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    • Hong Kong Property

    摩根大通

    Asia Pacific Equity Research 25 February 2011
    Hong Kong Property Abundant land supply from 3Q11 onwards; SHKP and CK have deeper pockets ? Close to 11,600 units from the newly added sites: The government announced the new Application List for FY11/12 and mentioned government-initiated tenders of sites that fall outside the Application List. We estimate the 18 sites provide 11,570 units in aggregate. The government expects this, together with railway tenders, URA projects and land-use conversion, to provide 30-40k units in the fiscal year. We have expected 22,000 units to be replenished in 2011, i.e. over 50% from government initiated sales. SHKP and CK have more capacity for landbanking: We estimate major developers (except NWD and HLD) have capacity of > HK$50B for now for land acquisitions. SHKP and Cheung Kong have most room thanks to the strong sales achieved in 2010 and the low gearing. Developers as a whole would likely put up more launches to cash in to prepare for the augmented land sales pipeline by 3Q11. With more supply, we see limited room for land price inflation, which in turn would cap the housing price growth when more residential units were replenished than sold. Residential sites may receive more traction than commercial: Although the government is attempting to ease commercial/ hotel supply, we do not expect to see a keen interest in decentralized commercial sites judging from the lack of land auction applications in the past three years, but the newly added sites include several prime sites in urban districts which are likely to be triggered successfully. Hong Kong Property Lucia Kwong, CFA AC
    (852) 2800-8526 lucia.yk.kwong@jpmorgan.com
    Amy Luk, CFA (852) 2800 8524 amy.kp.luk@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
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    Hong Kong property - Valuation summary Price 23-Feb11 (HK$) 116.60 47.20 13.58 121.40 13.88 3.33 25.85 45.55 31.30 6.38 34.70 37.35 106.10 49.35 NAV Dec-11 (HK$) 170.78 79.98 29.47 181.76 21.30 9.35 50.71 61.91 35.09 9.89 50.29 73.99 183.20 76.57 Dis. to Dec-11 NAV (%) -32% -41% -54% -33% -35% -64% -49% -26% -11% -35% -31% -50% -42% -36% -35% -34% P/E FY10E (x) 23.5 21.0 14.6 23.6 20.0 16.2 12.0 16.5 19.5 19.8 30.7 17.3 15.9 18.9 22.2 18.1 FY11E (x) 23.2 19.3 10.6 15.6 17.4 8.1 12.4 38.5 50.2 19.0 29.7 11.7 13.7 16.3 18.3 22.9 Div. Yield FY11E (%) 2.6 2.1 2.8 2.4 3.2 3.3 2.1 1.7 2.3 2.8 2.0 3.2 3.7 1.7 2.5 2.7 Net Gearing FY11E (%) 13% 24% 14% 11% 15% 56% 4% net cash net cash 17% 8% 15% 24% 17% P/B FY10E (x) 1.03 0.72 0.60 1.27 0.92 0.86 0.70 1.20 1.26 1.08 1.05 0.99 0.96 1.13 1.0 1.1 FY11E (x) 1.01 0.59 0.59 1.18 0.93 0.80 0.67 1.15 1.15 1.01 1.04 0.90 0.92 1.07 1.0 1.0
    Rating Cheung Kong Henderson Land New World Development Sun Hung Kai Properties Sino Land K Wah International Great Eagle Hang Lung Group Hang Lung Properties Hong Kong Land Holdings (US$) Hysan Development Kerry Properties Swire Pacific Wharf Holdings Developers' Average Investors' Average OW OW OW OW N OW OW N N OW OW OW OW OW
    Stock code 0001.HK 0012.HK 0017.HK 0016.HK 0083.HK 0173.HK 0041.HK 0010.HK 0101.HK HKLD.SI 0014.HK 0683.HK 0019.HK 0004.HK
    Source: Company data, Bloomberg, J.P. Morgan estimates.
    See page 7 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 reports. 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.
    Lucia Kwong, CFA (852) 2800-8526 lucia.yk.kwong@jpmorgan.com
    Asia Pacific Equity Research 25 February 2011
    Available land supply to increase significantly from 3Q11 2.7 million sf added to Land Application List, all available after mid-2011 The Lands Department released the updated Application List for Mar 2011 - Feb 2012 today (Feb 24, 2011). 15 new land parcels have been added, totally some 2.7 million sf and could provide 8,800 units on our estimates, but all are only available for land auction application after June 2011. For the existing sites, one site in Chaiwan (155,345sf) which received no bids in the auction in Sep-10) was removed from the List. This leaves 34 sites, of which two sites in Hunghom (182,000sf offering ~230 units) will be taken out for scheduled tender in April and four others sites (1 million sf offering ~1,230 units) to be auctioned as initiated by the government. Please refer to Table 4 for full details. Three new sites for government initiated tenders The government chooses three new sites in Tung Chung, Yuen Long and Tsuen Wan for scheduled tender, and together with the two Hunghom sites, these could provide 3,000 units. Table 1: Summary of new government land supply Additions to Application List Government initiated tenders Total Number of sites 15 3 18 Est GFA (MM sf) 2.7 3.0 5.7 Est No of units 8,800 2,770 11,570
    Source: Lands Department, HKSAR Government.
    New sites include ex-Ho Man Tin and ex-North Point Estates which developers have been waiting for The newly added sites include part of 1) the former Ho Man Tin Estate near Cheugn Kong’s Celestial Heights in central Kowloon, and 2) former North Point Estate at the waterfront of Island East. Both sites were previously occupied by pubic housing estates surrendered by the HK Housing Authority and are thus well established urban districts. Comparable sites of Ho Man Tin Estate are Argyle Street sold for an A.V. of HK$10,400psf in Aug-10, while there have not been comparable sites for North Point Estate in the past two years. More choices of landbank at Tseung Kwan O Another spotlight is Tseung Kwan O Area 66 and 68, both of which are reclaimed land outside Tsueng Kwan O MTR Station, with total site area of 1 million sf zoned for Residential (R2 to R3). At a plot ratio of 1.5 – 5x, these sites would offer close to 2.84 million sf. The last auction was Area 66B which was acquired by SHKP in Jan10 at an A.V. of HK$4,628psf. We believe SHKP will be interested to take some of the adjacent sites so that the commercial spaces between Area 66 and Area 56 (also taken by SHKP) can be connected. Overall, Area 66 and 68 are close to the waterfront and graduation of building height restrictions is adopted to mitigate the wall effect, hence Area 68 has a lower plot ratio which is uncommon within TKO and should be lucrative to developers. That said, as MTRC would also put up LOHAS Park Phase 4 for tender, we believe at best only half of the sites in the Application List could be triggered within FY11/12. In fact, there are still sites in TKO that are outside the Application List and developers need to have a bullish view on the housing sector to be aggressive in taking sites in the district.
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    Lucia Kwong, CFA (852) 2800-8526 lucia.yk.kwong@jpmorgan.com
    Asia Pacific Equity Research 25 February 2011
    Figure 1: Tseun Kwan O Area 66 and 68 - location map
    Source: Town Planning Board, Lands Dept, HKSAR Government.
    Most sites are ready for sale by 2H11; potential oversupply Realistically, only the government initiated tenders / auctions (providing some 5,000 units in total) could come on stream within 1H11. The six railway projects are being redesigned with Nam Cheong Station hopefully can be put up in summer and Tseun Wan projects by year-end. The remaining rolled-over sites are located in the outlying islands. Although there is a big landbank in Kau To near the Shatin Racecourse which can be positioned as high-end developments, the project will be similar to the Pak Shek Kok project located in the same district. With the latter still under early development by the Sino-Land consortium, Kau To would unlikely receive keen interest for land application. To conclude, the risk of land price correction in 1H11 is slim given the still very tight supply. Our concern is that the railway tenders in 2H11 could clash with the applications of the newly added sites. Together with any potential demand-side restrictive measures to be potentially imposed if market heats up again, we believe land price increases would be constrained.
    Developers have deep pockets, but still need to speed up launches The major developers had strong sales in 2010 (especially SHKP and Cheung Kong) and hence still have capacity of > HK$50 B (assume no land acquisitions outside Hong Kong) before developers would hit the gearing upper limits. This would be barely enough to take up the bulk of the augmented land supply, with the wild cards from Nam Fung and Chinachem, the two private developers which may have more appetite for land.
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    Lucia Kwong, CFA (852) 2800-8526 lucia.yk.kwong@jpmorgan.com
    Asia Pacific Equity Research 25 February 2011
    Table 2: Hong Kong developers - landbanking capacity estimates Est max gearing 25% 35% 20% 15% 30% NA NA NA NA Room for further land acq'n 8-10 6 11-15 12-15 1-2 NA 10 ? ? Remark Raised HK$5B in Nov-10 Cash proceeds from share of Larvotto proceeds Cash partly from deferred payments of Valais, Aria and The Lattitude upon completion Prefers farmland conversion Prefers farmland conversion & amalgamation Per Hong Kong Economic Times
    Sino Kerry SHKP CK New World Henderson Land Wheelock / Wharf Nam Fung Chinachem
    Source: J.P. Morgan estimates, Company.
    Hence we believe developers would still need to put up launches in 1H11 to obtain free cash to prepare for the 2H11 land supply pipeline. While asset turnover is good for narrowing developers’ NAV discount and earnings outlook in FY11/12, developers’ cost of landbank will increase as the low-cost landbank depletes.
    Demand for decentralized commercial sites may be low As for the two commercial sites in Kwun Tong and Kowloon Bay that would be scheduled for auction soon, we do not expect a keen response, although developers would enter the land market if land prices are low and accumulate the sites for longterm land reserve. Besides, developers should be more interested in land conversion near the area (for those with industrial sites nearby) and save more bullets for residential land purchase. In fact, no commercial / hotel sites were applied in the past 3 years (except for the Central Market site) as occupancy in the decentralized districts only showed significant improvements since 2H10. Table 3: Commercial Land Application List FY11/12 Lot number Projects Uses Commercial Business Business Commercial Business Commercial Commercial Commercial Office Business Commercial Commercial Site Area (sf) 52,506 46,252 40,849 17,857 51,107 147,498 107,919 54,788 76,241 71,042 69,965 Plot Ratio (X) 12.00 12.00 12.00 0.75 9.50 4.00 5.00 3.00 9.00 9.00 9.00 GFA (sf) 630,076 555,030 490,188 13,396 485,516 589,991 539,594 164,365 195,688 686,166 639,376 629,688 5,619,073
    Roll-over from FY10/11 list NKIL 6195 Cha Kwo Ling Road, Kwun Tong NKIL 6312 Junction of Wang Chiu Road and Lam Lee Street, Kowloon Bay NKIL 6313 Cheung Yip Street, Kowloon Bay Lot 1176 in DD 215 Tui Min Hoi, Sai Kung YLTL 458 Junction of Fu Yip Street and Wang Yip Street West, Tung Tau, Yuen Long KIL 11111 Junction of Hung Luen Road and Kin Wan Street, Hung Hom Bay Reclamation, Kowloon TCTL 11 Area 3A, Tung Chung, Lantau STTL 482 Site 11, Area 77, Ma On Shan, Sha Tin IL 8920 Ex-Government Supplies Depot, Oil Street, North Point New sites NKIL 6269* Junction of Wai Yip Street, Shun Yip Street and Hoi Bun Road, Kwun Tong NKIL 6314* Junction of Kai Cheung Road and Wang Kwong Road, Kowloon Bay TSWTL 26 Area 108A, Tin Shui Wai Total office / retail land Source: Lands Department, HKSAR Gov’t, J.P. Morgan estimates. *Government imitated auctions, ready from April 2011.
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    Lucia Kwong, CFA (852) 2800-8526 lucia.yk.kwong@jpmorgan.com
    Asia Pacific Equity Research 25 February 2011
    Table 4: Residential Land Application List FY11/12 Lot No. Projects Location Type Site Area (sf) Plot Ratio (X) 0.40 1.00 0.90 0.90 2.10 0.75 0.40 0.20 0.40 1.22 0.75 0.75 0.75 0.75 2.03 0.40 0.40 4.16 1.00 1.50 1.50 1.54 1.50 1.50 0.40 1.00 1.20 1.20 3.86 7.50 8.90 1.13 Residenti al GFA (sf) 101,526 65,401 41,172 12,962 231,672 4,966 32,787 3,731 10,264 36,780 9,223 14,372 36,845 41,979 49,406 31,904 32,464 1,031,461 50,375 96,068 88,479 142,385 130,458 318,073 13,662 120,470 45,854 26,479 2,821,220 435,292 153,515 237,021 180,700 1,006,528 Newly added sites KIL 11227 Junction of Sheung Lok Street and Sheung Shing Street, former Homantin Estate Redevelopment Ph 2 and 7 sites Junction of Fat Kwong Street and Sheung Foo Street, former Homantin Estate Redevelopment Ph 3 site Kwun Fat Street, Siu Lam Ex-Perowne Barracks North site, Area 48, Castle Peak Road Homantin R2 223,997 5.00 1,119,984 750 Unit size (sf) 2,000 1,100 1,100 1,100 1,100 1,100 2,000 2,000 1,100 1,100 1,100 1,100 1,100 900 1,100 2,000 2,000 750 1,100 1,100 1,100 1,100 1,100 1,100 2,000 1,100 1,100 1,100 750 650 950 1,100 Est. No. of units Estimated Earliest Site Available Date Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11 Apr 11
    Rolled-over sites Lot 2086 in DD 105 Lot 2129 in DD 121 RBL 1165 RBL 1168 RBL 1190 StIL 91 Lot 1588 in DD 243 Lot 1613 in DD 222 Lot 1282 in DD 253 NKIL 6498 Lot 673 in DD Peng Chau Lot 674 in DD Peng Chau Lot 676 in DD Peng Chau Lot 678 in DD Peng Chau Lot 726 in DD 4 Lot 724 in DD 332 Lot 726 in DD 332 STTL 525 STTL 562 STTL 563 STTL 564 STTL 565 STTL 566 STTL 567 TMTL 430 Lot 4309 in DD 124 TMTL 434 TMTL 490 kWww Foreign Exchange Trader P Foreign Exchange Trader Szh Investing Saxobank Stm Foreign Exchange Trader Hong Kong Property 摩根大通y u Foreign Exchange Trader White x Adult Foreign Exchange Trader zWww Foreign Exchange Trader P Foreign Exchange Trader Szh Investing Saxobank Stm Foreign Exchange Trader Hong Kong Property 摩根大通a g t Foreign Exchange Trader Foreign Exchange Trader Foreign Exchange Trader Foreign Exchange Trader