Company Update Company Update Date Industry 3 Jul 2015 Property Emperor International Holdings (163.HK, EIH) Growth Momentum Resumes Overweight Closing Price HK$1.83 Share Information Target Price HK$3.38 Outstanding Shares (bn) 3.67 Market Cap. (HK$ bn) 6.83 3-mth Average Daily Volume (mn) 3.13 12-mth High (HK$ per share) 2.06 12-mth Low (HK$ per share) 1.64 Reported NAV (HK$ per share) 6.96 FY16 P/E (x) 2.75 P/B - as at Mar 2015 (x) 0.27 FY15 ROA (%) 1.83 Total Debt/ Total Assets (%) 34.6 Dividend Yield (%) 6.04 Source : Company data, Emperor Securities Research Share Price of EIH HK$ 3 2 1 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Change of EIH (%) Change of Hang Seng Index (%) 1-mth 3-mth 6-mth 12-mth -1.1 8.1 10.0 8.1-3.0 10.7 16.3 18.7 Source : Bloomberg, Emperor Securities Research Emperor Securities Research Tel : (852) 2836 2763 Fax : (852) 2831 8089 Email : esl.research@emperorgroup.com Growth momentum resumes: EIH is expected to resume robust earnings growth. In FY16, about HK$2.9bn sales proceeds of Upton will be recognized while rental will be up by 18% yoy on organic growth and new contribution from The Pulse. This will translate into 194% earnings growth. Afterwards, the lease of 22-24 Russell Street and completion of Beijing project will keep boosting rental growth. EIH is a value play with growth engines on luxury property development, solid rental and hospitality businesses. Market headwinds under control: Despite seeing market rentals softened around premium shopping areas in HK, we believe the demand for Grade-A retail shops will remain solid. HK is now a major financial hub and metropolitan in the region that will keep attracting global premium brands like La Perla, an Italian luxury lingerie brand which has leased the whole block of 22-24 Russell Street for its flagship store. This in turn will enhance the capital value of EIH s quality retail portfolios. For Macau gaming, we believe EEH (296.HK), the gaming arm of EIH, has the competitive edge to weather industry trough and would remain the cash cow of the group. Expansion never stops: During the period, EIH issued unsecured notes of HK$2.95bn, further strengthening the source of fund. As at March 2015, EIH posted a heathy gearing ratio (total debts/total assets) of 34.6%. The group continued to expand during the period with completed property acquisitions amounting to HK$2.07bn+ (see figure 9). Besides, EIH first ventured into the overseas property market by acquiring two retail & office complexes in London with an aggregate consideration of HK$834mn. We expect EIH to expand its overseas property portfolio prudently in the years ahead. Maintain BUY: With over 5mn sq.ft. of land bank covering investment properties, luxury development projects and a well-established hotel chain, EIH emerges as a niche property play. The Pulse, a beach-front lifestyle complex, is a demonstration of EIH s execution capability to build & operate an iconic property which offers values and redefines quality lifestyle. That said, EIH is an value creator. Trading at 80% discount to our NAV of HK$8.99 and 6% yield, EIH is deeply undervalued and we maintain BUY with a TP of HK$3.38. Financial Information Year Ended 31 March FY13 FY14 FY15 FY16E FY17E Revenue (HK$ mn) 5,703 3,014 2,821 5,893 5,049 Growth 93% -47% -6% 109% -14% Net Profit (HK$ mn) 6,156 1,858 897 2,635 2,402 Growth 222% -70% -52% 194% -9% EPS (HK$) 0.42 0.13 0.24 0.72 0.65 Growth 222% -70% -52% 194% -9% P/E (x) 1.0 3.4 7.5 2.5 2.8 Dividend Yield 6.2% 6.0% 6.0% 6.9% 7.2% Source : Company data, Emperor Securities Research 1
FY15 Annual Results Review and Operation Updates Investment property remained strong with rental income rising 14% yoy NP slid 52% yoy amid limited property sales and revenue drop for the gaming operation FY15 DPS amounted to HK$0.110, down from HK$0.114 a year ago Solid financial position with a D/A ratio of 0.35 70% of Upton s apartments have been sold while corresponding revenues are to be recognized in FY16 EIH won the bid of Fuk Wing Street, Sham Shui Po in March 2015 which will be redeveloped into 138 residential apartments by 2018 The newly established Emperor Hotels Group, a multi-faceted brand for EIH s hotels and serviced apartments with an emphasis on premium guest services, brings the group s hospitality business to a new level Figure 1: FY15 Annual Results Highlights Segment revenue FY15 FY14 Change (HK$mn) (HK$mn) (%) Remarks Property investment 730 639 14% - Positive rental reversion. - A high occupancy rate of 99%. Property development 13 60-79% Limited property sales. Hotel and gaming operations 2,078 2,315-10% Mass market gaming revenue down 24%. Total 2,821 3,014-6% Segment profit Property investment 633 573 10% Solid rental reversion. Property development (64) 24 N/A Hotel and gaming operations 681 897-24% Insignificant recognition of property sales. The gross win in the gaming concourse dipped 24%. Total 1,249 1,494-16% Revaluation gain on properties 738 1,385-47% Net Profit 898 1,858-52% EPS, basic and diluted, HK$ 0.24 0.51-53% Source: Company data 2
Attractive Valuation With over 5mn sq.ft. of land bank covering investment properties, luxury development projects and a well-established hotel chain, EIH emerges as a niche property play. The Pulse, a beach-front lifestyle complex, is a demonstration of EIH s execution capability to build & operate an iconic property which offers values and redefines quality lifestyle. That said, EIH is an value creator. Trading at 80% discount to our NAV of HK$8.99 and 6% yield, EIH is deeply undervalued and we maintain BUY with a TP of HK$3.38. Figure 2: Valuation Assets Valuation basis Gross asset value (HK$mn) Portion in the portfolio Leased investment properties market value 28,409 62% Investment properties under development book value 8,116 18% Development properties available for sales book value 1,047 2% Development properties to be launched for pre-sales book value 3,496 8% Hotels in operation book value 2,670 6% Hotels under development book value 881 2% Stake in Emperor Entertainment Hotel market value 1,544 3% 46,163 100% Net cash/(debt) as at Mar 14 (13,142) NAV 33,021 No. of shares outstanding (mn) 3,672 NAV per share (HK$) 8.99 Share price (HK$ per share) 1.82 Discount to NAV 80% Risks Uncertainty on property sales brought by interest rate volatility as well as the volatility in HK s real estate market Headwind to HK and Macau s retail, hotel and gaming industries which is caused by the economic slowdown and the anti-corruption campaign in China Uncertainties on HK Government s housing policy, the central government s policy on its residents outbound travel to Macau and the policy on the gaming industry imposed by Macau Government 3
Figure 3: Leased Investment Properties Property name/ address Total GFA Book value Total - 1,738,000 28,409,000 - Residential - R; Commercial - C; Office - O (sq.ft.) (HK$'000) No. 8(G/F & 3/F), 20(G/F & 2/F), 50-52 (G/F & 3/F), 54-56, Russell Street, Causeway Bay HK 46,400 5,975,000 C/O No. 474-476 (G/F & 1/F), 478-484 (G/F), 507 (G/F), 523 (G/F & 1/F), Lockhart Road, Causeway Bay No. 76, Percival Street, Causeway Bay G/F & 1/F, No. 4, 6, 8, Canton Road, Tsim Sha Tsui HK 4,300 2,101,000 C Shop C, G/F, No. 35-37, Haiphong Road, Tsim Sha Tsui Shop B, G/F, No. 25-29 Hankow Road, Tsim Sha Tsui No. 81 (G/F), 83 (G/F & M/F), Nathan Road, Tsim Sha Tsui Leased-out units, Emperor Group Centre, 288 Hennessy Road, Wanchai HK 216,800 2,384,000 C/O Wing Hang Finance Centre, 60 Gloucester Road, Wanchai HK 107,100 1,600,000 C/O Empire Land Commercial Centre, No. 81-85 Lockhart Road, Wanchai HK 53,400 819,000 C/O Fitfort Shopping Arcade, 560 King's Road, North Point HK 134,200 2,359,000 C The Pulse, Repulse Bay HK 167,000 1,574,000 C New Town Mansion Shopping Arcade, Tuen Mun HK 38,800 391,000 C New Media Tower, No.82 Hung To Road, Kwun Tong HK 89,500 420,000 C/O No. 45-51 Kwok Shui Road, Kwai Chung HK 129,100 418,000 I Others HK 587,600 6,497,000 R/C Leased-out units, Grand Emperor Hotel Leased-out units, Best Western Hotel Taipa Location HK 8,200 1,526,000 C HK 6,500 73,400 732,000 C Shops & Carparks, Emperor Lakeside Metropolis, Hubin Bei Road, Xiamen the PRC 63,000 115,000 C Property type 1,095,000 C No. 181-183 Oxford Street, London UK 12,700 403,000 C/O Macau Figure 4: Investment Properties Under Development Property name/ address Residential - R; Commercial - C; Office - O Location Total GFA (sq.ft.) Book value (HK$'000) Property type No. 22-24 Russell Street, Causeway Bay HK 8,000 1,815,000 C 2015 No. 17-19 Yik Yam Street, Happy Valley HK 17,000 130,000 R 2017 No. 71-75 Avenida de Infante D. Henrique & No. 514-540 Avenida de Praia Grande Macau 30,000 1,397,000 C 2015 Chang'an Avenue, Beijing the PRC 1,000,000 3,175,000 C/O 2016 Emperor Star City, Huang Pu District, Shanghai the PRC 1,300,000 1,599,000 C/O 2018 Total - 2,355,000 8,116,000 - - Target completion Figure 5: Development Properties in HK Available for Sale Property name and address Harbour One, 458 Des Voeux Road West, Sai Wan May-10 4Q12 140,000 The Java, 98 Java Road, North Point Jul-10 3Q11 69,000 18 Upper East, 18 Shing On Street, Sai Wan Ho The Prince Place, 396-402 Prince Edward Road West, Kowloon Upton, No. 179-180 Connaught Road West, Sai Wan Presales/ sale date Completion Apr-11 3Q12 83,000 Jun-12 1Q12 31,000 Dec-14 3Q15 185,000 Revenue Unsold Book Land cost + Total GFA Site realized construction units/ value of of unsold area from total unsold cost units sold units saleable units (sq.ft.) (HK$ 000) (HK$ 000) units (sq.ft.) (HK$ 000) 912,000 (HK$6,500/sq.ft.) 502,000 (HK$7,300/sq.ft.) 496,000 (HK$6,000/sq.ft.) 208,000 (HK$6,700/sq.ft.) 2,207,000 (HK$11,900/sq.ft.) 2,030,000 (HK$21,500 /sq.ft.) 768,000 (HK$12,600 /sq.ft.) 753,600 (HK$16,000 /sq.ft.) 227,800 (HK$14,600/ sq.ft.) 2,194,319 (HK$24,100/ sq.ft.) 5/103 9,700 70,000 Luxury 1/75 2,200 17,000 Luxury 18/108 13,700 90,000 Luxury 3/36 3,800 25,000 Luxury 38/125 63,400 845,000 Luxury Total - - 508,000 4,325,000 5,973,719 65/447 92,800 1,047,000 - Target market position 4
Figure 6: Development Properties in HK to Be Launched for Pre-sales Property name/ address Tuen Mun Town, Lot No.436, Kwun Fat Street, Siu Lam Total GFA Site area Book value (sq.ft.) (sq.ft.) (HK$ 000) Target completion Target market position 39,000 97,000 315,000 4Q2015 Luxury Tuen Mun Town, Lot No.490, Tai Lam 29,000 22,000 143,000 2Q18 Luxury Rural building, Lot No. 1198, Junction of Shouson Hill Road West and Wong Chuk Hang Path 88,000 117,000 2,756,000 2Q18 Luxury Emperor Hotel (to be transformed into a residential project) 58,000 6,000 282,000 2020 Luxury Total 214,000 242,000 3,496,000 - - Figure 7: Hotels in Operation Hotel name Location Total GFA Site area Book value (sq.ft.) (sq.ft.) (HK$ 000) Storey (incl. basement) No. of guest rooms Grand Emperor Hotel Macau 655,000 48,000 1,225,000 26 307 Best Western Hotel Taipa Macau 209,000 24,000 657,000 17 285 Inn Hotel Hong Kong, Yau Ma Tei HK 48,000 4,000 370,000 30 200 MORI MORI Serviced Apartments, Wanchai HK 14,000 3,000 136,000 12 18 Emperor Hotel, Happy Valley HK 84,000 6,000 282,000 26 150 Total - 1,010,000 85,000 2,670,000-960 Figure 8: Hotels in HK Under Development Address Total GFA Site area Book value Construction investment (sq.ft.) (sq.ft.) (HK$ 000) (HK$ 000) Star grading Storey (incl. basement) No. of guest rooms Target completion No. 373, Queen s Road East, Wanchai 115,000 8,000 881,000 695,000 4 29 300 2016 Figure 9: Major Acquisitions in FY15 Property name/ address Location Total GFA Consideration Property type (sq.ft.) (HK$'000) Acquisition date No. 181-183 Oxford Street, London UK 12,700 425,303 C/O Nov-14 Empire Land Commercial Centre, No. 81-85 Lockhart Road, Wanchai HK 53,400 818,888 C/O Dec-14 No. 45-51 Kwok Shui Road, Kwai Chung HK 129,100 418,000 I Jan-15 New Media Tower, No.82 Hung To Road, Kwun Tong HK 89,500 414,700 C/O Feb-15 Total - 284,700 2,076,891 - - Residential - R; Commercial - C; Office - O 5
Income Statement Cash Flow Statement YE: Mar (HK$mn) FY13 FY14 FY15 FY16E FY17E YE: Mar (HK$mn) FY13 FY14 FY15E FY16E FY17E Revenue 5,703 3,014 2,821 5,893 5,049 PBT 7,187 2,656 1,625 3,426 3,170 Property investment 627 639 730 866 972 Depreciation 136 161 156 172 189 Property development 3,003 60 13 2,937 1,860 Tax paid (76) (30) (30) (30) (30) Hotel 2,074 2,315 2,078 2,090 2,217 Change in w orking cap. 132 126 (2,060) 8 (470) Segment profit Others (4,631) (1,475) (523) (679) (670) Property investment 561 573 632 780 875 Operating cashflow 2,748 1,439 (832) 2,896 2,189 Property development 1,499 24 (64) 1,322 930 Capex (2,953) (3,748) (2,527) (2,700) (2,800) Hotel 826 897 681 789 839 M&A/ disposals 1,450 0 0 0 0 Others (87) (5) (66) (63) (63) Others 520 (75) 500 400 400 EBIT 2,798 1,489 1,183 2,828 2,581 Investing cashflow (983) (3,823) (2,027) (2,300) (2,400) Finance costs (210) (218) (296) (402) (411) Change in debt (81) 625 1,150 550 550 Fair value chg on IP 4,599 1,385 738 1,000 1,000 Issue of Notes 0 858 2,950 0 0 PBT 7,187 2,656 1,625 3,426 3,170 Dividend paid (440) (463) (452) (503) (514) Tax (561) (266) (350) (411) (380) Others (250) (180) (180) (180) (180) Minorities (470) (532) (378) (380) (388) Financing cashflow (771) 840 3,468 (133) (144) Net profit 6,156 1,858 897 2,635 2,402 Change in cash 994 (1,544) 610 463 (356) EPS(HK$) 1.68 0.51 0.24 0.72 0.65 Forex effect 0 0 0 0 0 DPS(cents) 0.11 0.11 0.11 0.13 0.13 Beginning cash 1,316 2,309 765 1,375 1,838 Core earnings 1,557 473 159 1,635 1,402 Ending cash 2,309 765 1,375 1,838 1,482 Source: Emperor Securities Research Source: Emperor Securities Research Balance Sheet Financial Ratio YE: Mar (HK$mn) FY13 FY14 FY15 FY16E FY17E YE: Mar (HK$mn) FY13 FY14 FY15 FY16E FY17E Cash & CE 2,310 765 1,357 1,838 1,482 Profitability(%) Trade & Other Rec. 677 578 941 1,035 1,066 Segment margin Prop. Under dev 1,805 2,149 2,641 2,667 2,934 Property investment 89.4% 89.7% 86.6% 90.0% 90.0% Others 304 2,695 2,711 3,012 3,011 Property development 49.9% 40.0% NA 45.0% 50.0% Current assets 5,096 6,186 7,650 8,553 8,494 Hotel 39.8% 38.7% 32.8% 37.8% 37.8% PPE 2,699 3,088 3,262 3,425 3,699 Underlying profit 27.3% 15.7% 5.6% 27.7% 27.8% Investment property 29,358 33,141 36,525 37,525 39,525 Grow th (%) Goodw ill 57 57 57 57 57 Revenue 92.7% -47.2% -6.4% 108.9% -14.3% Others 593 843 1,518 1,464 1,464 EBIT 120.5% -46.8% -20.6% 139.0% -8.7% Total assets 37,802 43,315 49,011 51,024 53,239 PBT 41.5% -63.0% -38.8% 110.8% -7.5% Bank loans 813 2,086 2,862 2,900 3,132 Net profit 38.0% -69.8% -51.7% 193.7% -8.8% Trade & other pay. 1,021 926 2,138 1,710 1,881 EPS 37.6% -69.8% -51.7% 193.7% -8.8% Current tax liabilities 492 385 443 450 450 Other Key Ratios Others 633 621 610 611 611 Current ratio (x) 1.7 1.5 1.3 1.5 1.4 Current liabilities 2,959 4,018 6,053 5,671 6,074 Debt/ total asset (%) 25.3% 30.2% 33.4% 32.5% 31.7% Unsecured Bank loans 3,317 3,042 3,062 3,200 3,200 Net debt to equity (%) 31.0% 49.3% 58.7% 53.2% 52.0% Other borrow ings 5,417 7,946 10,427 10,494 10,561 Dividend payout (%) 6.5% 22.5% 45.8% 17.4% 19.8% Others 654 775 1,021 1,020 820 ROA (%) 16.3% 4.3% 1.8% 5.2% 4.5% Non current liabilities 9,388 11,762 14,510 14,714 14,581 ROE (%) 26.4% 7.4% 3.5% 9.5% 8.1% Total Liability 12,347 15,780 20,563 20,385 20,655 BV per share (HK$) 6.4 6.8 7.0 7.6 8.1 Minorities 2,107 2,582 2,889 2,903 2,923 Source: Emperor Securities Research Ow ners' Equity 23,348 24,953 25,559 27,735 29,660 Source: Emperor Securities Research 6
Disclaimers And Disclosures The information contained in this report has been compiled from sources believed to be reliable and has been compiled with high integrity, but Emperor Securities Limited ( Emperor Securities ) or any member of Emperor Capital Group ( ECG ) does not make any representation or warranty as to its accuracy, completeness or correctness. The information and opinions contained in this report are or may be subject to change or revision without any notice. This report is for information purposes only. No representation, warranty or guarantee whatsoever, whether expressed or implied, is made as to its accuracy or completeness and should not be construed as an offer to buy or sell or the solicitation of an offer to buy or sell the securities mentioned. Emperor Securities and ECG do not accept any responsibility or liability whatsoever for any direct or consequential loss or damage of whatsoever nature arising from or as a result of the use in whole or in part of this report or any of its contents. The research analyst(s) who prepared this report hereby confirm the views expressed in this report only reflect the personal views of the research analyst(s) about the subject company(ies) and their securities. The research analyst(s) also confirm the research analyst(s) were not, are not, and will not be receiving any direct or indirect compensation or other benefits for expressing the specific recommendation(s) or view(s) in this report. Emperor Securities is a wholly-owned subsidiary of ECG. Both ECG and Emperor International Holdings Limited are companies listed on the Hong Kong Stock Exchange and with a common controlling shareholder. Apart from that, Emperor Securities and ECG and their respective directors, officers, partners, representatives, or employees may have positions or otherwise be directly or indirectly interested in the securities mentioned in this report or may buy, sell, or deal or offer to buy, sell, or deal in or with such securities from time to time, whether as principal for its or their own account or as agent or in any other capacity for or on behalf of another person. Copyright protection and other rights exist or subsist in this report, which may accordingly not be used for any other purpose, nor sold, distributed, published, or reproduced in any manner without the express consent of Emperor Securities. Emperor Securities Research Stanley Chan Associate Director Tel : (852) 2836 2733 Email : stanleychan@emperorgroup.com David Yuen Senior Research Analyst Tel : (852) 2836 2797 Email : davidyuen@emperorgroup.com Frankie Chan Research Analyst Tel : (852) 2836 2566 Email : frankiechan@emperorgroup.com Sam Lam Research Analyst Tel : (852) 2836 2763 Email : samlam@emperorgroup.com 7
Contact Us Headquarters 23-24/F, Emperor Group Centre, 288 Hennessy Road, Wan Chai, HK Tel : Hong Kong Hotline (852) 2919 2919 Northern China Toll-free Hotline 10800 852 1674 Southern China Toll-free Hotline 10800 152 1674 Fax : Hong Kong Fax (852) 2893 1540 Northern China Toll-free Fax 10800 852 1673 Southern China Toll-free Fax 10800 152 1673 New Territories 16/F, Hang Seng Tsuen Wan Building, No.289 Sha Tsui Road, Tsuen Wan Tel : (852) 2838 2939 Fax: (852) 2412 0249 Shop 2, G/F Kam Wo Bu & Kam Hing Building, No. 3-15 Shun Lung Street Sha Tau Kok Tel : (852) 2659 7668 Fax : (852) 2659 7381 G/F, 19 Tai Wai Road, Tai Wai Tel : (852) 2699 8226 Fax : (852) 2699 8749 Shop B7, G/F, Kar Ho Building, 27-31 Hong Lok Road, Yuen Long Tel : (852) 2479 9820 Fax: (852) 2470 5280 Emperor Financial Services Centre Shops 2-6, G/F, East Ocean Court, 525 Shanghai Street, Mongkok, Kowloon Tel : Hong Kong Hotline (852) 3966 0668 Northern China Toll-free Hotline 10800 852 1805 Southern China Toll-free Hotline 10800 152 1805 Fax : Hong Kong Fax (852) 2919 2938 Northern China Toll-free Fax 10800 852 1804 Southern China Toll-free Fax 10800 152 1804 Mainland Information Centres Guangzhou Room 2111, R&F To-Win Building, No. 30 Huaxia Road, Tianhe District, Guangzhou Tel : (86) 10 3836 9380 Fax : (86) 10 3836 9856 Shanghai 2202, City Gateway, 398 Caoxi Road (North), Shanghai Tel : (86) 21 5396 6228 / (86) 21 5396 6218 Fax : (86) 21 6386 6280 Beijing Room 607, Block A, Jian Wai Soho Building, No. 39 East 3rd-Ring Middle Road, Hong Kong Island Room 705-6, Tai Yau Building, 181 Johnston Road, Wanchai Tel : (852) 2818 7278 Fax : (852) 2838 8368 Shop E, G/F 983-987A King s Road, Quarry Bay Tel : (852) 2911 0778 Fax : (852) 2911 0378 Chao Yang District, Beijing Shops 2-6, G/F, East Ocean Court, 525 Shanghai Street, Mongkok, Kowloon Tel : (852) 2919 2913 Emperor Securities Research Tel :(852) 2836 2763 Fax :(852) 2831 8089 Email : esl.research@emperorgroup.com Email Addresses Kowloon Shop C, G/F, No. 53-59 Wuhu Street, Hung Hom Tel : (852) 2364 9213 Fax : (852) 2765 8425 G/F, Full Art Court, 149 Kweilin Street, Sham Shui Po Tel : (852) 2725 7883 Fax : (852) 2728 6257 esl.cs@emperorgroup.com Emperor Futures Limited efl.cs@emperorgroup.com Emperor Wealth Management Limited wealthmanagement@emperorgroup.com Shop 4, G/F, No.132-134 Nga Tsin Wai Road, Kowloon City Tel : (852) 2383 2262 Fax : (852) 2383 2246 Shop A, G/F, 150-152, Prince Edward Road West, Prince Edward Tel : (852) 2827 1188 Fax : (852) 2838 2319 8