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1、 Asia Pacific Equity Research 02 September 2019 Hong Kong Property Navigating the darkness Part II Hong Kong Singapore Head of HK Research Conglomerates and Property Cusson Leung CFA AC 852 2800 8526 cusson leung Bloomberg JPMA LEUNG Jevon Jim 852 2800 8538 jevon jim Ryan Li CFA 852 2800 8529 ryan l
2、i Karl Chan 852 2800 8513 karl chan Avery Chan 852 2800 8659 avery chan J P Morgan Securities Asia Pacific Limited See page 57 for analyst certification and important disclosures including non US analyst disclosures J P Morgan does and seeks to do business with companies covered in its research repo
3、rts As a result 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 Against a backdrop of persistent uncertainty we have applied stre
4、ss tests to all the Hong Kong property stocks under our coverage and shortlisted six OW stocks with conviction The stress test assumptions declines of 30 in residential prices 30 in retail rents and 40 in office rents are not our base case but we believe looking through this lens helps to identify t
5、he stocks that still present considerable value despite the short term depressed sentiment Lingering uncertainties Despite the 19 correction from their recent peaks we believe the majority of Hong Kong property stocks have yet to discount all the uncertainties coming from 1 continued China US trade
6、tensions and 2 the current social unrest in Hong Kong that is taking a toll on the local economy These risks are difficult to quantify at this stage given the unknown duration of events As a result of our stress test to determine bear case impacts for Hong Kong property companies we are consolidatin
7、g our OW list to only six names CKA NWD Henderson Land Wharf HLP and Link REIT We see further downside risks to stocks such as Hysan Swire Prop Wharf REIC and Sino Land The bear case scenario Assuming the current home price to income ratio falls back from the current 14x to its long term average of
8、10 x this would imply a 30 decline in residential prices If the current social unrest in Hong Kong leads to a 70 reduction in tourist spending and 10 decline in domestic consumption we estimate Hong Kong retail sales would see about a 30 drop Hong Kong CBD office rents are at a 160 premium to Singap
9、ore CBD rents In the event of an unforeseeable confidence crisis in Hong Kong we estimate an emigration of MNCs could contract the premium to about 60 which is a similar level to those during the Asian Financial Crisis and Global Financial Crisis This implies a 40 decline in office rents from the cu
10、rrent level A condensed OW list These assumptions are not our base case but having input these bear case assumptions in our valuation model the current NAV discounts for the developers landlords would have narrowed from an average of 56 55 to 47 42 respectively However in this bear case reduced NAV
11、scenario we would not expect stocks to trade at a 2 S D discount to NAV but at 1 S D instead Under this scenario CKA Henderson Land NWD Wharf HLP and Link REIT still render upside from current price levels in our view Downgrading 4 stocks to UW and 2 stocks to N We are downgrading Sino Land Hysan Sw
12、ire Properties and Wharf REIC to UW and Kerry Prop and Wheelock to N With the 30 and 40 declines in retail and office rental in our bear case assumptions it s not surprising that retail office landlords like Hysan Swire Prop and Wharf REIC would see the most negative potential impact on their NAV es
13、timates These stocks have also outperformed Hongkong Land s valuation by a wide margin We are upgrading SHKP and Hongkong Land from UW to N given our stress tests indicate only moderate downside from current levels as these two stocks have fallen a long way We believe investors should consider closi
14、ng short positions on these two stocks 2 Asia Pacific Equity Research 02 September 2019 Cusson Leung CFA 852 2800 8526 cusson leung Equity Ratings and Price Targets Mkt CapPriceRatingPrice Target CompanyTicker mn CCYPriceCurPrevCurEnd Date Prev End Date CK Asset Holdings Ltd 1113 1113 HK25 067HKD53
15、25OWn c68 80Dec 1979 00n c Henderson Land Development 0012 12 HK22 522HKD36 50OWn c46 00Dec 1956 40n c Kerry Properties 0683 683 HK4 910HKD26 45NOW27 30Dec 1938 40n c New World Development 0017 17 HK12 746HKD9 78OWn c10 50Dec 1914 20n c Sino Land 0083 83 HK9 731HKD11 20UWOW9 70Dec 1915 70n c Sun Hun
16、g Kai Properties 0016 16 HK41 033HKD111 10NUW103 24Dec 19127 20n c Wheelock and Company Limited 0020 20 HK11 893HKD45 55NOW44 70Dec 1962 70n c The Wharf Holdings Limited 0004 4 HK6 665HKD17 16OWn c21 50Dec 1930 90n c Hang Lung Properties 0101 101 HK10 158HKD17 72OWn c19 10Dec 1920 50n c Hongkong LandHKL SP12 846USD5 46NUW5 10Dec 195 85n c Hysan Development Co 0014 14 HK4 235HKD31 75UWOW28 20Dec 1949 20n c Swire Properties 1972 1972 HK19 199HKD25 75UWN23 40Dec 1932 30n c Wharf REIC 1997 1997 HK16
