
(2,416)
(400)
708
308
2,001
(1,156)
845
(1,263)
(3,264)
F Y D ec
Property rental and
others
Property sales
Logistic operations
Hotel operations
T o t al s ales
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2013A
2014F
2015F
2016F
2,147
3,004
3,242
3,446
11,265
19,188
558
33,158
10,337
1,134
14,475
4,152
1,203
8,597
7,067
1,253
11,766
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
Source: Company, DBS Vickers
Page 65
HK Property Sector
Lai Sun Development
Bloomberg: 488 HK Equity | Reuters: 0488.HK
Refer to important disclosures at the end of this report
BUY HK$0.176 HSI: 24,113
Investing for the future
Price Target: 12-Month HK$0.25
Potential Catalyst: Growing rental income & new acquisitions

Recurrent income base is set to grow

New residential land bank to augment earnings

BUY with HK$0.25 TP
Analyst
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
HK$
Relative Index
0.4
203
0.4
183
163
0.3
143
0.3
123
103
0.2
83
0.2
0.1
Jan-11
63
Jan-12
Lai Sun Development (LHS)
Jan-13
Jan-14
43
Jan-15
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y J u l ( H K $ m)
2013A * 2014A *
Turnov er
964
2,110
EBITDA
275
703
Pre-tax Profit
2,648
1,602
Net Profit
2,564
1,479
(201)
333
Underly ing profit
12.80
7.37
EPS (HK cent)
EPS Gth (%)
2.4
(42.4)
DPS (HK cent)
0.00
0.25
PE (X)
1.4
2.4
0.95
1.04
BV Per Share (HK$)
P/Cash F low (X)
76.4
7.9
EV /EBITDA (X)
22.5
8.8
Div Yield (%)
0.0
1.4
Net Gearing (%)
13
17
ROE (%)
14.5
7.4
NA V (HK$)
Disc. to NA V (%)
Earnings Rev (%)
2015F
1,315
419
223
174
174
0.87
(88.2)
0.25
20.3
1.08
(3.8)
14.8
1.4
32
0.8
0.81
(78)
Nil
2016F
1,499
459
233
192
192
0.96
10.0
0.25
18.4
1.13
(3.2)
13.5
1.4
36
0.9
0.83
(79)
Nil
*Net profit included fair v alue changes on inv estment
properties, prov ision for tax indemnity and discount on
acquisition of additional interest in an associate
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged in property business in Hong Kong,
China; and media & entertainment through eSun Holdings.
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 66
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ed-TH/ sa- AH
Recurrent income base is set to grow. Lai Sun
Development’s rental earnings are set to improve in the
years to come, aided by continued positive rental
reversions and contributions from new investment
properties including 100 Leadenhall Street in London. We
forecast that its total attributable rental income will grow
at a 2-year CAGR of 15% to HK$809m from FY14-16.
Ocean Hotel project should give a further boost to its
recurrent income base when completed in FY18. These
point to better earnings quality.
New residential land bank to augment earnings. Lai
Sun Development has been rebuilding its development
land bank in Hong Kong with the acquisition of two
residential/commercial projects in Tseung Kwan O and
Ma Tau Kok since late 2012. These two projects should
brighten earnings growth outlook upon scheduled
completion in FY18.
BUY with HK$0.25 TP. The stock is trading at a 78%
discount to our estimated current NAV. Strong asset
backing should protect share price against downside risks.
In view of its growing recurring income base and profit
upside from development activities, there should be
room for share price appreciation over the long term.
BUY with HK$0.25 TP, premised on a 70% discount to
our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Lai Sun Garment
F ree F loat (%)
A v g Daily V olume (m shrs)
3,531
20,063
/ 455
51.97
48.03
17.5
HK Property Sector
Lai Sun Development
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y J ul
2013A
2014A
2015F
2016F
Turnov er
EBITDA
Depr/Amort
EB IT
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
Minority Interest
Net Pro f it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
964
275
(30)
245
609
(149)
1,943
2,648
(46)
(38)
2,564
(201)
10
12
29
25
2,110
703
(36)
667
217
(222)
940
1 ,6 0 2
(90)
(33)
1 ,4 7 9
333
119
(42)
33
32
1,315
419
(38)
381
109
(266)
0
223
(16)
(33)
174
174
(38)
(88)
32
29
1,499
459
(40)
419
164
(350)
0
233
(8)
(33)
192
192
14
10
31
28
Cash Flow Statement (HK$m)
F Y J ul
F ixed Assets
Other LT Assets
Cash/ST Inv estments
Other Current Assets
T o t al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T o t al Cap it al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
2013A
2014A
2015F
2016F
11,271
11,202
3,132
902
26,506
417
414
5,357
789
402
19,128
26,506
20,063
(2,516)
3,203
13
13,247
12,068
1,671
977
27,963
417
433
4,973
916
450
20,775
27,963
312,996
(3,580)
1,799
17
16,827
12,576
714
1,035
3 1 ,1 5 3
2,274
433
5,415
916
483
21,632
3 1 ,1 5 3
312,996
(6,837)
(957)
32
17,569
13,840
998
1,253
33,660
433
9,189
916
516
22,606
33,660
312,996
(8,054)
1,818
36
Segmental Breakdown (HK$m)/ Key Assumptions
F Y J ul
2 0 13 A
2 0 14 A
2 01 5 F
20 1 6 F
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O p erat io nal CF
Capex
Assoc, MI, Inv smt
In v est men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
245
(25)
30
(86)
(118)
46
(280)
(1,199)
(1, 47 9 )
3,016
(23)
2, 99 3
1,560
(1,456)
667
(30)
36
22
(249)
446
(1,025)
(462)
( 1,4 8 7 )
(422)
10
(4 1 2 )
(1,453)
(1,031)
381
(16)
38
(1,059)
(266)
(9 2 2)
(2,985)
700
(2 ,2 8 5)
2,300
(50)
2 ,2 5 0
(957)
(3,257)
419
(8)
40
(1,218)
(350)
(1 ,1 1 7)
(50)
(5 0)
1,500
(50)
1 ,4 5 0
283
(1,217)
F Y J ul
Property dev elopment and sales
Property inv estment
Hotel & Restaurant operations
Others
T o t al sales
K ey assu mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2013A 2014A
2015F
2016F
1,047
502
539
21
2,11 0
161
604
528
21
1 ,3 1 5
279
662
537
21
1 ,4 9 9
2015F
2016F
100
434
410
19
964
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 67
HK Property Sector
MTR Corporation
Bloomberg: 66 HK Equity | Reuters: 0066.HK
Refer to important disclosures at the end of this report
Expediting property tenders
HOLD HK$33.0 HSI: 24,113
Price Target: 12-Month HK$34.75 (Prev HK$33.2)
Potential Catalyst: Improving recurrent income
DBSV vs Consensus: Market has slightly higher earnings estimate for
FY15
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
36.5
206
34.5
32.5
186
30.5
166
28.5
146
26.5
126
24.5
106
22.5
20.5
Jan-11
Jan-12
Jan-13
MTR Corporation (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
Turnov er
EBITDA
Pre-tax Profit
Net Profit*
EPS (HK$)*
EPS Gth (%)
DPS (HK$)
PE (X)
P/Cash F low (X)
EV /EBITDA (X)
Div Yield (%)
Net Gearing (%)
ROA E (%)
NA V (HK$)
Disc. To NA V (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
Jan-14
86
Jan-15
Relative HSI INDEX (RHS)
2013A 2014F
2015F
38,707
14,399
10,602
8,600
1.48
(11)
0.92
22.2
11.9
14.3
2.8
11
5.8
42,202 44,435
16,005 16,865
11,648 10,412
9,540
8,568
1.64
1.47
(18)
(10)
0.97
0.97
20.2
22.4
11.9
11.3
12.9
12.2
2.9
2.9
10
9
5.7
5.0
37.6
40.1
(12)
(18)
40,129
15,283
14,182
11,626
2.00
35
0.97
16.5
12.4
13.5
2.9
9
7.4
1
1.79
B: 5
2016F
(14)
1.91
S: 2
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Operates a pre-dominantly rail-based
transportation system in HK with exposure to residential and
commercial markets
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 68
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ed-TH / sa- AH
New
1.90
H: 7

Accelerating the tender of new property projects

Hefty profit contributions from The Austin and Grand
Austin

HOLD with HK$34.75 TP
Accelerating the tender of new property projects. MTRC
has been expediting the launch of projects for tendering to align
with the government's direction of increasing land supply. The
company awarded the development rights of the Tai Wai Station
project and Lohas Park Package 5 & 6 to New World, Wheelock
and Nan Fung in Oct 14, Nov 14 and Jan 15 respectively.
Including Lohas Park Package 3 granted to SHKP in Apr 14,
MTRC successfully tendered out four projects since 2014 which
will altogether provide 8,500 units upon completion. Moreover,
MTRC is now offering the Tin Wing Stop project for tender.
These projects should underpin its development earnings in
FY19-21. For the Tai Wai Station project, MTRC will retain
ownership of the retail portion by paying a HK$7.5bn land
premium. This strategically-located retail mall has GFA of 0.65m
sf, which, coupled with the Maritime Square Extension in Tsing Yi,
should drive rental income expansion in the medium term.
Hefty profit contributions from The Austin and Grand
Austin. The Austin and Grand Austin in West Kowloon, a JV
with a consortium equally owned by New World and Wheelock,
were fully sold and completed in 2014. Assuming MTRC shares
70% of profits, these two developments are estimated to
contribute c.HK$4bn to MTRC after allowing for acquisition costs,
and dominate the development earnings for FY14. Pre-sale
consent of Lohas Park Package 3 in Tseung Kwan O, a JV with
Cheung Kong, has been obtained with project launch expected
in 2015. Elsewhere, MTRC plans to launch the Longhua
residential project in Shenzhen in 2015. Superstructure works are
now underway.
HOLD with HK$34.75 TP. The stock, trading 12% below our
assessed current NAV, is fairly valued in our view. Construction
delays on new rail projects could remain an issue for MTRC. We
maintain our HOLD with HK$34.75 TP. This is derived by
assigning respective discounts of 35% and 25% to our Dec 15
estimated valuations of investment and development properties.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
The F inancial Secretary Incorp
F ree F loat (%)
Av g Daily V olume (m shrs)
5,825
192,216 / 24,792
76.44
23.56
2.7
HK Property Sector
MTR Corporation
Income Statement (HK$m)
F Y Dec
2013A
Balance Sheet (HK$m)
2014F
2015F
2016F
F Y Dec
2013A
2014F
2015F
2016F
Turnov er
38,707
40,129
42,202
44,435
EBITDA
14,399
15,283
16,005
16,865
Depr/Amort
(3,372)
(3,517)
(3,640)
(3,769)
EB IT
1 1 ,0 2 7 1 1 , 7 6 6 1 2 , 3 6 5 1 3 ,0 9 6
Property dev elopment
profit
1,396
4,309
1,446
0
Assoc
158
159
392
565
Interest (Exp)/Inc
(732)
(600)
(950)
(1,500)
(1,247)
(1,452)
(1,604)
(1,749)
V ariable pay ment to
KCRC
Exceptionals
Pre- T ax Pro f it
1 0 , 6 0 2 1 4 , 1 8 2 1 1 ,6 4 8 1 0 , 4 1 2
Tax
(1,819)
(2,384)
(1,914)
(1,625)
Minority Interest
(183)
(171)
(194)
(219)
Un d erly in g Pro f it
8,600 11,626
9 ,5 4 0
8,568
Sales Growth (%)
8
4
5
5
Net Profit Gr (%)
(11)
35
(18)
(10)
EBITDA Mgn (%)
37.2
38.1
37.9
38.0
Opg Mgn (%)
28.5
29.3
29.3
29.5
Tax Rate (%)
17.2
16.8
16.4
15.6
F ixed Assets
163,156 167,035 167,334 167,660
Other LT Assets
28,122
41,198
51,121
56,710
Cash/ST Inv estments
17,769
24,659
27,020
31,455
Other Current Assets
6,776
6,676
6,576
6,476
T o t al A sset s
215,823 239,568 252,051 262,302
ST Debt
47
391
391
391
Other Current Liab
16,905
25,317
28,418
30,216
LT Debt
24,464
28,120
32,120
36,120
Other LT Liab
21,705
21,674
21,642
21,611
Minority Interests
145
316
511
730
Shareholders' Equity
152,557 163,749 168,970 173,233
T o t al Cap it al
215,823 239,568 252,051 262,302
Share Capital (m)
5,799
5,799
5,799
5,799
Net Cash/(Debt)
(17,535) (14,614) (16,221) (15,755)
Working Capital
7,593
5,627
4,787
7,324
Net Gearing (%)
11
9
10
9
Cash Flow Statement (HK$m)
Segmental Breakdown (HK$m)/ Key Assumptions
F Y Dec
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
Assoc, MI, Inv smt
In v est men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
2014F
2015F
2016F
11,027
11,766
12,365
13,096
(1,343)
(2,384)
(1,914)
(1,625)
3,372
3,517
3,640
3,769
895
150
150
150
813
1 4 ,7 6 4 1 3 , 0 4 9 1 4 , 2 4 1 1 5 ,3 9 0
(13,356) (12,020) (10,302)
(7,372)
4,861
7,459
696
(750)
( 8 ,4 9 5 ) ( 4 , 5 6 1 ) (9 , 6 0 6 ) ( 8 , 1 2 2 )
1,223
4,000
4,000
4,000
136
(4,772)
(5,337)
(5,642)
(5,652)
(752)
(261)
(633)
(1,181)
( 4 ,1 6 5 ) ( 1 , 5 9 8 ) (2 , 2 7 5 ) ( 2 , 8 3 2 )
2,104
6,890
2,361
4,436
881
2,890
(1,639)
436
F Y Dec
2 0 13 A
2014F
2015F
2016F
HK transportation
operations
HK station commercial
businesses
HK Property rental &
management businesses
Mainland China &
international subsidiaries
Other businesses
T o t al sales
15,166
16,192
17,114
18,166
4,588
4,946
5,122
5,327
3,778
4,176
4,464
4,620
K ey assu mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
13,246 12,724 13,259 13,971
1,929
2,092
2,243
2,350
3 8 ,7 0 7 4 0 , 1 2 9 4 2 , 20 2 4 4 ,4 3 5
2015F 2016F
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 69
HK Property Sector
New World Development
Bloomberg: 17 HK Equity | Reuters: 0017.HK
Refer to important disclosures at the end of this report
Improving execution
BUY HK$9.21 HSI: 24,113
Price Target: 12-Month HK$11.05
Potential Catalyst: Project launches
DBSV vs Consensus: Market has similar earnings estimate for FY15-16
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
211
15.3
191
13.3
171
151
11.3
131
9.3
111
91
7.3
71
5.3
Jan-11
Jan-12
Jan-13
New World Development (LHS)
Jan-14
51
Jan-15
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y J u n ( H K $ m)
2013A * 2014A *
2015F
2016F
T urnov er
EBIT DA
Pretax Profit
Net profit
Underly ing Profit
EPS (HK$)
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBIT DA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (% )
ROE (%)
Est. NA V (HK$)
Discount to NA V (%)
49,856
12,124
13,507
7,330
7,330
0.82
(10)
11.2
18.2
14.6
0.42
4.6
33
4.5
19.0
(52)
61,163
14,627
14,752
7,997
7,997
0.90
9
10.2
37.4
12.1
0.42
4.6
33
4.8
20.1
(54)
Nil
0.85
S: 1
Nil
0.90
H: 9
Earnings Rev (%)
Consensus EPS (HK$)
Other Brok er Recs:
46,780
12,707
23,311
14,149
6,327
1.02
9
9.0
6.8
13.9
0.42
4.6
45
10.8
56,501
15,358
19,076
9,725
6,507
0.92
(10)
10.1
9.2
11.5
0.42
4.6
34
6.5
B: 6
* Net profit included fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged in property and hotel businesses in
Hong Kong and China, service and infrastructure operations,
department store and telecommunication operations
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 70
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ed- JS / sa- AH

Sales performance in Hong Kong is encouraging

Restocking land bank through various channels

BUY with HK$11.05 TP
Sales performance in Hong Kong is encouraging. New World
Development has achieved attributable contracted sales of
>HK$13bn since Jul 14, exceeding its FY15 sales target of HK$1112bn. The bulk came from The Pavilia Hill, Grand Austin and
Double Cove Starview Prime. Grand Austin is now sold out. Over
75% of units at The Pavilia Hill have been taken up since its initial
launch in Oct 14. Given robust project pre-sales, we estimate New
World Development has locked in >90% of our projected FY15
development earnings from Hong Kong. This points to lower
development income risk. New World Development is applying for
pre-sale consent of Skypark in Mongkok and The Clearwater Bay in
Sai Kung; these are expected to go on sale in 1H15.
Restocking land bank through various channels. In Oct 14,
New World secured the development rights for Tai Wai Station
project via tender. This sizeable development will provide 2,900
residential units with a retail mall. Total GFA is 2.7m sf, splitting
into 2.05m sf for residential use and 0.65msf for retail purpose.
New World will bear the land premium of HK$2.86bn and is
responsible for construction cost for the entire project. In return, it
is entitled to residential sales proceeds after adjusting for profit
shared by MTRC, which will own the entire retail mall. Besides, the
company has also replenished its land bank through acquiring
older properties for redevelopment. Kut Cheong Mansion
redevelopment is a case in point. This diversified land banking
approach has enabled New World Development to build up a
balanced land portfolio, thus allowing it to better tap demand from
different buyers.
BUY with HK$11.05 TP. The stock is trading at a 52% discount to
our assessed current NAV. Valuation is by no means expensive.
Estimated high dividend yield of 4.6% should lend further support
to share price. The company has demonstrated improving project
execution which should warrant higher valuation over the long
term. BUY with HK$11.05 TP. This is derived by applying a 45%
discount to our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Cheng Yu Tung F amily
F ree F loat (%)
A v g Daily V olume (m shrs)
8,893
81,908 / 10,565
43.02
56.98
15.8
HK Property Sector
New World Development
Income Statement (HK$m)
F Y J un
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
U n d erly in g Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
2013A
Balance Sheet (HK$m)
2014A
2015F
2016F
46,780
56,501
49,856
61,163
12,707
15,358
12,124
14,627
(1,880)
(2,273)
(2,455)
(2,651)
10,827 13,085
9,669 11,975
4,720
3,097
4,647
3,814
(695)
(844)
(810)
(1,038)
8,460
3,739
23,311 19,076 13,507 14,752
(4,795)
(5,738)
(2,924)
(3,609)
(4,368)
(3,612)
(3,253)
(3,145)
14,149
9,725
7,330
7,997
6,327
6,507
7,330
7,997
31
21
(12)
23
40
(31)
(25)
9
27.2
27.2
24.3
23.9
23.1
23.2
19.4
19.6
20.6
30.1
21.6
24.5
Cash Flow Statement (HK$m)
F Y J un
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
F Y J un
2013A
2014A
2015F
2016F
F ixed A ssets
89,221
98,050
99,143
100,070
Other LT A ssets
118,374
116,509
111,922
104,804
Cash/ST Inv estments
40,260
61,823
64,472
64,742
Other Current A ssets
84,335
92,845
101,474
114,963
T o t al A s s et s
332,189 369,227 377,011 384,579
ST Debt
27,183
32,349
25,604
33,324
Other Current Liab
37,964
37,721
37,671
37,621
LT Debt
77,348
88,230
96,975
91,255
Other LT Liab
11,949
10,651
10,651
10,651
M inority Interests
38,614
40,468
42,222
43,867
Shareholders' Equity
139,131
159,808
163,889
167,862
T o t al Cap it al
332,189 369,227 377,011 384,579
Share Capital (m)
6,312
63,761
63,761
63,761
Net Cash/(Debt)
(62,495)
(54,739)
(54,090)
(55,820)
Working Capital
59,448
84,598
102,671
108,759
Net Gearing (%)
45
34
33
33
Segmental Breakdown (HK$m)/ Key Assumptions
2014A
10,827
13,085
(3,956)
(3,813)
1,880
2,273
(4,180)
(8,084)
(53)
(149)
4,519
3,313
(5,487)
(6,352)
1,297
2,773
(4,190) (3,579)
16,023
13,515
132
13,119
(2,191)
(1,886)
(2,610)
(2,613)
11,354 22,135
11,682
21,869
(4,340)
8,354
2015F
2016F
9,669
11,975
(2,924)
(3,609)
2,455
2,651
(7,629) (12,439)
1,571
(1,422)
(2,000)
(2,000)
10,340
12,059
8,340 10,059
2,000
2,000
(6,297)
(7,103)
(2,965)
(3,265)
(7,262) (8,368)
2,649
269
649
(1,731)
F Y J un
Property Inv estment
Property Dev elopment
Serv ices
Infrastructure
Hotels
Department Stores
Others
T o t al s ales
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2013A
2014A
2015F
2016F
2,188
24,249
9,669
2,224
3,482
3,954
1,014
46,780
2,348
29,329
13,787
2,346
3,751
3,975
964
56,501
2,435
21,700
14,131
2,369
3,910
4,333
978
49,856
2,523
32,203
14,343
2,393
4,031
4,680
990
61,163
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
Source: Company, DBS Vickers
Page 71
HK Property Sector
Sino Land
Bloomberg: 83 HK Equity | Reuters: 0083.HK
Refer to important disclosures at the end of this report
Strong war chest for acquisitions
BUY HK$12.42 HSI: 24,113

Price Target: 12-Month HK$14.58 (Prev HK$15.3)
Potential Catalyst: New acquisitions and property sales

DBSV vs Consensus: Market has higher earnings estimate for FY15-16.

Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
Relative Index
16.7
15.7
205
14.7
185
13.7
165
12.7
145
11.7
125
10.7
105
9.7
85
8.7
7.7
Jan-11
Jan-12
Sino Land (LHS)
Jan-13
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y J u n ( H K $ m)
2013A
Turnov er
EBITDA
Pretax Profit
Net Profit*
EPS (HK$)*
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NA V (HK$)
Discount to NA V (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
65
Jan-15
Jan-14
7,819
3,452
7,210
6,636
1.12
23
11.1
35.0
24.0
0.50
4.0
Cash
6.8
2014A
2015F
2016F
7,451
5,339
6,208
5,022
0.84
(25)
14.8
31.3
15.5
0.50
4.0
Cash
4.6
25,895
3,898
5,048
4,308
0.71
(15)
17.5
7.7
21.3
0.50
4.0
Cash
3.8
21.7
(43)
12,560
4,603
5,741
4,741
0.78
10
15.9
(24.7)
18.0
0.50
4.0
Cash
4.1
22.4
(45)
1
0.87
S: 2
11
0.90
H: 8
B: 9
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property development, real estate
management, and property rental
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 72
www.dbsvickers.com
ed-TH / sa- AH
Back to acquisition mode
BUY with HK$14.58 TP
Near-term earnings well secured. The recent launch of 40%owned Dragons Range in Shatin received good initial response
with c.60% of total units sold at an ASP of c.HK$13,000psf.
Elsewhere, The Avenue, and Mayfair by the Sea I and II have been
substantially sold. Thus, Sino Land's near-term development
earnings are well assured. In 2015, Sino Land plans to sell Botanica
Bay, a luxurious house development in Cheung Sha on Lantau
Island. Other projects up for sale include Corinthia by the sea in
Tseung Kwan O (a jv with K.Wah) and a small low-density
development in Peng Chau.
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
HK$
Near-term earnings well secured
Back to acquisition mode. Sino Land has returned to acquisition
mode. In Sep 14, a Sino Land-led consortium won the tender for
Urban Renewal Authority's (URA) Kwun Tong Town Centre project
(Development Areas 2 and 3). Sino Land has a 90% stake in this
redevelopment, with the balance held by Chinese Estates. This
marked the company's largest land acquisition since 2010, and
helped replenish its land bank. Located at the heart of Kwun Tong
with close proximity to MTR Station, this redevelopment project
offers total GFA of 1.85m sf, of which c.1.5m sf is designated for
residential use, with the balance slated for retail shops, public
facilities and a public transport interchange. Upon completion
scheduled in 2019/20, the government will buy back the nonresidential portion for not more than HK$1.8bn. With estimated
development margin of >20%, this sizeable project should be Sino
Land's medium-term earnings catalyst. Shortly after this acquisition,
Sino Land bought a residential/commercial site in Fanling through
tender for HK$730m or HK$3,478psf.
BUY with HK$14.58 TP. The stock is trading at a 43% discount
to our appraised current NAV. Even after these two site
acquisitions, Sino Land should remain in a net cash position. This
enables the company to pursue more accretive acquisitions which
could brighten its long-term growth prospects. Our estimated
dividend yields for FY15-16 stand at 4%, which should provide
good downside risk protection. BUY with HK$14.58 TP. This is
based on a 35% discount to our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Tsim Sha Tsui Properties
F ree F loat (%)
A v g Daily V olume (m shrs)
75,316
6,064
/ 9,714
50.79
49.21
5.8
HK Property Sector
Sino Land
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y J un
2013A
2014A
2015F
2016F
F Y J un
Turnov er
EBIT DA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T a x Pro f it
Tax
M inority Interest
N et P ro f it
Sales Grow th (% )
Net Profit Gr (% )
EBIT DA M gn (% )
Opg M gn (% )
Tax Rate (% )
7,819
3,452
(78)
3,374
3,599
238
7,210
(537)
(37)
6,636
(7)
25
44.2
43.2
7.5
7,451
5,339
(78)
5,261
812
135
6,208
(1,146)
(40)
5,022
(5)
(24)
71.7
70.6
18.5
25,895
3,898
(77)
3,821
1,117
110
5,048
(668)
(72)
4,308
248
(14)
15.1
14.8
13.2
12,560
4,603
(76)
4,527
1,074
140
5,741
(793)
(206)
4,741
(51)
10
36.7
36.0
13.8
F ixed A ssets
56,474
58,302
59,633
60,998
Other LT A ssets
32,014
31,880
36,569
34,949
Cash/ST Inv estments
12,370
14,967
16,414
11,533
Other Current A ssets
28,406
31,780
25,781
33,518
T o t al A sset s
129,263 136,929 138,398 140,998
ST Debt
4,553
121
1,350
1,801
Other Current Liab
8,434
10,978
10,828
10,878
LT Debt
5,640
7,920
5,690
4,739
Other LT Liab
4,651
4,961
4,961
4,961
Minority Interests
1,179
1,284
1,284
1,284
Shareholders' Equity
104,806
111,665
114,284
117,335
T o t al Cap it al
129,263 136,929 138,398 140,998
Share Capital (m)
5,948
36,768
36,768
36,768
Net Cash/(Debt)
1,750
6,372
8,819
4,438
Working Capital
27,789
35,649
30,018
32,372
Net Gearing (%)
Cash
Cash
Cash
Cash
Cash Flow Statement (HK$m)
2013A
2014A
2015F
2016F
Segmental Breakdown (HK$m)/ Key Assumptions
F Y J un
2013A
2014A
2015F
2016F
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
3,374
(497)
78
(676)
(670)
1,608
1,820
1,710
3,530
473
(47)
(2,341)
3,331
1,417
6,555
6,081
5,261
(823)
78
(1,603)
(1,367)
1,545
2,855
2,170
5,025
(2,194)
(4)
(2,276)
276
(4,199)
2,372
4,566
3,821
(668)
77
5,859
9,089
(100)
(3,223)
(3,323)
(1,000)
(3,070)
(250)
(4,320)
1,447
2,447
4,527
(793)
76
(7,647)
(3,837)
(100)
3,094
2,994
(500)
(3,239)
(300)
(4,039)
(4,881)
(4,381)
F Y J un
Property rental
Property sales
Hotel operations
Property management
and other serv ices
Inv estments in securities
F inancing
T o t al sales
K ey assu mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2013A
2014A
2015F
2016F
2,569
3,359
848
980
2,757
2,741
863
982
2,851
21,029
896
1,012
2,936
7,563
911
1,042
62
1
7,819
106
2
7,451
106
2
25,895
106
2
12,560
2015F
2016F
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 73
HK Property Sector
Sun Hung Kai Properties
Bloomberg: 16 HK Equity | Reuters: 0016.HK
Refer to important disclosures at the end of this report
Strong execution, compelling valuation
BUY HK$121.2 HSI: 24,113
Price Target: 12-Month HK$142
Potential Catalyst: Project sales & new acquisitions
DBSV vs Consensus: Market has higher earnings estimate for FY15
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
147.2
205
137.2
185
127.2
165
117.2
145
107.2
125
97.2
105
87.2
85
77.2
Jan-11
Jan-12
Jan-13
SHK Properties (LHS)
Forecasts and Valuation
F Y J u n ( HK $ m)
Turnov er
EBITDA
Pretax Profit
Net Profit*
EPS (HK$)*
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NAV (HK$)
Discount to NAV (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
65
Jan-15
Jan-14
Relative HSI INDEX (RHS)
2013A
2014A
53,793
75,100
21,024
26,860
22,152
26,644
18,619
21,415
7.05
7.95
(16)
13
15.2
17.2
14.8 15,542.4
15.3
19.6
3.35
3.35
2.8
2.8
16
12
5.3
5.1
B: 15
2015F
66,590
25,389
25,379
20,106
7.12
(10)
17.0
24.2
16.2
3.35
2.8
13
4.7
181.7
(33)
2016F
91,447
30,002
29,178
23,161
8.21
15
14.8
14.1
13.7
3.35
2.8
12
5.1
189.3
(36)
Nil
7.79
S: 2
Nil
8.32
H: 3
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: A leading property developer and investor in
HK, with exposure to hotel, logistics, telecom, construction and
transportation infrastructure businesses
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 74
www.dbsvickers.com
ed-TH / sa- CW

Stellar sales performance

Well poised to make new acquisitions

BUY with HK$142 TP
Stellar sales performance. Since Jul 14, SHKP has achieved
contracted sales of >HK$21bn in Hong Kong, representing c.85%
of its FY15 sales target. The bulk came from The Wings IIIA and IIB
in Tseung Kwan O, Century Link Ph 1 in Tung Chung and W50 (an
office development in Wong Chuk Hang). The Wings IIIA and W50
are virtually sold out. The recent launch of Century Link Ph 1 was
greeted with overwhelming response. About 946 units,
representing 67% of the total, have been taken up since its initial
launch in early Jan. This reflects strong demand for small- to
medium-sized units in the prevailing market. After the launch of
Century Link Ph 1, SHKP intends to re-launch the remaining units at
Cullinan. Elsewhere, Acappella in Yuen Long and a luxury project in
Ho Man Tin are scheduled for sale in mid-2015.
Well poised to make new acquisitions. In 2014, SHKP bought six
residential sites (total GFA: 4.65m sf) through tenders in Hong Kong,
for HK$10.2bn. They will be mostly developed into mass market
projects. Despite proactive land bank replenishment, SHKP’s current
gearing is estimated to improve to c.12% from Jun 14’s 15.7%,
thanks to proceeds from the exercise of warrants. Over 40% of
warrants (mainly held by Kwok family) have been exercised,
providing SHKP with fresh capital of >HK$9bn. Hence SHKP is well
poised to capture land acquisition opportunities especially when the
government is raising the land supply. This should be positive to its
long-term growth.
BUY with HK$142 TP. The stock is trading at 33% discount to our
assessed current NAV. This compares favourably with its 10-year
average of 18%. Valuation looks appealing from the historical
perspective. Rental income base should be further enhanced with
the upcoming additions of new investment properties such as
YOHO Midtown Mall in Hong Kong. This points to better earnings
quality. With management reshuffle following the convictions of
Thomas Kwok and Thomas Chan, SHKP’s operation should be as
usual. BUY with HK$142 TP, based on a 25% discount to our Dec
2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Kwok F amily
HSBC Trustee (Guernsey ) Limited
Kwok Ping Sheung, Walter
Thriv ing Talent Limited
F ree F loat (%)
A v g Daily V olume (m shrs)
2,823
342,145 / 44,131
22.01
7.59
7.48
6.75
56.17
4.2
HK Property Sector
Sun Hung Kai Properties
Income Statement (HK$m)
F Y J un
Turnov er
EBITDA
Depr/Amort
O pg Prof it
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net Prof it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
2013A
Balance Sheet (HK$m)
2014A
2015F
2016F
53,793
75,100
66,590
91,447
21,024
26,860
25,389
30,002
(1,724)
(1,878)
(1,934)
(1,992)
19,300 24,982 23,455 28,009
4,267
3,510
3,168
2,979
(1,887)
(2,050)
(2,342)
(2,342)
1,571
733
22,152 26,644 25,379 29,178
(2,957)
(4,562)
(4,223)
(5,133)
(576)
(667)
(1,051)
(883)
18,619 21,415 20,106 23,161
(21)
40
(11)
37
(14)
15
(6)
15
39.1
35.8
38.1
32.8
35.9
33.3
35.2
30.6
13.3
17.1
16.6
17.6
Cash Flow Statement (HK$m)
F Y J un
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
Assoc, MI, Inv smt
In v est men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
19,300
(3,496)
1,724
1,655
(1,005)
1 8 ,1 7 8
(10,668)
5,973
( 4 ,6 9 5 )
(6,771)
(3,353)
(3,677)
( 1 3 ,8 0 1 )
(318)
6,453
F Y J un
F ixed Assets
Other LT Assets
Cash/ST Inv estments
Other Current Assets
T o t al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T o t al Capit al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
20 1 3 A
2 01 4 A
2 0 1 5F
20 1 6 F
281,637 303,016 309,134 315,306
62,647
61,655
63,896
66,496
17,176
19,275
35,589
50,108
151,436 173,102 185,372 192,338
51 2 ,8 9 6 5 5 7,0 4 8 5 9 3 ,9 91 6 24 ,2 4 8
8,060
9,241
9,806
10,086
43,257
37,314
37,514
37,714
56,570
74,490
83,925
93,645
14,480
16,314
16,314
16,314
4,617
4,906
5,760
6,446
385,912 414,783 440,672 460,043
51 2 ,8 9 6 5 5 7,0 4 8 5 9 3 ,9 91 6 24 ,2 4 8
2,670
2,725
2,820
2,820
(48,159) (65,203) (58,889) (54,370)
117,295 145,822 173,641 194,646
12
16
13
12
Segmental Breakdown (HK$m)/ Key Assumptions
2014A
2015F
2016F
24,982
23,455
28,009
(3,218)
(4,223)
(5,133)
1,878
1,934
1,992
(26,155) (11,270)
(5,765)
(684)
(3 ,1 9 7 ) 9 , 8 9 6 1 9 ,1 0 3
(14,169)
(2,500)
(2,500)
6,527
2,026
910
(7 ,6 4 2 )
( 4 7 4 ) ( 1 ,5 9 0 )
19,787
10,000
10,000
9,374
(4,331)
(9,341)
(9,651)
(1,603)
(3,142)
(3,342)
1 3 ,8 5 3
6 , 8 9 1 ( 2 ,9 9 3 )
3,014
16,314
14,520
(16,773)
6,314
4,520
F Y J un
2013A
2014A
2015F
2016F
Property sales
Rental income
Hotel operation
Others
T o t al sales
16,427
12,750
3,383
21,233
53,793
33,607
14,977
3,930
22,586
75,100
22,935
15,887
3,919
23,849
66,590
45,680
16,790
3,976
25,001
91,447
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
K ey assu mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 75
HK Property Sector
Tai Cheung
Bloomberg: 88 HK Equity | Reuters: 0088.HK
Refer to important disclosures at the end of this report
Value unlocking
BUY HK$6.42 HSI: 24,113
Price Target: 12-Month HK$7.44 (Prev HK$7.17)
Potential Catalyst: property sales
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
Relative Index
7.2
203
6.7
183
6.2
163
5.7
143
5.2
123
4.7
103
4.2
Jan-11
Jan-12
Tai Cheung (LHS)
Jan-13
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y M ar (HK $m)
2013A 2014A *
Turnov er
EBITDA
Pretax Profit
Net Profit
EPS (HK$)
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NAV (HK$)
Discount to NAV (%)
Earnings Rev (%)
83
Jan-15
Jan-14
992
496
649
566
0.92
(23)
7.0
(5.6)
3.9
0.30
4.7
Cash
10.3
100
6
1,175
1,013
1.64
79
3.9
48.8
317.8
0.30
4.7
Cash
16.5
2015F
2016F
544
130
283
260
0.42
(74)
15.3
11.0
14.9
0.30
4.7
Cash
3.9
18.5
(65)
698
429
598
525
0.85
102
7.6
7.7
4.5
0.30
4.7
Cash
7.5
18.6
(66)
Nil
Nil
* Net profit included fair value gains upon reclassification of a
property for sale into an investment property
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged primarily in property development
and leasing, and hotel operations in Hong Kong
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 76
www.dbsvickers.com
ed-TH / sa- AH
Commenced the strata-titled sale of Metropole
Square

Strong war chest for value-accretive acquisitions

BUY with HK$7.44 TP
Commenced the strata-titled sale of Metropole
Square. After completing its upgrading works, Tai
Cheung has commenced to sell Metropole Square in
Shatin at >HK$5,500psf on a strata-title basis. We
estimate that this commercial building, if fully sold, could
generate sales proceeds of c.HK2.3bn. Tai Cheung will
also continue its inventory sales of the remaining shops
at Tuen Mun Parklane Square. Elsewhere, the entire retail
arcade at its 35%-held Sheraton-Hong Kong Hotel is
now leased to SOGO Department Store that opened for
business in Nov 14. This new letting should enhance
earnings of this hotel and in turn be positive for Tai
Cheung.
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
HK$

Strong war chest for value-accretive acquisitions. As
of Sep 14, Tai Cheung's net cash stood at HK$1.93bn (or
HK$3.13/sh) and should further improve, backed by
proceeds from property sales. The strong balance sheet
not only enables Tai Cheung to maintain its generous
dividend policy but also allows it to pursue opportunistic
land acquisitions to propel its NAV growth. We expect
Tai Cheung to continue participating in land tenders in
Hong Kong.
BUY with HK$7.44 TP. The stock is trading at a 65%
discount to our assessed current NAV, with dividend
yields estimated at 4.7% for FY15-16. Such a low
valuation should offer good downside risk protection.
Excluding its net cash holding, the discount to NAV
stands at 79%, which should narrow if the company
successfully monetise the renovated Metropole Square.
BUY with HK$7.44 TP, which is derived by applying a
60% discount to our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Chan Pun Dav id
Chan Poon Wai Kuen
F ree F loat (%)
A v g Daily V olume (m shrs)
618
3,965 / 511
29
16
55
0.1
HK Property Sector
Tai Cheung
Income Statement (HK$m)
F Y M ar
Turnov er
EBITDA
Depr/Amort
EBIT
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net Prof it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
Balance Sheet (HK$m)
2013A
2014A
2015F
2016F
992
496
(1)
495
138
16
649
(84)
566
(28)
(23)
50.0
49.9
12.9
100
6
(1)
5
138
25
1,007
1,175
(162)
1,013
(90)
79
6.1
5.4
13.8
544
130
(1)
129
141
13
283
(24)
260
442
(74)
23.9
23.8
8.3
698
429
(1)
429
155
15
598
(73)
525
28
102
61.5
61.4
12.2
Cash Flow Statement (HK$m)
F Y M ar
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
Operat ional CF
Capex
Assoc, MI, Inv smt
Inv est ment CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F inanc ing CF
Chg in Cash
Chg in Net Cash
F Y M ar
2013A
2014A
2015F
2016F
F ixed Assets
Other LT Assets
Cash/ST Investments
Other Current Assets
T ot al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T ot al Capit al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
12
225
2,173
3,546
5,956
113
143
5,700
5,956
617
2,060
5,463
Cash
1,791
206
2,133
2,752
6,882
107
78
159
6,537
6,882
617
2,026
4,700
Cash
2,107
206
2,341
2,530
7,184
107
75
159
6,843
7,184
617
2,234
4,689
Cash
2,107
206
2,751
2,457
7,521
107
72
159
7,183
7,521
617
2,644
5,029
Cash
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014A
2015F
2016F
495
(110)
1
(1,200)
(4)
(818)
(0)
154
154
(6)
(185)
(191)
(855)
(849)
5
(62)
1
72
3
19
(30)
162
132
(6)
(185)
(191)
(40)
(34)
129
(24)
1
218
13
338
(85)
141
56
(185)
(185)
208
208
429
(73)
1
69
15
440
155
155
(185)
(185)
409
409
F Y M ar
Property dev elopment
and leasing
Property management
T ot al sales
K ey assumpt ions
Residential price - HK
Office rental - HK
Retail rental - HK
2013A
2014A
2015F
2016F
984
93
536
690
8
992
8
100
8
544
8
698
2015F
2016F
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 77
HK Property Sector
Wheelock & Co
Bloomberg: 20 HK Equity | Reuters: 0020.HK
Refer to important disclosures at the end of this report
On growth trajectory
BUY HK$40.75 HSI: 24,113

Price Target: 12-Month HK$44.25 (Prev HK$43.55)
Potential Catalyst: Project sales

DBSV vs Consensus: Market has higher earnings estimate for FY14-16.

Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
51.5
209
46.5
189
41.5
169
36.5
Beats contracted sales target
Secured development rights of Lohas Park Package 5
BUY with HK$44.25 TP
Beats contracted sales target. Wheelock beats its sales target of
HK$10bn, to attain attributable contracted sales of c.HK$18.7bn in
FY14. Key contributors included Grand Austin and One Bay East.
The recent launch of The Parkside also received good market
response. Over 95% of total units were pre-sold at an ASP of
HK$12,000psf since its initial launch in Nov 14. The Parkside is
scheduled for completion in FY16, with pre-tax margin estimated
at c.20%. With successful project pre-sales, our projected FY15
development income for Wheelock has been fully locked in. This
implies high near-term earnings visibility.
149
31.5
129
26.5
109
21.5
89
16.5
Jan-11
Jan-12
Jan-13
Wheelock & Co (LHS)
Forecasts and Valuation
F Y Dec (HK $m)
Turnover
EBITDA
Pretax Profit
Net profit*
EPS (HK$)
EPS Gth (%)
PE (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NAV (HK$)
Discount to NAV
Jan-14
69
Jan-15
Relative HSI INDEX (RHS)
2013A
2014F
2015F
2016F
35,071
15,537
17,487
7,822
3.85
8
10.6
21.0
1.00
2.5
57
4.9
37,056
17,156
16,317
7,607
3.74
(3)
10.9
19.0
1.10
2.7
57
4.4
55,009
21,673
20,718
9,875
4.86
30
8.4
15.1
1.20
2.9
54
5.4
58.4
(30)
61,785
22,906
22,407
10,613
5.22
7
7.8
14.3
1.20
2.9
48
5.5
63.2
(36)
5
4.25
B: 6
(8)
5.91
S: 0
New
6.28
H: 2
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs
* Exclude net property revaluation surplus
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged in property business in Hong Kong
and Singapore, container terminal operation, CME businesses
through Wheelock Properties and Wharf
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 78
www.dbsvickers.com
ed-TH / sa- AH
Secured development rights of Lohas Park Package 5. In Nov
14, Wheelock outbid five other developers to secure the
development rights of Lohas Park Package 5 in Tseung Kwan O.
This further strengthens its residential exposure in Tseung Kwan O.
Located adjacent to Lohas Park MTR Station, this project will
contain c.1,600 units in three towers with 1.1msf GFA. Land
premium is reportedly fixed at HK$2.064bn or HK$1,874psf. With
strong property sales proceeds, Wheelock should not have any
difficulty in financing this acquisition.
BUY with HK$44.25 TP. The stock is trading 30% below our
appraised current NAV. In 2015, Wheelock plans to offer One
HarbourGate, an office development on the Hung Hom waterfront
for sale on en bloc basis, which should draw strong market interest
from large enterprises. Other projects up for sale include the Shau
Kei Wan redevelopment and another Tseung Kwan O project
(TKOTL125).These should help to unlock its NAV. Through
expediting asset turnover, the company has been creating more
shareholder value. Currently, its stake in Wharf has a market value
of HK$101bn, exceeding its market capitalization. Any move to
unlock the value of its stake in Wharf could prompt further rerating. BUY with HK$44.25 TP, based on a 30% target discount to
our Dec 2015 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Woo's F amily
F ree F loat (%)
Av g Daily V olume (m shrs)
2,032
82,798 / 10,679
60.73
39.27
1.4
HK Property Sector
Wheelock & Co
Income Statement (HK$m)
F Y Dec
Turnover
EBITDA
Depr/Amort
EBIT
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net prof it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
Balance Sheet (HK$m)
2013A
2014F
2015F
2016F
35,071
15,537
(1,452)
14,085
3,092
(1,251)
1,561
17,487
(3,080)
(6,585)
7,822
6
8
44.3
40.2
17.6
37,056
17,156
(1,503)
15,653
2,564
(1,750)
(150)
16,317
(3,055)
(5,654)
7,607
6
(3)
46.3
42.2
18.7
55,009
21,673
(1,533)
20,140
2,328
(1,750)
20,718
(4,055)
(6,788)
9,875
48
30
39.4
36.6
19.6
61,785
22,906
(1,564)
21,342
3,015
(1,950)
22,407
(4,360)
(7,433)
10,613
12
7
37.1
34.5
19.5
Cash Flow Statement (HK$m)
F Y Dec
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
Operat ional CF
Capex
Assoc, MI, Invsmt
Inv est ment CF
Net Chg in Debt
New Capital
Dividend
Other financing CF
F inancing CF
Chg in Cash
Chg in Net Cash
F Y Dec
Fixed Assets
Other LT Assets
Cash/ST Investments
Other Current Assets
T ot al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T ot al Capit al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
2013A
2014F
2015F
2016F
306,195
319,847
326,043
332,351
58,058
51,408
53,379
59,553
29,691
27,879
24,054
28,332
92,870
109,316
119,446
121,616
486,814 508,450 522,922 541,852
11,964
11,500
18,000
12,000
40,281
40,331
40,381
40,431
111,676
117,140
108,640
112,640
11,321
11,321
11,321
11,321
144,990
149,544
155,583
165,403
166,582
178,613
188,996
200,057
486,814 508,450 522,922 541,852
2,032
2,032
2,032
2,032
(94,295) (101,107) (102,932)
(96,654)
70,316
85,364
85,119
97,517
57
57
54
48
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014F
2015F
2016F
14,085
(3,233)
1,452
(11,203)
(1,260)
(159)
(15,762)
601
(15,161)
21,411
(5,572)
48
15,887
567
(20,844)
15,653
(3,055)
1,503
(14,546)
(3,300)
(3,746)
(2,100)
4,411
2,311
5,000
(5,378)
(378)
(1,813)
(6,813)
20,140
(4,055)
1,533
(8,030)
(3,500)
6,088
(2,100)
57
(2,043)
(2,000)
(5,869)
(7,869)
(3,825)
(1,825)
21,342
(4,360)
1,564
180
(3,950)
14,776
(2,100)
(3,460)
(5,560)
(2,000)
(2,938)
(4,938)
4,278
6,278
F Y Dec
Investment Property
Development Property
Hotels
CME
Logistics
Investment and others
K ey assumpt ions
Residential price - HK
Office rental - HK
2013A
2014F
2015F
2016F
11,767
13,430
1,498
3,684
3,226
1,466
35,071
13,938
12,881
1,546
3,805
3,346
1,539
37,056
14,930
29,534
1,598
3,902
3,429
1,616
55,009
15,557
35,331
1,654
4,002
3,543
1,697
61,785
2015F
0 to -5%
0 to 5%
2016F
0 to -5%
0 to 5%
Source: Company, DBS Vickers
Page 79
HK Property Sector
Wing Tai Properties
Bloomberg: 369 HK Equity | Reuters: 0369.HK
Refer to important disclosures at the end of this report
Poised for more acquisitions
BUY HK$4.91 HSI: 24,113
Price Target: 12-Month HK$5.91 (Prev HK$5.77)
Potential Catalyst: Project launches

Strengthening rental income stream

Well positioned for acquisitions
Analyst
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com

BUY with HK$5.91 TP
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
HK$
Relative Index
221
6.0
201
5.5
5.0
181
4.5
161
4.0
141
3.5
121
3.0
101
2.5
2.0
Jan-11
Jan-12
Jan-13
Wing Tai Properties (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
2013A *
Turnov er
EBITDA
Pretax Profit
Net Profit
EPS (HK$)
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Estimated NA V (HK$)
Discount to NA V (%)
Earnings Rev (%)
2,054
643
2,753
2,655
1.99
(41)
2.5
16.0
16.1
0.14
2.7
16
13.5
Jan-14
81
Jan-15
Relative HSI INDEX (RHS)
2014F
2015F
2016F
1,825
660
539
457
0.34
(83)
14.3
15.5
15.7
0.14
2.7
12
2.1
1,142
551
471
414
0.31
(9)
15.8
6.6
18.8
0.14
2.7
13
1.8
14.7
(67)
920
523
342
300
0.22
(28)
21.8
(19.5)
19.8
0.14
2.7
11
1.3
14.8
(67)
(7)
10
New
* Net profit included fair v alue changes on inv estment
properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged in property development, property
investment, hotel investment and management
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 80
www.dbsvickers.com
ed-TH / sa- AH
Strengthening rental income stream. Wing Tai Properties (WTP)
has recently recruited a global advertising agency, Leo Burnett,
to Landmark East in Kwun Tong. In 1H14, the average rental
reversion at this Grade A office building was robust at 48%.
With the current spot rent (>HK$30psf) being higher than
expiring rents, favourable rental reversion should continue.
Elsewhere, W Square and two industrial buildings, namely
Shui Hing Centre and Winner Godown, should continue to
benefit from positive reversions. In London, the
redevelopment at 1 Savile Row has been completed and is
now fully let. Occupancy at Brook Street has also improved to
c.80% from 60% upon acquisition in May 13. WTP’s rental
income should continue to grow.
Well positioned for acquisitions. WTP is financially healthy
with comfortable gearing of 16.8% in Jun 14. Coupled with
estimated attributable contracted sales of >HK$300m mainly
from newly launched Homantin Hillside and inventory sales at
The Warren/The Graces in 2H14, WTP is well positioned to
pursue more acquisitions when opportunities knocks. In 2014,
WTP issued three 7/10-year unrated private placements of
HK$100m each at coupon rates of 4.1-4.5% p.a.. This should
not only diversify its funding source but also lengthen its debt
maturity profile. Currently, WTP has a development pipeline
comprising five residential projects, which should provide
0.47m sf GFA and be sufficient for the company’s
development activities in the coming four years.
BUY with HK$5.91 TP. The stock is trading at 67% discount to
our assessed current NAV. Strong asset backing should
provide strong downside risk protection on share price. BUY
with HK$5.91 TP premised on target discount of 60% to our
Dec 2015 NAV estimates.
At A Glance
Issued Capital (m shrs)
M k t Cap (HK $m/US$m)
M ajor Shareholders (% )
Wing T ai Hldgs & Cheng's F amily
Sun Hung K ai Properties Ltd
F ree F loat (% )
A v g Daily V olume (m shrs)
6,573
1,339
/ 848
50.6
13.7
35.70
0.2
HK Property Sector
Wing Tai Properties
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y Dec
2013A
2014F
2015F
2016F
Turnov er
EBITDA
Depr/Amort
EB IT
Associates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
Minority Interest
Net Pro f it
Sales Growth (%)
Net Profit Gr (%)
EBITDA Mgn (%)
Opg Mgn (%)
Tax Rate (%)
2,054
643
(20)
623
169
(146)
2,106
2,753
(91)
(7)
2,655
52
(41)
31
30
3
1,825
660
(18)
642
28
(131)
539
(82)
457
(11)
(83)
36
35
15
1,142
551
(19)
532
112
(173)
471
(57)
414
(37)
(9)
48
47
12
920
523
(20)
504
74
(236)
342
(42)
300
(19)
(28)
57
55
12
Cash Flow Statement (HK$m)
F Y Dec
EBIT
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
Assoc, MI, Inv smt
In v est men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
F Y Dec
F ixed Assets
Other LT Assets
Cash/ST Inv estments
Other Current Assets
T o t al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Shareholders' Equity
T o t al Cap it al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
2013A
2014F
2015F
2016F
20,606
20,723
20,841
19,071
2,825
2,630
2,126
830
1,253
2,010
2,309
3,106
3,557
3,255
4,179
5,282
2 6 , 7 0 5 2 8 , 5 0 1 2 9 ,3 3 7 3 0 , 0 6 0
1,740
32
1,236
1,236
796
796
796
796
2,947
4,654
3,951
4,451
327
327
327
327
2
1
0
(1)
20,894
22,691
23,027
23,251
2 6 , 7 0 5 2 8 , 5 0 1 2 9 ,3 3 7 3 0 , 0 6 0
1,335
1,335
1,335
1,335
(3,445)
(2,688)
(2,888)
(2,592)
2,274
4,437
4,456
6,356
16
12
13
11
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014F
2015F
2016F
F Y Dec
2013A
2014F
2015F
2016F
623
(21)
20
(152)
(229)
241
(352)
(199)
(5 5 0 )
608
(181)
(14)
414
104
(504)
642
(82)
18
(136)
309
750
(35)
223
188
(181)
(181)
757
757
532
(57)
19
(1,808)
712
(6 0 2 )
(35)
617
582
500
(181)
319
299
(201)
504
(42)
20
(2,146)
808
(857)
(35)
1,370
1,335
500
(181)
319
797
297
Property dev elopment
1,010
564
Property inv estment
and management
141
Hospitality inv estment
and management
Garment manufacturing
318
Branded product
distribution
Inv esting
22
T o t al sales
2 ,0 5 4
975
677
245
717
736
150
153
156
-
-
-
24
1,825
27
1,142
28
920
2015F
2016F
K ey assu mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 81
HK Property Sector
Great Eagle
Bloomberg: 41 HK Equity | Reuters: 0041.HK
Refer to important disclosures at the end of this report
Seeking acquisition opportunities
HOLD HK$26.05 HSI: 24,113
Price Target: 12-Month HK$28.9 (Prev HK$29.1)
Potential Catalyst: n.a.
DBSV vs Consensus: Market has slightly higher earnings estimate for
FY15-16

On acquisition mode to spearhead growth

Overseas hotels generally improving

Maintain HOLD with HK$ 28.9 TP
Analyst
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
On acquisition mode to spearhead growth. In 2014,
Great Eagle (GE) actively grew its company through
acquisitions. In May 14, GE won the government tender
for a residential site at Pak Shek Kok for HK$2.41bn or
HK$3,300psf. This marked GE’s first residential site
acquisition in Hong Kong in more than 20 years. In Jul 14,
GE acquired a hotel near White House in downtown
Washington for c.US$72m. It agreed to purchase two
hotel properties in Shanghai from Shui On Land, namely
a 66.67% stake in Langham Xintiandi Hotel for
Rmb1.16bn and The HUB Hotel (under construction) for
Rmb865m, in Aug 14. Following this string of
acquisitions, we estimate that GE should sit on >HK$2bn
net cash. This allows the company to continue on a
buying spree to spearhead growth.
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
HK$
Relative Index
38.0
211
191
33.0
171
28.0
151
131
23.0
111
18.0
91
13.0
Jan-11
Jan-12
Jan-13
Great Eagle (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
Turnov er
EBITDA
Pretax Profit
Net Profit^
EPS (HK$)^
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)*
Div Yield (%)
Net Gearing (%)
ROE (%)
Est NA V (HK$)
Discount to NA V (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
71
Jan-15
Jan-14
Relative HSI INDEX (RHS)
2013A 2014F
5,419
1,992
1,850
1,680
2.66
(6.8)
9.8
4.9
18.5
2.16
8.3
Cash
3.6
2015F
2016F
5,546
1,897
1,854
1,752
2.78
4.3
9.4
(9.8)
19.4
0.73
2.8
Cash
3.5
5,756
1,868
1,748
1,647
2.61
(6.0)
10.0
16.8
19.7
0.73
2.8
Cash
3.2
71.6
(64)
5,985
1,941
1,814
1,712
2.71
4.0
9.6
36.1
19.0
0.73
2.8
Cash
3.2
72.4
(64)
(2)
2.59
B: 1
(3)
2.80
S: 5
New
3.03
H: 4
^ Exclude fair v alue changes on inv estment properties
* Include special DPS of HK$1.5 in F Y13
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged in hotel operation and holds c.62%
stake in Champion REIT and c.58% of Langham Hospitality Trust
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 82
www.dbsvickers.com
ed-TH / sa- AH
Overseas hotels generally improving. GE’s overseas
hotel operations are generally improving except for The
Langham, London, which saw RevPAR decline due to
increased hotel supply. Newly acquired Washington Hotel
is now under renovation. In 4Q14, GE unified ownership
of Langham Xintiandi while The HUB hotel is still under
construction with anticipated completion in 2015/16.
Overall, we forecast overseas hotel earnings should
achieve 2-year CAGR of 16% in FY13-15.
HOLD with HK$28.9 TP. The stock is now trading at a
64% discount to our appraised current NAV, against 10year average of 53%. Despite an undemanding valuation,
we do not see any near-term re-rating catalyst. Maintain
HOLD with HK$28.9 TP, premised on target discount of
60% to our Dec 15 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Lo Ka Shui
Surewit F inance
Green J acket Limited
F ree F loat (%)
Av g Daily V olume (m shrs)
656
17,084 / 2,204
56.91
6.94
5.02
31.13
0.4
HK Property Sector
Great Eagle
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y D ec
2013A
2014F
2015F
2016F
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
5,419
1,992
(122)
1,869
(26)
6
1,850
(169)
(2)
1,680
(4.6)
(6.8)
36.8
34.5
9.1
5,546
1,897
(149)
1,748
(20)
126
1,854
(99)
(3)
1,752
2.3
4.3
34.2
31.5
5.3
5,756
1,868
(158)
1,710
(20)
59
1,748
(99)
(3)
1,647
3.8
(6.0)
32.4
29.7
5.7
5,985
1,941
(171)
1,770
10
34
1,814
(99)
(3)
1,712
4.0
4.0
32.4
29.6
5.5
F ixed A ssets
Other LT A ssets
Cash/ST Inv estments
Other Current A ssets
T o t al A s s et s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
M inority Interests
Shareholders' Equity
T o t al Cap it al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
Cash Flow Statement (HK$m)
F Y D ec
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
81,977
2,381
10,712
2,702
97,772
7,042
3,300
19,347
995
17,131
49,956
97,772
639
3,811
3,071
Cash
2014F
2015F
2016F
85,375
85,466
86,628
3,802
5,444
5,686
7,259
7,439
7,619
2,673
2,290
2,300
99,110 100,639 102,233
2,000
2,000
2,000
3,290
3,280
3,270
24,390
24,390
24,390
995
995
995
17,134
17,137
17,139
51,301
52,837
54,439
99,110 100,639 102,233
639
639
639
358
538
718
4,642
4,448
4,648
Cash
Cash
Cash
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014F
2015F
2016F
F Y D ec
2013A
2014F
2015F
2016F
1,869
(415)
122
326
1,003
2,905
(6,356)
(2,678)
(9,034)
10,500
66
(1,395)
2,730
11,900
5,772
(4,728)
1,748
(99)
149
(2,393)
(1,188)
(1,783)
(2,012)
1,274
(738)
(757)
(175)
(932)
(3,453)
(3,453)
1,710
(99)
158
229
(1,120)
878
(1,206)
1,169
(37)
(460)
(200)
(660)
180
180
1,770
(99)
171
(309)
(1,177)
355
(693)
1,203
510
(460)
(225)
(685)
180
180
Rental income
312
Building management
fee income
23
Hotel operation
3,481
Income from Champion
1,222
REIT/ Langham Hospitality Trust
Other income
381
T o t al s ales
5,419
391
318
322
24
3,442
1,270
26
3,776
1,213
26
3,936
1,277
420
5,546
424
5,756
424
5,985
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2015F
2016F
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 83
HK Property Sector
Hongkong Land
Bloomberg: HKL SP Equity | Reuters: HKLD.SI
Refer to important disclosures at the end of this report
Good long-term value
BUY US$7.40 STI: 3,326
Price Target: 12-Month US$8.05 (Prev US$7.76)
Potential Catalyst: Improving office market in Central
DBSV vs Consensus: Market has slightly lower earnings estimate for
FY14-15
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
US$
Relative Index
8.8
205
7.8
185
165
6.8
145
5.8
125
105
4.8
85
3.8
Jan-11
Jan-12
Jan-13
HongKong Land (LHS)
Jan-14
65
Jan-15
Relative STI INDEX (RHS)
Forecasts and Valuation
F Y Dec ( US$ m)
Turnov er
EBITDA
Pretax Profit
Underly ing Net Profit*
EPS (US$)*
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (US$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est NAV (US$)
Discount to NAV (%)
Earnings Rev (%)
Consensus EPS (US$)
Other Broker Recs:
2013A
2014F
2015F
2016F
1,857
907
1,088
935
0.40
20
18.6
16.6
22.8
0.18
2.4
11
3.5
1,918
1,005
1,109
913
0.39
(2)
19.1
24.1
20.6
0.18
2.4
10
3.4
2,386
1,009
1,123
910
0.39
(0)
19.1
24.8
20.5
0.18
2.4
11
3.2
10.0
(26)
2,061
975
1,075
872
0.37
(4)
20.0
28.3
21.2
0.18
2.4
12
3.0
10.7
(31)
(1)
0.37
B: 10
2
0.38
S: 3
New
0.41
H: 2
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: A leading property investment, management
and development group with the majority of earnings derived from
rentals in the core CBD of HK
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 84
www.dbsvickers.com
ed-TH / sa- AH

Office rental reversion in Hong Kong turned negative

Residential earnings, albeit being volatile, to provide additional
growth impetus

BUY with US$8.05TP
Office rental reversion in Hong Kong turned negative.
Vacancy of Central office portfolio edged up to 6.8% in Oct 14
from Jun 14's 6%. With new tenants taking possession of office
space, office vacancy should have improved somewhat before end14. But rental reversion had started to turn negative overall in 2H14.
This neutralised the impact of positive rental reversion registered in
1H14. In FY15, c.31% of floor area is scheduled for roll over with
rental reversion expected to be negative or neutral. Retail portfolio
remained almost full, providing steadily growing rental
contributions. In Singapore, office vacancy improved further to
1.3% in Oct 14 from Jun 14's 1.4%. Hongkong Land is developing
a commercial project (WF CENTRAL) and an office project in Beijing
which should enlarge its rental portfolio upon completion in 2016
and 2017 respectively. With the repayment of shareholders' loan of
US$400m following a debt refinancing at a joint venture in
Singapore, Hongkong Land's gearing is estimated to improve to
10% at end-14 from Jun 14's 12%.
Residential earnings, albeit being volatile, provide additional
growth impetus. The fully-sold Terrassa and Uber 388 in
Singapore were completed in 2H14 as scheduled. Take-up rates of
Palms@Sixth Avenue and Hallmark Residences, both of which are
scheduled for completion in FY15, picked up to 56% and 73% in
Oct 14 respectively. The fully-presold Ripples Bay is also scheduled
for completion in FY15. During Jul and Oct 14, Hongkong Land
achieved contracted sales of US$196m in China. This brought
cumulative contracted sales to US$458m in 10M14. Despite
earnings volatility, regional residential investments give additional
growth impetus to the company and broaden its earnings base.
BUY with US$8.05 TP. Trading at a 26% discount to our assessed
current NAV, the stock offers good investment value over the long
term, in our view. Despite its current negative rental reversion, we
are positive on the Central office market outlook, in view of its
tight new supply for the years to come. This, coupled with portfolio
expansion, should underpin a favourable medium-term rental
income outlook for Hongkong Land. Based on a 25% discount to
our Dec 2015 NAV estimate, we set our TP at US$8.05. BUY.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
J ardine Strategic
F ree F loat (%)
A v g Daily V olume (m shrs)
2,353
134,986 / 17,411
50.01
49.99
1.4
HK Property Sector
Hongkong Land
Income Statement (US$m)
Balance Sheet (US$m)
F Y D ec
2013A
2014F
2015F
2016F
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
1,857
907
(2)
904
235
(64)
12
1,088
(149)
(4)
935
67
20
48.8
48.7
13.7
1,918
1,005
(2)
1,003
147
(74)
34
1,109
(192)
(4)
913
3
(2)
52.4
52.3
17.4
2,386
1,009
(2)
1,007
195
(79)
1,123
(209)
(4)
910
24
(0)
42.3
42.2
18.6
2,061
975
(2)
973
189
(87)
1,075
(199)
(4)
872
(14)
(4)
47.3
47.2
18.5
F ixed A ssets
Other LT A ssets
Cash/ST Inv estments
Other Current A ssets
T o t al A s s et s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
M inority Interests
Shareholders' Equity
T o t al Cap it al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
Cash Flow Statement (US$m)
F Y D ec
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
2014F
2015F
2016F
23,602
23,866
24,370
24,885
5,027
4,682
4,714
4,695
1,406
1,665
1,106
1,013
2,961
3,597
4,371
5,191
32,996 33,809 34,561 35,784
712
450
450
451
1,480
1,470
1,460
1,450
3,719
4,082
3,882
4,181
185
185
185
185
42
40
38
36
26,857
27,582
28,546
29,481
32,996 33,809 34,561 35,784
2,353
2,353
2,353
2,353
(3,025)
(2,867)
(3,226)
(3,619)
2,175
3,341
3,566
4,303
10
11
12
11
Segmental Breakdown (US$m)/ Key Assumptions
2013A
2014F
2015F
2016F
904
(139)
2
66
74
908
(40)
(337)
(378)
287
(405)
1
(117)
414
127
1,003
(192)
2
(189)
(92)
531
(30)
86
56
100
(430)
(330)
258
158
1,007
(209)
2
(211)
(96)
493
(30)
(392)
(422)
(200)
(430)
(630)
(559)
(359)
973
(199)
2
(257)
(103)
416
(30)
(349)
(379)
300
(430)
(130)
(93)
(393)
F Y D ec
Rental income
Serv ices and
mgmt charges
Sale of trading
properties
T o t al s ales
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2013A
2014F
2015F
2016F
811
826
832
857
120
125
132
139
926
1,857
966
1,918
1,423
2,386
1,065
2,061
2015F
2016F
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 85
HK Property Sector
Hysan Development
Bloomberg: 14 HK Equity | Reuters: 0014.HK
Refer to important disclosures at the end of this report
Exploring acquisition opportunities
BUY HK$36.65 HSI: 24,113
Price Target: 12-Month HK$40.90 (Prev HK$40.3)
Potential Catalyst: Growing rental income
DBSV vs Consensus: Market has slightly higher earnings estimate for
FY14-16.

Office reversionary growth to moderate

Exploring new investment opportunities

BUY with HK$40.9 TP
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Office reversionary growth to moderate. Office occupancy has
improved marginally to c.97% from Jun 14's 96%. Office rental
reversion moderated to c.20% in 2H14 from 1H14's c.25%. About
28% of office leases will be up for renewals in 2015, including
Manulife Financial's lease at The Lee Gardens. Currently, this
insurer occupies c.5 floors at The Lee Gardens. Manulife Financial
bought the west tower of One Bay East which is scheduled for
completion in 2H15. We do not rule out the possibility that it will
adjust its office space requirement at The Lee Gardens. Given
increasing expiring rents, we expect rental reversion to further
moderate to 10-15% in FY15. In 11M14, the overall retail tenant
sales rose 18-20% driven by Hysan Place, despite the “Occupy
Central” protest. But Lee Gardens hub, which houses mainly luxury
retailers, posted a low single-digit decline in tenant sales.
Foundation works of the Sunning Plaza/Sunning Court
redevelopment are underway with project completion targeted for
late 2017.
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
217
40.7
197
177
35.7
157
30.7
137
117
25.7
97
20.7
Jan-11
Jan-12
Jan-13
Hysan Development (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
2013A
Turnov er
EBITDA
Pretax Profit
Net Profit*
EPS (HK$)*
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NA V (HK$)
Discount to NA V (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
3,063
2,466
2,522
2,043
1.92
26
19.1
15.6
18.4
1.17
3.2
5
3.4
Jan-14
77
Jan-15
Relative HSI INDEX (RHS)
2014F
2015F
2016F
3,216
2,592
2,656
2,141
2.01
5
18.2
15.0
17.5
1.22
3.3
5
3.3
3,321
2,663
2,727
2,196
2.06
3
17.8
14.6
17.0
1.26
3.4
5
3.3
62.1
(41)
3,397
2,717
2,759
2,221
2.09
1
17.6
14.3
16.7
1.30
3.5
0
3.2
62.9
(42)
1
2.05
B: 7
1
2.17
S: 1
New
2.29
H: 9
Exploring new investment opportunities. Hysan Development's
current gearing stays at c.5%. Even allowing for capex for the
Sunning Plaza/Sunning Court redevelopment, its financial position
remains very comfortable. Capitalising on solid balance sheet,
Hysan Development is exploring acquisition opportunities in
overseas markets such as Sydney, London and Shanghai, with a
focus on commercial properties. Hysan Development will also be
eyeing land banking opportunities in Hong Kong. Overall, new
investments should not only add an impetus to its future growth
but also help diversify its asset concentration risk.
BUY with HK$40.90 TP. The counter is trading at a 41% discount
to our appraised current NAV, against its 10-year average of 36%.
In view of its earnings quality and healthy balance sheet, the stock's
current valuation remains inexpensive. By applying a 35% target
discount to our Dec 2015 NAV estimate, we derive our TP of
HK$40.90 and reiterate our BUY call.
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property leasing with focus on Causeway Bay
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 86
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ed-TH/ sa- AH
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Lee Hy san Estate Co.
Silchester International Inv estors
F ree F loat (%)
Av g Daily V olume (m shrs)
1,064
38,991 / 5,029
40.7
7.0
52.29
1.2
HK Property Sector
Hysan Development
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y D ec
2013A
2014F
2015F
2016F
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
3,063
2,466
(16)
2,450
237
(166)
1
2,522
(372)
(107)
2,043
23
26
80.5
80.0
14.7
3,216
2,592
(16)
2,576
250
(170)
2,656
(382)
(133)
2,141
5
5
80.6
80.1
14.4
3,321
2,663
(16)
2,647
260
(180)
2,727
(392)
(139)
2,196
3
3
80.2
79.7
14.4
3,397
2,717
(16)
2,701
267
(210)
2,759
(396)
(142)
2,221
2
1
80.0
79.5
14.4
F ixed A ssets
Other LT A ssets
Cash/ST Inv estments
Other Current A ssets
T o t al A s s et s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
M inority Interests
Shareholders' Equity
T o t al Cap it al
Share Capital (m)
Net Cash/(Debt)
Working Capital
Net Gearing (%)
Cash Flow Statement (HK$m)
F Y D ec
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
2014F
2015F
2016F
65,926
68,067
69,712
72,321
5,147
5,397
5,657
5,924
4,123
3,308
3,358
3,339
898
873
858
843
76,094 77,646 79,585 82,427
1,055
900
1,200
1,201
1,166
1,151
1,136
1,121
6,449
5,604
5,304
5,503
1,243
1,243
1,243
1,243
2,855
2,984
3,090
3,235
63,326
65,763
67,612
70,124
76,094 77,646 79,585 82,427
1,064
1,064
1,064
1,064
(3,381)
(3,196)
(3,146)
(3,365)
2,800
2,130
1,880
1,860
5
5
5
5
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014F
2015F
2016F
2,450
(225)
16
22
10
2,273
(704)
(2,200)
(2,904)
1,626
(1,172)
(165)
289
(342)
(1,968)
2,576
(382)
16
10
2,220
(524)
60
(464)
(1,000)
(1,340)
(230)
(2,570)
(815)
185
2,647
(392)
16
2,271
(648)
60
(588)
(1,392)
(240)
(1,632)
50
50
2,701
(396)
16
2,321
(897)
60
(837)
200
(1,434)
(270)
(1,504)
(20)
(220)
F Y D ec
2013A
2014F
2015F
2016F
Property rental
income
T o t al s ales
3,063
3,063
3,216
3,216
3,321
3,321
3,397
3,397
2015F
2016F
0 to 5%
0 to 3%
0 to 5%
0 to 5%
K ey as s u mp t io n s
Office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 87
HK Property Sector
Swire Properties
Bloomberg: 1972 HK Equity | Reuters: 1972.HK
Refer to important disclosures at the end of this report
Attractive valuation
BUY HK$24.15 HSI: 24,113
Price Target: 12-Month HK$28.7 (Prev HK$28.0)
Potential Catalyst: Rising rental earnings
DBSV vs Consensus: Market has similar earnings estimate for FY14-15
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
31.4
206
29.4
27.4
186
25.4
166
23.4
146
21.4
126
19.4
17.4
106
15.4
Jan-12
86
Jan-13
Swire Properties (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
2013A
Turnov er
EBITDA
Pretax Profit
Net Profit*
EPS (HK$)*
EPS Gth (%)
PE (x)
P/Cash F low (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Est. NA V (HK$)
Discount to NA V (%)
Earnings Rev (%)
Consensus EPS (HK$)
Other Broker Recs:
12,935
8,692
7,357
6,348
1.09
(8)
22.3
15.9
20.2
0.60
2.5
16
3.2
Jan-14
Relative HSI INDEX (RHS)
2014F
2015F
2016F
15,514
9,405
8,289
6,924
1.18
9
20.4
12.8
18.7
0.62
2.6
18
3.4
16,537
9,908
8,445
7,105
1.21
3
19.9
13.9
17.8
0.62
2.6
20
3.4
37.1
(35)
15,692
9,450
7,732
6,537
1.12
(8)
21.6
11.5
18.6
0.62
2.6
20
3.0
38.3
(37)
1
1.22
B: 10
2
1.21
S: 3
New
1.27
H: 5
* Exclude fair v alue changes on inv estment properties
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: A leading commercial landlord in Hong Kong
with mixed-use developments in China
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 88
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ed-TH / sa- AH

Office portfolio remains in good shape

Residential launches meet with good response

BUY with HK$28.70 TP
Office portfolio remains in good shape. Office occupancy
stayed firm at 97% in Sep 14. The Island East portfolio was
virtually fully let with rental reversion rate of 14-27% in 9M14.
Occupancy of Pacific Place Office picked up to 95% in Sep 14
from Jun 14's 93%. Pacific Place Mall registered a drop in retail
sales in 3Q14. In 9M14, tenants' sales growth fell marginally by
1.1%. In China, both One INDIGO and Taikoo Hui Office are
fully leased. Overall, we forecast that Swire Properties will post a
6% growth in gross rental receipts in FY14, followed by a 4%
increase in FY15. Swire Properties has commenced the Somerset
House redevelopment in Island East and is developing an office
site in Kowloon Bay. These, coupled with Dazhongli mixed use
development in Shanghai, should boost its rental earnings from
FY17 onwards.
Residential launches meet with good response. Swire
Properties offered Arezzo in Mid-levels for sale with positive
market response in Sep 14. Over 60% of the total 127 units
have been taken up at an ASP of >HK$26,500psf. The profit will
be recognised in FY15. The company is applying for pre-sale
consent of its luxury project in Cheung Sha on Lantau Island.
Scheduled for completion in 2015, this development provides
28 luxurious houses with 64,410sf GFA. Elsewhere, Mount
Parker Residences and Argenta are substantially taken up while
Dunbar Place has been fully sold. These projects provide the
mainstay of development earnings in FY14. In Miami, the
residential portion of Brickell City Centre Ph 1 continues to sell
well with >70% of 390 units launched being sold.
BUY with HK$28.7 TP. The stock is trading at a 35% discount
to our appraised current NAV, and its valuation appears
attractive. Portfolio expansions in Hong Kong and China should
strengthen the company's rental income stream in the medium
term. This points to improving earnings quality. BUY with
HK$28.70 TP. This is based on a 25% target discount to our
Dec 15 NAV estimate.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Swire Pacific
F ree F loat (%)
A v g Daily V olume (m shrs)
5,850
141,277 / 18,222
82
18
1.9
HK Property Sector
Swire Properties
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y D ec
2013A
2014F
2015F
2016F
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
U n d erly in g Pro f it
A d j. U n d erly in g
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
12,935
8,692
(391)
8,301
269
(1,307)
94
7,357
(898)
(111)
6,348
6,348
(8)
(8)
67.2
64.2
12.2
15,514
9,405
(371)
9,033
595
(1,340)
16,537
9,908
(390)
9,518
457
(1,530)
15,692
9,450
(410)
9,040
472
(1,780)
8,289
(1,192)
(172)
6,924
6,924
20
9
60.6
58.2
14.4
8,445
(1,278)
(62)
7,105
7,105
7
3
59.9
57.6
15.1
7,732
(1,162)
(33)
6,537
6,537
(5)
(8)
60.2
57.6
15.0
F ixed A ssets
220,933
228,958
238,316
249,942
Other LT A ssets
17,832
21,306
22,782
23,843
Cash/ST Inv estments
2,521
3,720
2,292
3,251
Other Current A ssets
10,671
10,461
10,892
8,890
T o t al A s s et s
251,957 264,444 274,282 285,927
ST Debt
7,589
4,889
7,603
7,603
Other Current Liab
8,218
9,218
9,418
9,618
LT Debt
26,946
35,646
36,932
40,933
Other LT Liab
6,054
6,154
6,154
6,154
M inority Interests
800
853
797
713
Shareholders' Equity
202,350
207,684
213,379
220,906
T o t al Cap it al
251,957 264,444 274,282 285,927
Share Capital (m)
5,850
5,850
5,850
5,850
Net Cash/(Debt)
(32,014)
(36,815)
(42,243)
(45,285)
Working Capital
(2,615)
73
(3,836)
(5,079)
Net Gearing (%)
16
18
20
20
Cash Flow Statement (HK$m)
2013A
2014F
2015F
2016F
Segmental Breakdown (HK$m)/ Key Assumptions
F Y D ec
2013A
2014F
2015F
2016F
EBIT
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
8,301
(1,314)
391
185
(1,182)
6,381
(5,371)
(433)
(5,804)
3,382
(3,401)
15
(4)
573
(2,809)
9,033
(1,192)
371
1,600
(1,429)
8,384
(6,260)
(3,180)
(9,439)
6,000
(3,746)
2,254
1,199
(4,801)
9,518
(1,278)
390
248
(1,708)
7,170
(7,532)
(1,321)
(8,853)
4,000
(3,745)
255
(1,427)
(5,427)
9,040
(1,162)
410
2,832
(2,107)
9,013
(7,419)
(892)
(8,311)
4,001
(3,744)
257
959
(3,042)
F Y D ec
2013A
2014F
2015F
2016F
Property Inv estment
Property trading
Hotels
T o t al s ales
9,786
2,207
942
12,935
10,410
4,013
1,092
15,514
10,847
4,560
1,130
16,537
11,186
3,327
1,179
15,692
2015F
0 to -5%
0 to 5%
0 to 3%
2016F
0 to -5%
0 to 5%
0 to 5%
K ey A s s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 89
HK Property Sector
Wharf Holdings
Bloomberg: 4 HK Equity | Reuters: 0004.HK
Refer to important disclosures at the end of this report
Marching on
BUY HK$60.55 HSI: 24,113
Price Target: 12-Month HK$64.90 (Prev HK$63.70)
Potential Catalyst: China property sales
DBSV vs Consensus: Market has slightly higher earnings estimate for
FY14-15.

Rising rental contributions from Chengdu IFS

China property sales show signs of slight improvement

BUY with HK$64.90 TP
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Rising rental contributions from Chengdu IFS. Harbour City and
Times Square registered retail tenants' sales growth of 4.5% and
14.4% in 11M14 respectively, outperforming the city' average.
Wharf added new retail space at Harbour City to accommodate bigbox tenants such as Page One through conversion of lower office
floors. More high-yielding retail tenants joined Ocean Terminal
following the relocation of the atrium. These initiatives will not only
lead to higher income but also enhance the retail offering at Harbour
City. Chengdu IFS should be a key rental income growth engine in
FY14-16. Its retail portion, opened in Jan 14, is 99% committed with
97% of shops opened for business. This mall should offer full-period
revenue contribution of Rmb600m in FY15. About 40% of the first
office tower at Chengdu IFS has been committed with another 26%
in final stage of lease negotiation. Meanwhile, hotel and serviced
apartment portions are scheduled for completion in 2015-16.
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
209
80.2
189
70.2
169
60.2
149
129
50.2
109
40.2
89
30.2
Jan-11
Jan-12
Wharf (LHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
Turnov er
EBITDA
Pretax Profit
Net Profit*
EPS (HK$)*
EPS Gth (%)
PE (x)
EV /EBITDA (x)
DPS (HK$)
Div Yield (%)
Net Gearing (%)
ROE (%)
Estimated NA V (HK$)
Discount to NA V (%)
Jan-13
Jan-14
69
Jan-15
Relative HSI INDEX (RHS)
2013A
2014F
2015F
2016F
31,887
14,007
15,008
11,298
3.73
2
16.2
18.0
1.70
2.8
21
4.3
34,292
15,682
14,482
11,182
3.69
(1)
16.4
16.1
1.85
3.1
22
3.9
43,914
17,716
17,142
13,163
4.34
18
13.9
14.2
1.96
3.2
22
4.4
88.5
(32)
45,725
18,736
18,668
14,287
4.72
9
12.8
13.4
2.03
3.4
22
4.5
92.7
(35)
Earnings Rev (%)
1
(2)
New
Consensus EPS (HK$)
4.16
4.78
5.02
Other Broker Recs:
B: 13
S: 0
H: 8
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Engaged in property investments, property
developments, container terminal operations and communication,
media and entertainment businesses.
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 90
www.dbsvickers.com
ed-TH / sa- AH
China property sales showing signs of slight improvement. In
2H14, Wharf’s property sales in China showed signs of slight
improvement amid policy relaxation. In 11M14, Wharf achieved
contracted sales of Rmb20.2bn, representing 88% of its full-year
target of Rmb23bn. Key contributors included Unique Garden in
Beijing, Le Palais in Chengdu, Ambassador Villa and Times City in
Suzhou, and Tangzhen in Shanghai. Recently, Wharf returned to
acquisition mode in China. It purchased two adjacent sites in Beijing
through a 25%-held JV at an attributable cost of Rmb2.17bn in Jan
15. They will provide a combined GFA of 0.34m sm.
BUY with HK$64.90 TP. The stock is trading at 32% discount to our
assessed current NAV, against its 10-year average of 27%. Its parent
Wheelock raised its stake in Wharf by c.3% in 2014. We do not rule
out the possibility that Wheelock would further increase its interest in
Wharf, which should lend support to share price. We keep our BUY
call at this stage with a HK$64.90 TP, based on a 30% discount to
our Dec 2015 NAV estimate. But a better entry point would be seen
when the share price is 5% lower.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Wheelock
F ree F loat (%)
A v g Daily V olume (m shrs)
3,030
183,474 / 23,665
55.08
44.92
4.3
HK Property Sector
Wharf Holdings
Income Statement (HK$m)
F Y D ec
Turnov er
EBITDA
Depr/A mort
EB IT
A ssociates Inc
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
Sales Grow th (%)
Net Profit Gr (%)
EBITDA M gn (%)
Opg M gn (%)
Tax Rate (%)
Balance Sheet (HK$m)
2013A
2014F
2015F
2016F
31,887
34,292
43,914
45,725
14,007
15,682
17,716
18,736
(1,445)
(1,496)
(1,525)
(1,556)
12,562 14,186 16,190 17,180
2,716
1,820
2,328
3,015
(1,090)
(1,376)
(1,376)
(1,526)
820
(148)
15,008 14,482 17,142 18,668
(2,869)
(2,876)
(3,412)
(3,687)
(841)
(425)
(567)
(695)
11,298 11,182 13,163 14,287
3
8
28
4
2
(1)
18
9
43.9
45.7
40.3
41.0
39.4
41.4
36.9
37.6
19.1
19.9
19.9
19.8
Cash Flow Statement (HK$m)
F Y D ec
F Y D ec
2013A
2014F
2015F
2016F
F ixed A ssets
285,258
304,717
310,921
317,236
Other LT A ssets
46,693
44,585
46,704
53,178
Cash/ST Inv estments
24,515
21,484
16,915
14,401
Other Current A ssets
58,586
68,175
75,694
77,722
T o t al A s s et s
415,052 438,961 450,234 462,538
ST Debt
9,502
6,500
6,500
6,500
Other Current Liab
37,243
37,293
37,343
37,393
LT Debt
73,085
81,087
79,087
77,087
Other LT Liab
10,967
10,967
10,967
10,967
M inority Interests
8,698
8,623
8,690
8,884
Shareholders' Equity
275,557
294,491
307,647
321,706
T o t al Cap it al
415,052 438,961 450,234 462,538
Share Capital (m)
3,030
3,030
3,030
3,030
Net Cash/(Debt)
(58,072)
(66,103)
(68,672)
(69,186)
Working Capital
36,356
45,865
48,766
48,230
Net Gearing (%)
21
22
22
22
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014F
EBIT
12,562
Tax Paid
(3,105)
Depr/A mort
1,445
Chg in Wkg Cap
5,543
Othr Non-Cash
(640)
O p erat io n al CF
15,805
Capex
(14,036)
A ssoc, M I, Inv smt
2,035
In v es t men t CF
(12,001)
Net Chg in Debt
8,646
New Capital
48
Div idend
(5,691)
Other financing CF
F in an c in g CF
3,003
Chg in Cash
6,807
Chg in Net Cash
(1,839)
14,186
(2,876)
1,496
(8,589)
(2,326)
1,891
(7,900)
3,780
(4,120)
5,000
(5,803)
(803)
(3,031)
(8,031)
2015F
2016F
16,190
17,180
(3,412)
(3,687)
1,525
1,556
(6,419)
(778)
(2,426)
(2,726)
5,459 11,544
(2,100)
(2,100)
208
(3,460)
(1,892) (5,560)
(2,000)
(2,000)
(6,136)
(6,499)
(8,136) (8,499)
(4,569)
(2,515)
(2,569)
(515)
F Y D ec
2013A
2014F
2015F
2016F
Inv estment Property
Hotels
Logistics
Communications, media
and entertainment
Dev elopment Property
Inv estment and others
T o t al s ales
10,985
1,498
3,226
13,144
1,546
3,346
14,295
1,598
3,429
14,910
1,654
3,543
3,684
11,514
980
31,887
3,805
11,423
1,029
34,292
3,902
19,610
1,080
43,914
4,002
20,480
1,134
45,725
K ey as s u mp t io n s
Residential price - HK
Office rental - HK
Retail rental - HK
2015F
2016F
0 to -5% 0 to -5%
0 to 5% 0 to 5%
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 91
HK Property Sector
Champion REIT
Bloomberg: 2778 HK Equity | Reuters: 2778.HK
Refer to important disclosures at the end of this report
HOLD HK$3.60 HSI: 24,113
Price Target: 12-Month HK$3.72 (Prev HK$3.62)
Potential Catalyst: Higher occupancy at Citibank Plaza
DBSV vs Consensus: Market has similar DPU estimates for FY14-16.
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
5.4
221
201
4.9
181
4.4
161
3.9
141
121
3.4
101
2.9
81
2.4
Jan-11
Jan-12
Jan-13
Champion REIT (LHS)
61
Jan-15
Jan-14
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y Dec ( HK $ m)
2013A
2014F
2015F
2016F
Turnov er
Net property income
Net Profit
Distribution income
DPU (HK$)
DPU Gth (%)
Div Yield (%)
Gross Gearing (%)
Book V alue (HK$)
P/Book V alue (x)
2,179
1,748
2,199
1,201
0.21
0
5.8
23
7.94
0.5
2,278
1,794
1,103
1,144
0.20
(5)
5.5
24
7.86
0.5
2,277
1,746
988
1,033
0.18
(10)
5.0
23
7.93
0.5
2,501
1,939
1,079
1,130
0.19
9
5.4
23
8.17
0.4
1
0.20
B: 4
2
0.18
S: 4
New
0.19
H: 5
DPU Rev (%)
Consensus DPU (HK$)
Other Broker Recs:
ICB Industry: Financials
ICB Sector: REITs
Principal Business: Leasing of Citibank Plaza and Langham Place in
Hong Kong
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 92
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ed-TH/ sa- AH
Rebuilding occupancy at Citibank
Plaza is key

Citibank Plaza sees high vacancy but firmer rents

Langham Place remains a bright spot

HOLD with HK$3.72 TP
Citibank Plaza sees high vacancy but firmer rents.
Following the departure of BoAML and Nissan in 4Q14, office
vacancy at Citibank Plaza currently exceeds 20%. Asset
management firms and China-based companies remain the key
source of new demand. Recently, a medical centre took up two
lower floors that were acquired from the government in 2H13.
Subdivided office units also appeal to small tenants. Spot rate is
exhibiting signs of firming up but rental reversion remains
negative given high expiring rents. Combining the impact of
negative rental reversion and higher average vacancy, we
forecast income from Citibank Plaza to fall 4% in FY14
followed by a further 8% drop in FY15.
Langham Place remains a bright spot. The four office floors
at Langham Place vacated by Ageas Insurance in Jul 14 has
been largely taken up by lifestyle and professional service
tenants. Hence, the occupancy of Langam Place Office Tower
remains high at 98-99%. With spot rents in excess of expiring
rents, rental reversion is positive. Tenants' sale growth at
Langham Place Mall was strong at c.15% in 9M14, led by
robust sales performance of cosmetic tenants. But October
sales were impacted by the "Occupy Central" protest. That said,
the impact on overall income should be minimal. The new
cinema, which is fetching significantly higher base rents,
commenced operations in Nov-14. This should lead to a jump in
passing rents for Langham Place Mall. At the same time, fast
fashion brand Uniqlo has also joined the mall.
HOLD with HK$3.72 TP. Champion REIT is trading at
distribution yields of 5% for FY15 and 5.4% for FY16. We
maintain HOLD call at this stage with DDM-based TP of
HK$3.72. That said, given our positive view on long-term
outlook of Central's office sector, we would be a buyer of
Champion REIT once it is able to rebuild the occupancy at
Citibank Plaza.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Great Eagle
F ree F loat (%)
A v g Daily V olume (m shrs)
5,745
20,681 / 2,668
61.8
38.2
4.5
HK Property Sector
Champion REIT
Income Statement (HK$m)
F Y Dec
Gross rev enue
Property expenses
Net p ro p ert y in c o me
Other expenses
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
Minority Interest
Net Pro f it
Dist rib u t io n in c o me
Sales Growth (%)
Distr. Inc Gr (%)
DPU Growth (%)
Balance Sheet (HK$m)
2013A
2014F
2015F
2016F
F Y D ec
2,179
(431)
1,748
(230)
(329)
1,147
2,335
(136)
2,199
1,201
6
1
0
2,278
(484)
1,794
(237)
(295)
1,262
(159)
1,103
1,144
5
(5)
(5)
2,277
(530)
1,746
(232)
(331)
1,183
(195)
988
1,033
(0)
(10)
(10)
2,501
(562)
1,939
(256)
(391)
1,292
(213)
1,079
1,130
10
9
9
F ixed Assets
Other LT Assets
Cash/ST Inv estments
Other Current Assets
T o t al A sset s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
Minority Interests
Unitholders' F und
T o t al Cap it al
Share Capital (m)
Gross Debt
Working Capital
Book NAV (HK$)
Gross Gearing (%)
Cash Flow Statement (HK$m)
2013A
2014F
2015F
2016F
61,201
61,813
63,359
61,509
1,066
1,048
1,040
1,212
249
249
249
249
62,824 62,498 63,103 64,820
2,200
3,700
6,993
2,434
2,349
2,281
2,387
7,629
14,622
12,422
10,922
405
405
405
405
45,364
45,123
45,795
47,406
62,824 62,498 63,103 64,820
5,744
5,774
5,805
5,714
(14,704) (14,704) (14,704) (14,704)
(8,112)
(1,052)
(3,192)
(4,626)
7.86
7.93
8.17
7.94
23
24
23
23
Segmental Breakdown (HK$m)/ Key Assumptions
F Y D ec
2013A
2014F
2015F
2016F
Pre-tax income
Tax Paid
Depr/Amort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, MI, Inv smt
In v est men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
1,183
1,292
2,335
1,262
(285)
(159)
(195)
(213)
77
(918)
101
98
109
1,208
1,204
1,086
1,188
(2,311)
13
7
7
7
(2,298)
7
7
7
1,978
(1,179)
(1,230)
(1,100)
(1,024)
(40)
759 (1,230) (1,100) (1,024)
(331)
(19)
(7)
171
(2,309)
(19)
(7)
171
F Y Dec
Rental income
Carpark income
Building management
fee income
Rental-related income
K ey assu mp t io n s
Office rental - HK
Retail rental - HK
2013A
2014F
2015F
2016F
1,926
36
1,994
40
1,970
42
2,174
44
190
28
2,179
214
29
2,278
235
29
2,277
253
29
2,501
2015F
0 to 5%
0 to 3%
2016F
0 to 5%
0 to 5%
Source: Company, DBS Vickers
Page 93
HK Property Sector
Fortune REIT
Bloomberg: 778 HK Equity | Reuters: 0778.HK
Refer to important disclosures at the end of this report
Laguna Plaza a good fit for growth
BUY HK$8.07 HSI: 24,113
Price Target: 12-Month HK$8.75
Potential Catalyst: Asset enehancement initiative & positive rental
reversion
DBSV vs Consensus: Market has similar DPU estimates for FY15-16
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
9.0
226
8.0
206
7.0
186
166
6.0
146
5.0
126
4.0
106
3.0
Jan-11
Jan-12
Jan-13
Fortune REIT (LHS)
DPU Rev (%)
Consensus DPU (HK$)
Other Broker Recs:
Jan-14
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y D ec ( H K $ m)
2013A
Turnov er
Net property income
Pretax Profit
Net Profit
Distribution income
DPU (HK$)
DPU Gth (%)
Div Yield (%)
Gross Gearing (%)
Book V alue (HK$)
P/Book V alue (x)
86
Jan-15
1,317
928
3,782
3,649
642
0.36
11
4.5
32
10.26
0.8
2014A
2015F
2016F
1,656
1,161
4,102
3,931
781
0.42
16
5.2
29
11.93
0.7
1,875
1,327
876
695
852
0.45
8
5.6
32
12.64
0.6
1,980
1,402
905
720
883
0.46
3
5.8
31
13.35
0.6
B: 11
Nil
0.45
S: 0
ICB Industry: Financials
ICB Sector: REITs
Principal Business: Leasing of retail rental properties
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Nil
0.46
H: 4

Laguna Plaza acquisition is yield accretive

Healthy rental reversion and ongoing enhancement works to
drive growth

BUY with HK$8.75 TP
Laguna Plaza acquisition is yield accretive. Fortune REIT
completed the purchase of Laguna Plaza in Lam Tin for HK$1.92bn in
Jan 15. The acquisition was fully debt-funded. Including the newly
committed tenancies, initial net property yield should reach c.5%,
higher than the cost of funding. We estimate the acquisition will
enhance DPU by c.3% for FY15-16. The mall caters mainly to the
daily requirements of some 8,000 households living in the nearby
Laguna City. It should produce the operational synergies with
Fortune REIT’s another mall in the neighborhood, Centre de Laguna.
Fortune REIT plans to integrate and reposition these two malls in the
medium term. Overall, this acquisition fits in well with Fortune REIT’s
investment strategy and would be positive for its growth.
Healthy rental reversion and ongoing enhancement works to
drive growth. Rental reversion was strong at 23.8% in FY14.
Healthy reversionary growth should continue into 2015 when
c.37.4% of floor area is scheduled for roll-over. Fortune REIT
commenced asset enhancement works at Belvedere Square in Tsuen
Wan in Sep 14. The wet market and the Chinese restaurant space
were renovated with c.85% of reconfigured area pre-leased to
accommodate higher paying tenants. The other portion of Belvedere
Square Ph 3 will be upgraded in Mar 15. The entire renovation work
is estimated to cost HK$80m with completion targeted for late 2015.
Despite temporary rental shortfall during the renovation period, this
initiative should boost rentals remarkably over the long term.
Elsewhere, Fortune REIT is carrying out a feasibility study on AEI for
Fortune Kingswood in Tin Shui Wai. The ongoing property
enhancement works should unlock the hidden value of its portfolio.
BUY with HK$8.75 TP. Fortune REIT offers distribution yields of 5.65.8% for FY15-16. We remain upbeat on its earnings prospects in
view of healthy rental reversion and rental uplift through ongoing
asset enhancement programs. With c.57% of its gross rental income
from non-discretionary retail sectors, Fortune REIT’s income stream is
resilient across the economic cycles. BUY with DDM-based TP of
HK$8.75. Potential interest rate hike remains a key investment risk.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Cheung Kong (Holdings) Limited*
Schroders Plc
F ree F loat (%)
A v g Daily V olume (m shrs)
* Includes the stake held by Hutchison
Page 94
www.dbsvickers.com
ed-JS / sa- AH
15,142
1,876
/ 1,954
28.4
13.0
71.6
1.8
HK Property Sector
Fortune REIT
Income Statement (HK$m)
F Y D ec
Balance Sheet (HK$m)
2013A
Turnov er
Property op. expenses*
N et p ro p ert y in c o me
Interest (Exp)/Inc
Exceptional gain/(loss)
Total trust (expenses)/
income
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
D is t rib u t io n in c o me
Sales Grow th (%)
Distr. Inc Gr (%)
DPU Grow th (%)
2014A
2015F
2016F
1,317
1,656
1,875
1,980
(389)
(495)
(549)
(578)
928 1,161 1,327 1,402
(153)
(208)
(290)
(330)
3,204
3,293
(197)
(144)
3,782 4,102
(133)
(171)
3,649 3,931
642
781
18
26
17
22
11
16
(161)
876
(180)
695
852
13
9
8
(167)
905
(185)
720
883
6
4
3
* Include manager's performance fee
Cash Flow Statement (HK$m)
F Y D ec
Profit before tax
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
F Y D ec
2013A
2014A
2015F
2016F
F ixed A ssets
Other LT A ssets
Cash/ST Inv estments
Other Current A ssets
T o t al A s s et s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
M inority Interests
Unitholders' F und
T o t al Cap it al
Share Capital (m)
Total Debt
Working Capital
Book NA V (HK$)
Gross gearing (%)
29,338
67
858
67
30,330
970
1,003
8,860
387
19,109
30,330
1,862
(9,830)
(1,048)
10.26
32
32,816
32
688
61
33,597
940
989
8,881
412
22,376
33,597
1,876
(9,821)
(1,180)
11.93
29
36,374
32
647
62
37,115
3,798
1,002
8,023
412
23,880
37,115
1,889
(11,821)
(4,092)
12.64
32
38,042
32
509
63
38,646
4,139
1,010
7,682
412
25,403
38,646
1,903
(11,821)
(4,578)
13.35
31
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014A
2015F
2016F
3,782
(112)
0
36
(2,902)
804
(5,733)
5
(5,728)
4,988
958
(588)
(153)
5,204
280
(4,707)
4,102
(165)
0
56
(2,956)
1,037
(156)
10
(216)
(51)
(726)
(214)
(991)
(170)
(119)
876
(180)
0
5
397
1,097
(2,044)
(2,044)
2,000
(805)
(290)
905
(42)
(2,042)
905
(185)
0
5
441
1,166
(100)
(100)
(874)
(330)
(1,204)
(138)
(138)
F Y Dec
Based rent and other
income
Charge out collection
T o t al s ales
K e y a s s u mp t io n s
Retail rental - HK
2013A
2014A
2015F
2016F
1,070
1,356
1,536
1,620
247
1,317
300
1,656
339
1,875
361
1,980
2015F
0 to 3%
2016F
0 to 5%
Source: Company, DBS Vickers
Page 95
HK Property Sector
Prosperity REIT
Bloomberg: 808 HK Equity | Reuters: 0808.HK
Refer to important disclosures at the end of this report
Steady as she goes
BUY HK$2.70 HSI: 24,113
Price Target: 12-Month HK$2.88 (Prev HK$2.80)
Potential Catalyst:Rental reversion & asset enhancement initiatives
DBSV vs Consensus: Market has slightly higher earnings estimate for
FY15-16
Analyst
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
HK$
Relative Index
3.2
209
189
2.7
169
2.2
149
129
1.7
109
1.2
Jan-11
Jan-12
Jan-13
Prosperity REIT (LHS)
Forecasts and Valuation
F Y Dec (HK$m)
Turnover
Net property income
Net Profit
Distribution income
DPU (HK$)
DPU Gth (%)
Div Yield (%)
Gross Gearing (%)
Book Value (HK$)
P/Book Value (x)
DPU Rev (%)
Consensus DPU (HK$)
Other Broker Recs:
89
Jan-15
Jan-14
Relative HSI INDEX (RHS)
2013A
2014F
2015F
2016F
342
267
696
209
0.15
11
5.6
21
4.57
0.6
403
308
129
228
0.16
7
6.0
29
4.60
0.6
424
327
145
237
0.17
3
6.1
28
4.67
0.6
445
343
148
242
0.17
1
6.2
27
4.80
0.6
(3)
0.17
B: 4
(3)
0.18
S: 0
(4)
0.18
H: 0
ICB Industry: Financials
ICB Sector: REITs
Principal Business: Leasing of office and industrial properties in
Hong Kong
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 96
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ed-TH/ sa- AH

Healthy rental reversion to continue

No refinancing needed till 2017

BUY with HK$2.88 TP
Healthy rental reversion to continue. Prosperity REIT
achieved robust rental reversion of 28.6% in 1H14. With
current spot rents being higher than expiring rents, positive
rental reversion should continue. Elsewhere, upgrading
work at 9 Chong Yip Street, including passenger lift lobbies,
toilets and external façade, are almost completed with
earmarked capex of c.HK$20m. A roof garden is under
planning for completion in 2Q15. These initiatives, coupled
with positive rental reversions across overall portfolio,
should continue to fuel distribution income growth.
No refinancing needed till 2017. In Nov 14, Prosperity
REIT secured a 5-year HK$2.5bn syndicated loan facility,
comprising term loans of HK$2.07bn and revolving credit
facilities of HK$430m, to refinance its previous facilities of
HK$2.2bn due in Aug 15. After refinancing, total debt has
increased slightly to HK$2.854bn from Jun 14's
HK$2.799bn and gearing should rise accordingly by 0.6ppt
to 29.5%, which remains below the statutory limit of 45%
under the REIT code. Following this debt refinancing,
Prosperity REIT has no refinancing needs till Jan 17. About
50% of total term loans are hedged into fixed rates through
an interest rate swap which will expire in Jun 15. Prosperity
REIT will closely monitor the interest rate movement and
may consider entering into additional IRS arrangements,
depending on market conditions.
BUY with HK$2.88 TP. Prosperity REIT offers distribution
yield of 6.1-6.2% for FY15-16. Following the new debt
refinancing, HK$3.4bn of assets including Harbourfront
Landmark and Prosperity Millennium Plaza, have become
unencumbered, offering greater funding flexibility for
Prosperity REIT to pursue new acquisitions in the future.
Coupled with its resilient earnings stream, we maintain BUY
with DDM-based TP of HK$2.88. Interest risk hike remains
the REIT’s key investment risk.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Cheung Kong (Holdings)
Hutchison Whampoa Limited
F ree F loat (%)
A v g Daily V olume (m shrs)
3,833
1,420
/ 494
19.9
7.0
73.1
1.5
HK Property Sector
Prosperity REIT
Income Statement (HK$m)
F Y Dec
Balance Sheet (HK$m)
2013A
2014F
2015F
2016F
342
(75)
267
(51)
(42)
551
724
(29)
696
209
11
12
11
403
(95)
308
(69)
(50)
188
(59)
129
228
18
9
7
424
(97)
327
(59)
(61)
207
(61)
145
237
5
4
3
445
(102)
343
(61)
(71)
211
(63)
148
242
5
2
1
Gross revenue
Property expense
Net propert y inc ome
Other expenses
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net Prof it
Dist ribut ion income
Sales Growth (%)
Distr. Inc Gr (%)
DPU Growth (%)
Cash Flow Statement (HK$m)
F Y Dec
Pre-tax income
Tax Paid
Chg in Wkg Cap
Othr Non-Cash
Operat ional CF
Capex
Assoc, MI, Invsmt
Inv est ment CF
Net Chg in Debt
New Capital
Dividend
Other financing CF
F inancing CF
Chg in Cash
Chg in Net Cash
F Y Dec
2013A
2014F
2015F
2016F
F ixed Assets
Other LT Assets
Cash/ST Investments
Other Current Assets
T ot al A sset s
ST Debt
Other Current Liabilities
LT Debt
Other LT Liab
Minority Interests
Unitholders' Fund
T ot al Capit al
Share Capital (m)
Gross Debt
Working Capital
Book NAV (HK$)
Gross Gearing (%)
8,518
58
9
8,585
25
283
1,754
162
6,361
8,585
1,396
(1,795)
(241)
4.57
21
9,770 10,023 10,362
18
14
6
9
9
9
9,797 10,045 10,377
2,005
298
310
318
784
2,789
2,789
203
245
289
6,507
6,702
6,982
9,797 10,045 10,377
1,419
1,438
1,458
(2,805) (2,805) (2,805)
(2,276)
(287)
(303)
4.60
4.67
4.80
29
28
27
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014F
2015F
2016F
724
(16)
14
(467)
256
(15)
0
(15)
5
(200)
(32)
(226)
14
9
188
(18)
5
108
283
(1,063)
0
(1,062)
1,010
(221)
(51)
739
(40)
(1,050)
207
(19)
5
111
303
(15)
0
(15)
(231)
(61)
(293)
(4)
(4)
211
(20)
5
122
318
(15)
0
(15)
(240)
(71)
(311)
(7)
(7)
F Y Dec
2013A
2014F
2015F
2016F
272
21
50
342
323
24
56
403
342
25
57
424
359
25
60
445
2015F
0 to 5%
2016F
0 to 5%
Rental income
Carpark Income
Rental-related income
T ot al sales
K ey assumpt ions
Decentralised office rental - HK
Source: Company, DBS Vickers
Page 97
HK Property Sector
Sunlight REIT
Bloomberg: 435 HK Equity | Reuters: 0435.HK
Refer to important disclosures at the end of this report
Solid rental reversion to drive growth
BUY HK$3.54 HSI: 24,113
Price Target: 12-Month HK$3.73 (Prev HK$3.58)
Potential Catalyst: Rental reversion & asset enhancement initiatives
DBSV vs Consensus: Market has similar DPU estimate for FY15-16
Analyst
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Price Relative
HK$
Relative Index
4.2
209
3.7
189
3.2
169
149
2.7
129
2.2
109
1.7
Jan-11
Jan-12
Jan-13
Sunlight REIT (LHS)
89
Jan-15
Jan-14
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y J un (HK$m)
Turnover
Net property income
Net Profit
Distribution income
DPU (HK$)
DPU Gth (%)
Div Yield (%)
Gross Gearing (%)
Book Value (HK$)
P/Book Value (x)
DPU Rev (%)
Consensus DPU (HK$)
Other Broker Recs:
2013A 2014A
630
491
1,675
286
0.18
4
5.0
26
6.52
0.5
2015F
2016F
689
535
1,230
325
0.20
13
5.6
24
7.06
0.5
726
558
320
341
0.21
4
5.9
23
7.29
0.5
765
589
334
355
0.22
4
6.1
23
7.53
0.5
B: 3
1
0.21
S: 0
1
0.22
H: 0
ICB Industry: Financials
ICB Sector: REITs
Principal Business: Leasing of office and retail properties in Hong
Kong
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 98
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ed- JS / sa- AH

Healthy reversionary growth at Sunlight Tower to continue

Robust rental reversion at Sheung Shui Centre Shopping
Arcade

BUY with HK$3.73 TP
Healthy reversionary growth at Sunlight Tower to continue.
Sunlight REIT achieved c.22% rental reversion for Sunlight Tower
(formerly known as 248 Queen’s Road East) in 1QFY15 when
c.23% of its leases were rolled over. Retention rate was high at
92%, supported by a shipping company (which occupies six floors)
renewing its contract. Spot rate of Sunlight Tower stands at
HK$35-42psf, higher than expiring rents for tenancies expiring in
2Q-4QFY15. Positive rental reversion should continue to drive
revenue. Sunlight REIT has reconfigured the Tai Yuen Street
entrance and renovated the lobby of Sunlight Tower. This
improvement should enhance the image of this office building.
Besides, four Grade B office buildings in Sheung Wan/Central also
delivered satisfactory rental reversion of >20% in 1QFY15.
Robust rental reversion at Sheung Shui Centre Shopping
Arcade. Rental reversion of Sheung Shui Centre Shopping Arcade
continued to stay strong at 31% in 1QFY15, with passing rents
hitting HK$105psf. Sunlight REIT has been strengthening the food
and beverage offerings at this retail arcade. New tenants such as
Uo-show are popular among shoppers since their debut. The REIT
is also planning to upgrade the air conditioning system at Sheung
Shui Centre Shopping Arcade in early 2015 to reduce the utility
costs. The first stage of renovation works at Metro City Ph 1
property has been completed, which involved the upgrade of
façade, atrium and main entrance on the ground floor, should
boost the image of the property. The second stage, which entails
tenant reconfiguration, should commence in 2015.
BUY with HK$3.73 TP. Sunlight REIT offers distribution yields of
5.9% for FY15 and 6.1% for FY16. Tenant mix optimisation
should underpin encouraging rental reversions at Sheung Shui
Centre Shopping Arcade while renovation works should lead to
higher rentals at Metro City Ph 1 property. The REIT offers good
long-term value given its defensive earnings profile and solid
reversionary growth. In Nov 14, Sunlight REIT repurchased 1m
units for c.HK$3.4m. Unit repurchase could help support the unit
price. BUY with DDM-based TP of HK$3.73.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
Shau Kee F inancial Enterprises
Henderson Land
Silchester International Inv estors Limited
F ree F loat (%)
Av g Daily V olume (m shrs)
5,780
1,633
/ 746
23.1
13.2
7.0
63.7
1.3
HK Property Sector
Sunlight REIT
Income Statement (HK$m)
Balance Sheet (HK$m)
F Y J un
2013A
2014A
2015F
2016F
Gross revenue
Property expense
Net propert y income
Other expenses
Interest (Exp)/Inc
Exceptionals
Pre- T ax Prof it
Tax
Minority Interest
Net Prof it
Dist ribut ion income
Sales Growth (%)
Distr. Inc Gr (%)
DPU Growth (%)
630
(140)
491
(83)
(125)
1,443
1,726
(51)
1,675
286
8
5
4
689
(154)
535
(95)
(111)
961
1,290
(60)
1,230
325
9
14
13
726
(168)
558
(92)
(95)
372
(52)
320
341
5
5
4
765
(176)
589
(95)
(104)
391
(57)
334
355
5
4
4
Cash Flow Statement (HK$m)
F Y J un
Pre-tax income
Tax Paid
Chg in Wkg Cap
Othr Non-Cash
Operat ional CF
Capex
Assoc, MI, Invsmt
Inv est ment CF
Net Chg in Debt
New Capital
Dividend
Other financing CF
F inancing CF
Chg in Cash
Chg in Net Cash
F Y J un
Fixed Assets
Other LT Assets
Cash/ST Investments
Other Current Assets
T ot al A ssets
ST Debt
Other Current Liabilities
LT Debt
Other LT Liab
Minority Interests
Unitholders' Fund
T ot al Capit al
Share Capital (m)
Gross Debt
Working Capital
Book NAV (HK$)
Gross Gearing (%)
2013A
2014A
2015F
2016F
14,412
15,408
15,863
16,335
233
224
224
224
329
345
349
351
182
174
174
174
15,156 16,152 16,611 17,084
450
487
492
497
3,875
3,872
3,872
3,872
300
297
297
297
10,532
11,495
11,949
12,417
15,156 16,152 16,611 17,084
1,616
1,628
1,638
1,650
(3,875)
(3,872)
(3,872)
(3,872)
61
32
31
27
6.52
7.06
7.29
7.53
26
24
23
23
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014A
2015F
2016F
1,726
(20)
21
(1,282)
445
73
38
111
(25)
(7)
(277)
(144)
(452)
103
128
1,290
(28)
24
(811)
474
(35)
(92)
(127)
(5)
(304)
(117)
(426)
(80)
(80)
372
(52)
5
134
459
(30)
4
(26)
(331)
(98)
(429)
4
4
391
(57)
5
145
484
(30)
4
(26)
(349)
(107)
(456)
2
2
F Y J un
2013A
2014A
2015F
2016F
506
26
98
630
552
30
107
689
581
31
113
726
610
33
121
765
2015F
0 to 5%
0 to 3%
2016F
0 to 5%
0 to 5%
Rental income
Carpark Income
Rental-related income
T ot al sales
Key assumpt ions
Decentralised office rental - HK
Retail rental - HK
Source: Company, DBS Vickers
Page 99
HK Property Sector
The Link REIT
Bloomberg: 823 HK Equity | Reuters: 0823.HK
Refer to important disclosures at the end of this report
Aiming higher
BUY HK$50.25 HSI: 24,113
Price Target: 12-Month HK$53.35 (Prev HK$51.0)
Potential Catalyst: Asset enahancement initiatives, higher retail rents
DBSV vs Consensus: Market has similar DPU estimate for FY15-16.
Analyst
Jeff YAU CFA +852 2820 4912
jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932
allen_chan@hk.dbsvickers.com
Price Relative
HK$
Relative Index
228
51.1
208
46.1
188
41.1
168
36.1
148
31.1
128
26.1
108
21.1
Jan-11
Jan-12
The Link REIT (LHS)
Jan-13
88
Jan-15
Jan-14
Relative HSI INDEX (RHS)
Forecasts and Valuation
F Y M ar ( HK $ m)
2013A 2014A
Gross rev enue
Net property income
Net Profit
Distribution income
DPU (HK$)
DPU Gth (%)
Div Yield (%)
Gross Gearing (%)
Book NAV (HK$)
P/Book NAV (x)
6,506
4,616
21,062
3,349
1.46
13
2.9
14
35.68
1.4
DPU Rev (%)
Consensus DPU (HK$)
Other Broker Recs:
7,155
5,202
17,305
3,830
1.66
13
3.3
11
41.69
1.2
B: 7
2015F
2016F
7,739
5,668
4,513
4,183
1.82
10
3.6
11
49.03
1.0
8,269
6,110
4,521
4,521
1.97
8
3.9
11
51.86
1.0
Nil
1.81
S: 2
Nil
1.96
H: 8
ICB Industry: Financials
ICB Sector: REITs
Principal Business: Leasing of retail and car park facilities in Hong
Kong
Source of all data: Company, DBSV, Thomson Reuters, HKEX
Page 100
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ed- JS / sa- AH

Encouraging reversionary growth, strong AEI pipeline

Strategic acquisition in Hong Kong, prudent approach in
China expansion

BUY with HK$53.35 TP
Encouraging reversionary growth, strong AEI pipeline. Given
steady growth in tenant sales, The Link REIT's retail rental reversion
should remain healthy at >20% in the near term. Car park income
should continue to exhibit good growth in view of the continuing
supply/demand imbalance. Including two newly added AEIs at Tin
Shing and Long Ping, The Link REIT is carrying out seven AEI
projects with total capex of HK$1.4bn. Moreover, eight AEI projects
are pending statutory approval with more than 13 under planning.
Overall, The Link REIT’s AEI pipeline should remain strong till 2020.
Strategic acquisition in Hong Kong, prudent approach in
China expansion. Despite the low initial property yield of c.2.4%,
the newly acquired Lions Rise Mall could give rise to significant
synergies with The Link REIT's Lung Cheung Plaza and Wong Tai Sin
Plaza nearby. This mall is also under-rented. Potential rental uplift,
coupled with improving occupancies, could lead to yield expansion.
In China, The Link REIT is carrying out an exclusive due diligence for
only Longgang Vanke Mall in Shenzhen. The REIT is adopting a
prudent approach in portfolio expansion in China. In the next 5
years, The Link REIT's China exposure will be maintained at <10%
of its gross asset value.
BUY with HK$53.35 TP. The Link REIT offers distribution yields of
3.6-3.9% for FY15-16. Encouraging reversionary growth and
ongoing asset enhancement initiatives should underpin its earnings
growth momentum in the near term, while acquisitions and
property development could possibly strengthen its long-term
outlook. After completing the disposal of a second batch of
properties, The Link REIT has been repurchasing units to neutralise
the impact from disposal of properties on DPU. This should support
unit price. BUY with DDM-based TP of HK$53.35. Potential interest
rate hike remains a key overhang on unit price.
At A Glance
Issued Capital (m shrs)
Mkt Cap (HK$m/US$m)
Major Shareholders (%)
The Capital Group Companies, Inc.
Blackrock, Inc.
F ree F loat (%)
A v g Daily V olume (m shrs)
2,293
115,235 / 14,863
9.94
7.06
100.00
6.0
HK Property Sector
The Link REIT
Income Statement (HK$m)
F Y M ar
Gross rev enue
Property expenses
N et p ro p ert y in c
Other expenses
Interest (Exp)/Inc
Exceptionals
Pre- T ax Pro f it
Tax
M inority Interest
N et Pro f it
D is t rib u t io n in c
Sales Grow th (%)
Distr. Inc Gr (%)
DPU Grow th (%)
Balance Sheet (HK$m)
2014A
2015F
2016F
F Y M ar
6,506
7,155
(1,890)
(1,953)
4,616
5,202
(223)
(222)
(402)
(365)
17,705
13,445
21,696 18,060
(634)
(755)
21,062 17,305
3,349
3,830
10
10
15
14
13
13
7,739
(2,071)
5,668
(412)
(362)
452
5,346
(834)
4,513
4,183
8
9
10
8,269
(2,159)
6,110
(298)
(397)
5,414
(893)
4,521
4,521
7
8
8
F ixed A ssets
Other LT A ssets
Cash/ST Inv estments
Other Current A ssets
T o t al A s s et s
ST Debt
Other Current Liab
LT Debt
Other LT Liab
M inority Interests
Unitholders' F und
T o t al Cap it al
Share Capital (m)
Gross Debt
Working Capital
Book NA V (HK$)
Gross Gearing (%)
2013A
Cash Flow Statement (HK$m)
F Y M ar
Pre-tax income
Tax Paid
Depr/A mort
Chg in Wkg Cap
Othr Non-Cash
O p erat io n al CF
Capex
A ssoc, M I, Inv smt
In v es t men t CF
Net Chg in Debt
New Capital
Div idend
Other financing CF
F in an c in g CF
Chg in Cash
Chg in Net Cash
2013A
2014A
2015F
2016F
95,439
109,969
126,381
133,497
499
400
400
400
3,152
2,794
3,957
4,519
333
303
313
323
99,423 113,466 131,051 138,739
1,706
2,825
1,613
2,271
2,492
2,707
2,707
2,707
11,829
9,699
12,411
12,953
1,754
1,884
1,884
1,884
81,642
96,351
112,436
118,924
99,423 113,466 131,051 138,739
2,288
2,311
2,293
2,293
(13,535)
(12,524)
(14,024)
(15,224)
(713)
(2,435)
(50)
(136)
35.68
41.69
49.03
51.86
14
11
11
11
Segmental Breakdown (HK$m)/ Key Assumptions
2013A
2014A
2015F
2016F
21,696
(422)
27
85
(17,187)
4,199
(896)
105
(791)
894
(2,344)
(451)
(1,901)
1,507
613
18,060
(469)
20
96
(13,048)
4,659
(1,023)
(713)
(1,736)
(817)
(2,800)
(403)
(4,020)
(1,097)
(280)
5,346
(834)
20
(10)
(91)
4,432
505
31
536
1,500
(886)
(4,026)
(393)
(3,805)
1,163
(337)
5,414
(893)
20
(10)
397
4,928
(820)
44
(776)
1,200
(4,349)
(441)
(3,590)
562
(638)
F Y M ar
Rental income from retail
properties
Gross rental receipts from
carparks
Other rev enues
K ey as s u mp t io n s
Retail rental - HK
2013A
2014A
2015F
2016F
4,872
5,326
5,728
6,132
1,315
319
6,506
1,494
335
7,155
1,658
352
7,739
1,770
366
8,269
2015F
2016F
0 to 3% 0 to 5%
Source: Company, DBS Vickers
Page 101
China / Hong Kong Industry Focus
HK Property Sector
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
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This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSVHK”), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte
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in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to
DBSVHK and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are
subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not
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The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies
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Page 102
China / Hong Kong Industry Focus
HK Property Sector
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1.
DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the report is
published.
2.
DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates beneficially own a total of 1% or more of any class of common equity
securities of Fortune Real Estate Investment Trust (778), Yuexiu Real Estate Investment Trust (405) and Langham Hospitality Investment
Limited (1270) mentioned in this document as of the latest available date of the updated information.
3.
Compensation for investment banking services:
DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates have received compensation, within the past 12 months, and within the next
3 months may receive or intends to seek compensation for investment banking services from Henderson Land Development Company
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Holdings Limited (4) and The Link Real Estate Investment Trust (823) mentioned in this document.
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China / Hong Kong Industry Focus
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