Sun Hung Kai Properties Valuation Is Attractive, Remains Preferred Pick for Hong Kong Developers

Sun Hung Kai Properties remains our preferred Hong Kong developer, and valuation is undemanding at a price/fair value ratio of 0.64. Our fair value estimate of HKD 145 per share is unchanged. While near-term positive catalysts are lacking, the developer is trading on a forecast dividend yield of 5.5%, at a share price of HKD 93 per share. The dividend is supported by recurring income from its high-quality investment property portfolio and a strong balance sheet with net gearing at 17.5%. We expect the reopened domestic economy in Hong Kong to ease a decline in rent for its investment property portfolio, and we continue to expect the high occupancy level for its office and retail portfolio to be maintained. We believe a reopening of borders with mainland China and internationally to be a key catalyst for the real estate sector, which should benefit the share prices of the retail-concentrated landlords, relative to landlords with a larger share of income derived from office properties.