Company Reports

New World Development’s HKD 19.7 billion net loss for fiscal 2024 (ended in June) aligns with its prior profit warning. The bigger surprise came from management’s reshuffle, in which the current COO, Ma Siu-Cheung, replaced Adrian Cheng as the new CEO on Sept. 26, 2024. While we do not expect any major change in NWD’s operations, we think the new management team will likely accelerate debt repayments to deleverage. This may revive investors' confidence in the company, which saw an elevated net gearing ratio of 55% as of June 2024. NWD reiterated ongoing plans of divesting noncore assets and containing operating costs to ease financial pressure. We think the positive shift in homebuyers’ sentiment in Hong Kong and mainland China amid policy tailwind and interest rate reduction is also conducive.

New World Development is a leading property developer in Hong Kong and mainland China under the Cheng family, with property development and investment as core businesses. As NWD aims to raise the revenue mix of investment properties, we think execution efficiency remains crucial for the group to maintain robust top-line growth. We believe NWD is poised to leverage the success of its well-received K11 commercial project in Victoria Dockside to deliver the new 11 Skies project in Hong Kong. We also expect the group to complete a rich portfolio of K11 malls over the next five years in mainland China. With continuing floor area expansion and upward rental reversion, we estimate that recurring earnings from investment properties should represent over 30% of NWD’s operating profit in fiscal 2029.

New World Development, or NWD, is a leading property developer in Hong Kong and mainland China under the Cheng family, with property development and investment as core businesses. As NWD aims to raise the revenue mix of investment properties, we think execution efficiency remains crucial for the group to maintain robust top-line growth. We believe NWD is poised to leverage the success of its well-received K11 commercial project in Victoria Dockside to deliver the new 11 Skies project in Hong Kong. We also expect the group to complete a rich portfolio of K11 malls over the next five years in mainland China. With continuing floor area expansion and upward rental reversion, we estimate that recurring earnings from investment properties should represent over 30% of NWD’s operating profit in fiscal 2028.

No-moat New World Development gave a brief business update for fiscal 2024 (ending June), saying that its net gearing ratio may not see material improvement in the near term amid weak home demand and consumption behavior in mainland China and Hong Kong. Nonetheless, it is more optimistic about the property market’s secular trend, given lower interest rates and a revival in homebuyer sentiment prospects in both regions, which should enhance NWD's financial strength. Despite respective downward tweaks of 14% and 7% for NWD’s fiscal 2024 contracted sales in Hong Kong and mainland China, we incorporate a more constructive outlook for sales in fiscal 2025-26, leading to minor changes in our three-year property development revenue compound annual growth rate forecast. Management also remains confident about achieving the HKD 8 billion asset disposal plan for fiscal 2024 as more deals may be closed by June. While this will mildly weigh on NWD’s top line, we expect new commercial projects to contribute to recurring income from fiscal 2025 onward. As such, we keep our HKD 10 per share fair value estimate and view shares as underpriced. However, we see limited short-run share price drivers for the firm as its property businesses will likely need a longer time to stabilize.

We cut our fair value estimate on New World Development, or NWD, to HKD 10 per share from HKD 17, given a more conservative outlook for its inventory turnover and top-line growth. For first-half fiscal 2024 (ending June), NWD reported a 25% year-on-year drop in its core property businesses’ revenue, mainly due to subdued homebuying sentiment in Hong Kong and mainland China. Despite policy tailwinds in both regions, we foresee a tempered sales rebound and slower housing inventory clearance amid price softness. While first-half rental income from investment properties was more resilient, we project the pickup to moderate, with normalizing shopping footfall and weak demand for office space. As such, we lower our fiscal 2024-28 property businesses revenue compound annual growth rate assumption to 6.7% from 9.7%. That said, we like the firm’s debt redemption to contain the high net ratio of around 50%, and expect more repayment through the proceeds from the disposal of its nonproperty businesses. Given NWD’s limited valuation upside and lower regular dividend payouts, we prefer peer Henderson Land, given its stronger balance sheet and better risk/reward.

New World Development, or NWD, is a leading property developer in Hong Kong and mainland China under the Cheng family, with property development and investment as core businesses. As NWD aims to raise the revenue mix of investment properties, we think execution efficiency remains crucial for the group to maintain robust top-line growth. We believe NWD is poised to leverage the success of its well-received K11 commercial project in Victoria Dockside to deliver the new 11 Skies project in Hong Kong. We also expect the group to complete a rich portfolio of K11 malls over the next five years in mainland China. With continuing floor area expansion and upward rental reversion, we estimate that recurring earnings from investment properties should represent over 30% of NWD’s operating profit in fiscal 2028.

We lower our fair value estimate of New World Development, or NWD, to HKD 17 from HKD 21, as its fiscal 2023 (ended June 30) revenue and operating profit both missed Refinitiv consensus, which we think was due to compressed home prices and profit margins for residential properties. We are more concerned about NWD’s cut of its regular dividend by over 60% for fiscal 2023 (stripping out special dividend). While NWD’s net gearing ratio of 47% stayed elevated even after factoring in NWS’ business spinoff, we view the firm’s liquidity risk as manageable given limited short-term refinancing needs and pressure on cash flow. As soft homebuying demand in Hong Kong and mainland China should persist, we trim our forecast of NWD’s average selling price for residential projects, as well as of the gross margins and dividend payout through fiscal 2028, but are more positive on investment properties’ earnings amid retail sales pickup and floor area expansion. Despite our valuation revision, NWD’s shares remain slightly underpriced as we think the recent selloff on financing concerns is overdone.

New World Development, or NWD, is a leading property developer in Hong Kong and mainland China under the Cheng family, with property development and investment as core businesses. As NWD aims to raise the revenue mix of investment properties, we think execution efficiency remains crucial for the group to maintain robust top-line growth. We believe NWD is poised to leverage the success of its well-received K11 commercial project in Victoria Dockside to deliver the new 11 Skies project in Hong Kong. We also expect the group to complete a rich portfolio of K11 malls over the next five years in mainland China. With continuing floor area expansion and upward rental reversion, we estimate that recurring income from investment properties should represent over 25% of NWD’s revenue in fiscal 2028.

We view New World Development’s, or NWD’s, proposed privatization of its subsidiary NWS, which mainly engages in toll roads, construction and insurance businesses as positive but we do lower our fair value estimate following a review of our key real estate earnings assumptions. NWD’s parent company Chow Tai Fook plans to acquire all NWS shares held by NWD at a 14.5% premium, leading to a total consideration of around HKD 21.8 billion. With the proceeds, NWD intends to distribute an HKD 1.60 per share special dividend, repay debt and shore up cash flow needs. Overall, we think the transaction benefits NWD’s shareholders the most, as the special dividend will likely lift NWD’s dividend yield to over 15% from 8% previously. That said, after taking a fresh look at key assumptions, we trim our fair value estimate to HKD 21 from HKD 45 due to downward revision on margin forecast and potential impact from NWS’ divestment. Following our adjustment, we think NWD’s shares are fairly valued.

New World Development, or NWD, is a leading property developer in Hong Kong and mainland China under the Cheng family, with property development and investment as core businesses. As NWD aims to raise the revenue mix of investment properties, we think execution efficiency remains crucial for the group to maintain robust top-line growth. We believe NWD is poised to leverage the success of its well-received K11 commercial project in Victoria Dockside to deliver the new 11 Skies project in Hong Kong. We also expect the group to complete a rich portfolio of K11 malls over the next five years in mainland China. With continuing floor area expansion and upward rental reversion, we estimate that recurring income from investment properties should represent over 20% of NWD’s revenue in fiscal 2027.

We maintain our fair value estimate of HKD 45 for New World Development, or NWD, after the company delivered a robust 13% year-on-year revenue growth for the first half of fiscal 2023 (ended in December 2022). Overall revenue of HKD 40.2 billion for the first half materially beat Refinitiv consensus estimate of HKD 32.1 billion, due to strong performance from property sales booked and construction revenue. While profit margins were squeezed by COVID-19 restrictions, we view this as temporary and believe NWD’s profitability will rebound, given meaningful pickup in foot traffic to shopping malls and residential property sales. Despite lowering our fiscal 2023 revenue forecast on a more conservative project delivery outlook, our long-term assumptions on core businesses remain largely unchanged. We think NWD's current share price has still not fully reflected prospective revenue growth and margin improvement under better operating efficiency.

The younger generation of the Cheng family has taken the helm at New World Development, injecting fresh perspectives and ideas. Real estate remains core to the group, supplemented by NWS Holdings' key operations in roads, construction, and insurance.

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.

The younger generation of the Cheng family has taken the helm at New World Development, injecting fresh perspectives and ideas. Real estate remains core to the group, supplemented by NWS Holdings' key operations in roads, construction, and insurance.

New World Development’s business update ahead of its June full-year result was positive despite the challenging operating environment in Hong Kong and mainland China. Management was clear in noting New World is unaffected by the current incidences of buyers suspending their mortgage payments in mainland China. The company cited the projects involve developers already in default, and mainly in Tier 3 and Tier 4 cities. The majority of New World’s land bank and projects are located in Tier 1 and New Tier 1 cities and are continuing to sell well. This was reflected in the company’s Hangzhou project and buyers' strong reception from reputable overseas developers are in line with what we have seen in previous downturns. Ongoing completion of residential projects in mainland China and Hong Kong are expected to result in HKD 35 billion to HKD 40 billion worth of contracted sales in each fiscal 2023 and fiscal 2024. While we expect New World’s residential projects to be unaffected, we believe the market is pricing in the developer’s exposure to mainland China, attributing to its share price underperformance relative to its Hong Kong peers. The group’s exposure to China includes toll roads, which contributed to around 14% of group operating profit last year.

The younger generation of the Cheng family has taken the helm at New World Development, injecting fresh perspectives and ideas. Real estate remains core to the group, supplemented by NWS Holdings' key operations in roads, aviation, construction, and insurance.

There was no change in underlying trends in no-moat New World Development, or NWD’s, first-half fiscal 2022 result. While the Hong Kong operation performed better as the coronavirus situation eased in the second half of calendar 2021, mainland China performed strongly, particularly in property development, on the booking of high margin projects in the Greater Bay Area. Booking for residential development in Hong Kong was lower against the same period last year, due to the timing on completion of the projects. Management noted HKD 6 billion in residential booking is expected in the second half and HKD 24.8 billion in fiscal 2023. The positive for Hong Kong was the investment properties, where operating margin improved at K11 Musea with operating expense declining 30% year on year. As noted at the business update earlier this year, positive rental reversion is expected for K11 Musea as tenants move on to the second leasing cycle. There is no change in our view the completion of investment properties in both Hong Kong and mainland China remains the key for the group in the medium term. Its 11 Skies in Hong Kong is expected to be opened in phases from 2022 and there is no change in the pre-leasing target of 65% for the office tower by mid-2022. The office tower is currently 48% committed. Our fair value estimate of HKD 48 per share is unchanged and we continue to see NWD as undervalued.

The younger generation of the Cheng family has taken the helm at New World Development, injecting fresh perspectives and ideas. Real estate remains core to the group, supplemented by NWS Holdings' key operations in roads, aviation, construction, and insurance.

Following New World Development’s, or NWD’s, business update, our fair value estimate of HKD 48 is unchanged. Key takeaways from the update included NWD’s view for a phased border reopening between Hong Kong and mainland China that will help tourist arrivals and expectations of opportunities to acquire assets in China. We make minor adjustments to our 2022 profit forecast largely related to project timing but there was little that would lead to a change in our longer term view for no-moat NWD. NWD’s shares remain undervalued, trading on an attractive forecast dividend yield of close to 7%. While the re-opening of the China border is a key positive catalyst for the company, NWD’s larger-than-peer contribution from residential development in China may continue to constrain performance given views for slowing sales growth. Overall, we already reflect a fairly decent rebound in NWD’s earnings with three-year EPS CAGR at 127% from fiscal 2021’s trough.

With the worst of the coronavirus pandemic likely over and the return of social stability from the passing of the National Security Law, the Hong Kong Government’s 2021 policy address again focuses on housing and land related measures, and long-term economic growth initiatives. Regarding housing and land supply, key initiatives include Northern Metropolis in New Territories North, aiming to increase housing supply in the long term. The area, including recently identified new land supply, is expected to yield 565,000 units to 686,000 units over a 10 to 15 year period, from 2031 onward. The area is expected to be connected by rail, from the extension of MTR’s Northern Link. Separately, plans and feasibility for the Hong Kong and Qianhai railway will be assessed. Previously announced long-term initiatives to increase housing supply are continuing and include near shore land reclamation, the development of artificial islands at Lantau and extension of higher plot ratios for the redevelopment of industrial buildings. A working group is also being set up to lower the threshold for compulsory sale of village land in New Territories.