Hopewell HK Properties (288 HK)

Transcription

1 Hopewell HK Properties (288 HK) Hong Kong / Properties / IPO brief A long-established property developer in Hong Kong Spin off from Hopewell Holdings with a property portfolio of ~3.5mn sq ft GRA in HK s urban areas Two large-scale projects in Wan Chai set to complete in 215 and 218 Offer price: HK$ Not Subscribe 7 June 213 Wilson Ho CFA Tel: Wilson.Ho@cpy.com.hk Key Financials Year to 3Jun FY11 FY12 1HFY12 1HFY13 Revenue (HK$ mn) 1,56 1, Growth (%) na 6 Gross profit (HK$ mn) Growth (%) na 12 Net profit (HK$ mn) 4,812 2,745 1,395 1,237 Growth (%) 18 (43) na 634 Net profit ex-after-tax FV gain (HK$ mn) Growth (%) na 28 2 na What s News Hopewell HK Properties (HHP) is offering for IPO from 6 to 11 June 213 noon. HHP is spun off from the parent conglomerate Hopewell Holdings (54 HK) and has over 4-year experience in property development and redevelopment projects in HK. HHP mainly operates two commercial properties in HK, namely Hopewell Centre in Wan Chai and KITEC in Kowloon Bay. As at 31Mar13, HHP s property portfolio has an aggregate GRA of ~3.5mn sq ft. In addition, the property portfolio also includes Hopewell Centre II, and the 2 Queen s Road East Project, a JV-redevelopment project in Wan Chai, which are expected to be completed by 218 and 215, respectively. HHP forecasted a net profit for FY13 ended 3Jun at no less than HK$11,563mn and a net profit excluding FV gain at no less than HK$42mn. After the listing, Hopewell Holdings will be the largest shareholder and own 81.5% of HHP. Approximately 4.5% of net IPO proceeds will be used for the development of Hopewell Centre II. 22.1% will be used for the acquisition and development of Amalgamation Properties and other investments in the future. 31.3% will be used for the repayment of some of the refinancing facilities. 6.% will be used for working capital and other general corporate purposes. Our View Unattractive valuation if viewing it as a landlord. The IPO offer price range represents 2.4x 2.8x PER of FY6/13 net profit. However, taking out the FV gain, the offer price range represents 67x -78 x PER of FY6/13, which is unattractive as compared to other HK landlords. On the other hand, the offering price represents 14% - 24% discount from the net tangible assets. If we consider it as a property developer, rather than a landlord, valuation is still reasonable. However, given that HHP will not have major projects to book until 215, the company should behave more like a landlord at this moment, rather than a developer. In view of this, we believe the valuation should be closer to the landlord peers. Furthermore, the recent volatile market and concerns over US rate hike may be unfavorable to property stocks. As such, we do NOT recommend subscription while we are positive on its outlook especially its position as the largest landlord in Wan Chai. Disclaimer: This report is for information only and is not to be construed as an offer to buy or sell securities. While the report is compiled using sources believed to be reliable, Core Pacific - Yamaichi International (H.K.) Limited ( CPYI ) does not guarantee its accuracy or completeness. CPYI may update or change any information contained in this report without any notice. Neither CPYI nor any of the companies of Core Pacific Group nor any individuals connected with the Group shall accept any legal responsibility arising from the use of or reliance upon the report. The copyright of this report belongs to CPYI and no person may reproduce or publish any part of this report for any purpose without CPYI s written consent. The authors of this report are Licensed Representative of Securities and Futures Commission and they guarantee that all the views expressed in this report accurately reflect their personal views. CPYI, any of the companies of Core Pacific Group, its directors and/or its employees may have positions in, and may effect transactions in securities mentioned herein which may be opposite to the position you take. 1

2 The largest landlord in Wan Chai The property development arm of Hopewell Holdings. Hopewell HK Properties (HHP) is spun off from the parent conglomerate Hopewell Holdings (54 HK) and has over 4-year experience in property development and redevelopment projects in HK. The company is also recognized as one of the Top Ten Developers in HK at the BCI Asia Awards in 212. HHP mainly operates two commercial properties in HK, namely Hopewell Centre in Wan Chai and KITEC in Kowloon Bay. The listing of the property development arm comprises of offices, retails, hotels and residential prosperities. ~3.5mn sq ft GRA in HK s urban district. HHP s property portfolio contains properties located in 1) Wan Chai, 2) Kowloon East and 3) Tsuen Wan, all of which are HK s urban areas and serve as local hubs. As at 31Mar13, Hopewell s property portfolio has an aggregate GRA of ~3.5mn sq ft. with a total value of ~HK3.9bn as determined by DTZ. In addition to completed investment properties, the property portfolio also includes Hopewell Centre II, and the 2 Queen s Road East Project, a redevelopment project in Wan Chai which is held by a JV company. The two projects are expected to be completed by 218 and 215, respectively. Being a landlord first before the completion of two large scale projects in 215 and 218. Before the completion of these two projects, rental income is expected to be the main revenue stream, mostly from Hopewell Centre and KITEC. For FY1, FY11, FY12, 1HFY12 and 1HFY13, segment revenue from property investment accounted for 65.7%, 26.1%, 39.8%, 36.9% and 46.2% of turnover. HHP is expected to strongly ride on the rent outlook in HK. Proven track records couple with strong brand With over 4-year history in property development in HK, the mgmt team has a solid industry experience and strong execution capabilities with an emphasis on branding and recognized commitment. Use of IPO proceeds. At the mid-point of the indicative Offer Price range of HK16.65, approximately 4.5% of net IPO proceeds or HK$2.2bn, will be used for the development of Hopewell Centre II. 22.1% or HK$1.2bn will be used for the acquisition and development of Amalgamation Properties and other investments in the future. 31.3% or HK$1.7bn will be used for the repayment of some of the refinancing facilities. 6.% or HK$.3bn will be used for working capital and other general corporate purposes. Unattractive valuation if viewing it as a landlord. According to the prospectus, the attributable net profit to shareholder for FY6/13F is estimated to be at no less than HK$11,563mn, representing 2.4x 2.8x PER. However, taking out the FV gain, the estimated net profit would be only at no less than HK$42mn, implying 67x -78 x PER, which is unattractive as compared to other HK landlords. On the other hand, the offering price represents 14% - 24% discount from the net tangible assets. If we consider it as a property developer, rather than a landlord, valuation is still reasonable. However, given that HHP will not have major projects to book until 215, the company should behave more like a landlord at this moment, rather than a developer. In view of this, we believe the valuation should be closer to the landlord peers. Furthermore, the recent volatile market and concerns over US rate hike may be unfavorable to property stocks. As such, we do NOT recommend subscription while we are positive on its outlook especially its position as the largest landlord in Wan Chai. 2

3 Investment risks Income highly affected by rental income For FY1, FY11, FY12, 1HFY12 and 1HFY13, segment revenue from property investment accounted for 65.7%, 26.1%, 39.8%, 36.9% and 46.2% of turnover. Any downturn in the rental market for commercial properties could negatively affect the rental income. FV gain on investment properties may increase the volatility of its earnings For FY1, FY11, FY12, 1HFY12 and 1HFY13, FV gains from investment properties amounted to HK$3.8bn, HK$4.5bn, HK$2.3bn, HK$1.2bn and HK$1.bn, respectively and accounted for a significant portion of the profit before tax. Table 1: IPO Summary Offering 34mn shares Placing: (9%) 51mn shares IPO: (1%) 289mn shares Clawback 3% (15x-<5x); 4% (5x-<1x); 5% (>1x) Over-allotment Option 15% IPO subscribe period 6Jun213 11Jun 213noon Allotment 18Jun213 Listing date 19Jun213 Board lot 2 Bookrunner BOCI, Credit Suisse Major shareholders Hopewell (81.5%, excluding Over-allotment Option) Market capitalization HK$ 28,152 32,752mn (excluding Over-allotment Option) 6/213F PER (ex-fv gain) 67x 78x (excluding Over-allotment Option) 6/213F PER (including FV gain) 2.4x 2.8x (excluding Over-allotment Option) Source: IPO prospectus and Core Pacific-Yamaichi Table 2: Peer comparison Bloomberg Closing Mkt Cap PER (X) PBR (X) Yield (%) Company Code (HK$) (HK$mn) 13F 14F 13F 14F 13F 14F Hopewell Holding 54 HK , Great Eagle 41 HK , Hang Lung Group 1 HK 42 56, Hang Lung Properties 11 HK , Hysan Dev 14 HK , Kerry Properties 683 HK , Swire Properties 1972 HK , Wharf 4 HK , Average Source: Bloomberg and Core Pacific Yamaichi 3

4 Appendix Figure 1: Overview of completed IP by product types (Total GRA: 3mn sq ft) Convention and exhibition 7% Office 43% Serviced apartment 3% Retail 47% Figure 3: Occupancy rate (%) of office projects Hopewell Centre 9.8 KITEC Figure 2: Overview of completed IP by project names (Total GRA: 3mn sq ft, as at end-mar13) Panda Place 8% KITEC and E- Max 57% Hopewell Centre 27% QRE Plaza 3% Wu Chung Hse 1% Garden East 4% Figure 4: Occupancy rate (%) of retail projects Hopewell Centre E-Max Panda Place QRE Plaza Wu Chung Hse GardenEast Figure 5: Occupancy rate (%) of residential projects 98 GardenEast Figure 6: Occupancy rate (%) of hotel projects 96 Panda Hotel

5 Figure 7: Rental rate of office projects (HK$ psf per mth) Figure 9: Rental rate of residential projects (HK$ psf per mth) Hopewell Centre KITEC Figure 8: Rental rate of retail projects (HK$ psf per mth) Figure 1: Average daily room rate (HK$ per day) of hotel projects Hopewell Centre E-Max Panda Place QRE Plaza Wu Chung Hse GardenEast Table 3: A list of projects under development and held for future development Interest Total planned GFA (sq ft) Construction Year to commencement complete date Est total investment (HK$mn) Total investment cost incurred as at 31Mar13 (HK$mn) Attributable independent valuation (as at end-mar13, HK$mn) Unit investment cost (HK$ psf) Under development Hopewell Centre II 1% 994,343 End , 4,235 8,945 9,51 2 Queen's Rd East Project 5% 817, May , 7,35 4,418 11,16 Subtotal 1,811,343 18, 11,585 13,363 9,937 Held for future development Entire property situated at Queen's Rd East, Wan Chai Entire property situated at Queen's Rd East, Wan Chai 1% 9,725 N/A N/A N/A N/A 1% 17,84 N/A N/A N/A N/A Unexposed amalgamation property 1% 16,38 N/A N/A N/A N/A 225 N/A Subtotal 43,99 55 Total 1,855,252 13,912 5

6 Table 4: Consolidated income statement (HK$mn) Year to 3Jun FY11 FY12 1HFY12 1HFY13 Turnover 1,56 1, Gross profit FV gain 4,516 2, PAT 4,812 2,745 1,395 1,237 PAT (ex-fv gain) Table 5: Consolidated balance sheet (HK$mn) As at end-jun As at end-dec Total Asset 17,31 22,228 24,153 36,569 -Non-current assets 13,974 18,587 21,569 35,55 -Current assets 3,327 3,642 2,584 1,64 Total Liabilities 11,358 11,737 12,44 14,951 -Current liabilities 9,396 1,142 1,49 11,62 -Non- current liabilities 1,962 1,595 1,554 3,889 Total Equity 5,944 1,491 12,19 21,618 Table 6: Consolidated cash flow statement (HK$mn) Year to 3Jun FY11 FY12 1HFY12 1HFY13 Net cash from operating activities Net cash used in investing activities (383) (644) (368) (3,974) Net cash used in financing activities (62) ,737 Net inc / (dec) in cash and cash eqv 3 (3) 17 1 Cash and cash eqv at year-end Figure 11: Location map of projects Definitions of Recommendations: For stock recommendations: Buy: +15% or above of expected return over the next 12 months. Hold: Between +15% and 5% of expected return over the next 12 months. Sell: Potential downside of more than 5% over the next 12 months. I, Wilson Ho, the author of this research report and the license holder of Type 4 Regulated Activity registered with Hong Kong Securities and Futures Commission ( SFC ), hereby declare that all the views expressed in this research report accurately reflect my personal views and that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Besides, I confirm that (a) neither I nor my associates serve as an officer of any of the Hong Kong listed companies covered in this research report; and (b) neither I nor my associates have any financial interests in the stock(s) covered in this research report. 6