NWD Result Weaker on Property Development; Investment Properties Fared Well Despite Lockdowns

New World Development's, or NWD’s, fiscal 2022 result was below consensus and our expectation. Revenue of HKD 68 billion in fiscal 2022 was flat against last year but below our forecast of HKD 77.5 billion and Refinitiv consensus of HKD 75.5 billion. Against our forecast, this was mainly attributable to lower revenue recognition from property development in both Hong Kong and China, and investment property in Hong Kong. In our view, investment properties fared well in the context of lockdowns in Hong Kong and China. Against the same period last year, investment properties revenue was up 4% in both Hong Kong and China, with key properties in Victoria Dockside in Hong Kong and K11 in Wuhan posting stronger growth of 8% and 26%, respectively. We continue to believe the completion of investment properties in Hong Kong and China is a positive for the company in the medium term, as recurring revenue improves the overall quality of income for the group. Divestment of low-return noncore assets is continuing, and totaled HKD 13.9 billion. This includes assets at both the NWD level, and infrastructure businesses at NWS. Key divestment at the NWS level includes the completion of the waste management disposal and aircraft leasing business Goshawk. In our view, disposal of noncore assets is a positive for NWD in the long term, but it needs to be complemented with consistency in its acquisition strategy. NWS’ stake in Goshawk was only acquired in 2015 and the group was focused on investing and growing that business.