Higher residential completion to drive stronger earnings growth ahead; Buy

Deutsche Bank Markets Research Rating Buy Asia Hong Kong Property Company SHK Properties Ltd Date 10 September 2015 Forecast Change Higher residential completion to drive stronger earnings growth ahead; Buy Reuters Bloomberg Exchange Ticker 0016.HK 16 HK HKG 0016 ADR Ticker ISIN SUHJY US86676H3021 Forecasts And Ratios Year End Jun 30 2014A 2015A 2016E 2017E 2018E Sales (HKDm) 75,100.0 66,783.0 89,889.5 100,288.2 111,034.1 EBITDA (HKDm) 26,458.0 24,301.0 28,006.8 28,657.5 33,119.3 Reported NPAT (HKDm) 33,520.0 31,082.0 22,671.6 22,655.3 24,913.4 DB EPS FD (HKD) 7.95 7.07 8.01 8.01 8.80 PER (x) 12.6 16.9 12.4 12.4 11.3 DPS (net) (HKD) 3.35 3.35 3.35 3.35 3.35 Yield (net) (%) 3.3 2.8 3.4 3.4 3.4 Source: Deutsche Bank estimates, company data Maintaining Buy on strong sales execution track record; target price HK$133 ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. Price at 10 Sep 2015 (HKD) 99.20 Price target - 12mth (HKD) 133.00 52-week range (HKD) 136.40 - 93.85 HANG SENG INDEX 22,131 Jason Ching, CFA Research Analyst (+852) 2203 6205 jason.ching@db.com Tony Tsang Research Analyst (+852) 2203 6256 tony.tsang@db.com Key changes Price target 142.00 to 133.00 ↓ -6.3% Sales (FYE) 84,427 to 89,889 ↑ 6.5% Op prof margin (FYE) 30.0 to 28.8 ↓ -4.0% Net profit (FYE) 22,359.3 to 22,671.6 ↑ 1.4% Source: Deutsche Bank Price/price relative 901001101201301409/133/149/143/15SHK Properties LtdHANG SENG INDEX (Rebased) Performance (%) 1m 3m 12m Absolute -14.5 -20.8 -15.9 HANG SENG INDEX -9.7 -17.1 -10.4 Source: Deutsche Bank While FY15 earnings declined YoY, this was well within expectations given that delays in certain projects led to fewer residential deliveries. With residential completion to exceed 3mn sf per annum in the next three years (vs. just 1mn sf completed in FY15), we expect earnings growth to accelerate ahead. Meanwhile, SHKP achieved strong contracted sales of HK$32bn in FY15 (28% ahead of target), reflecting its strong sales execution capability. Looking ahead, we expect this strong sales momentum to continue on a strong launch pipeline. Valuation is attractive following the recent sell-down, trading at a 40% discount to NAV vs. a historical average of 23%. Buy. Core net profit -7% YoY to HK$19,825mn on fewer residential deliveries SHKP reported FY15 revenue -11% YoY to HK$66,783mn, dragged by a marked 47% YoY decline in residential delivery to HK$17,676mn. Nevertheless, rental revenue and hotel revenue remained solid with 7%/5% YoY growth to HK$16,053mn/HK$4,136mn, respectively. Excluding fair value gains and other non-recurring items, underlying profit fell by 7% YoY to HK$19,825mn (reflecting fewer residential deliveries). A final dividend of HK$2.4/share was declared (unchanged YoY), bringing the full-year dividend to HK$3.35/share. Strong project launch pipeline to drive strong sales momentum ahead According to Centaline, SHKP was ranked first in the residential sales league table in Hong Kong, with total sales of HK$26bn in FY15 (HK$32bn including office projects, namely W50 and One Harbour Square). Following the successful launch of Century Link II in Tung Chung recently, upcoming projects scheduled for launch in the next nine months include King’s Hill in Sai Ying Pun (71,000sf), Park Vista Phase 1 in Yuen Long (747,000sf), Grand YOHO Phase 1 in Yuen Long (801,000sf), Tseung Kwan O Town Lot No.118 (483,000sf) and Tuen Mun Town Lot 509 (141,000sf). Target price based on 20% discount to our revised NAV of HK$166.3/share Our target price is based on a 20% discount to our revised NAV estimate of HK$166.3/share (HK$177.6/share), which has factored in US$:Rmb depreciation to 6.9. Our target discount is in line with SHKP’s historical NAV discount of 23%, which we believe is appropriate given the strong sales execution track record regardless of market conditions. Key risks: external economic shocks, liquidity outflow, rate hike and government measures. 10 September 2015 Property SHK Properties Ltd Page 2 Deutsche Bank AG/Hong Kong Model updated:10 September 2015 Running the numbers Asia Hong Kong Property SHK Properties Ltd Reuters: 0016.HK Bloomberg: 16 HK Buy Price (10 Sep 15) HKD 99.20 Target Price HKD 133.00 52 Week range