HS-港股-房地产行业-2020年香港房地产展望：攀登恐惧之墙-2020.1.13-77页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ THIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA We think the negative news about weak economic growth is largely reflected in share prices and consensus estimates Valuations look attractive;inflection point likely in mid-2020e CK Asset,New World Development,Hongkong Land,Swire Prop and Hang Lung Prop(all Buys)are our preferred stocks A stormy start recession,unemployment and subdued sentiment.We expect 1H20 to be a difficult period for the Hong Kong real estate market,driven by a weak economy and a decline in the tourism-related business.Our Economics team expects multiple headwinds to continue to weigh on external and domestic demand,and near-term improvement appears unlikely(Hong Kong Economy,12 Dec 2019).We forecast Hong Kong residential prices to fall 5-10%,and office and retail rent to decline 3-5%and 5-10%,respectively,in the next six months before stabilisation.However,we believe the valuations have largely discounted the prevailing macro headwinds.The sector trades at a 53%NAV discount,1.0SD below its 10-year average.This is similar to the valuations seen in 2015 and 2018.In this report,we highlight eight reasons(Fig 14 on page 8)why we believe investors should capture this investment opportunity.Every cloud has a silver lining.It is a challenging time for the Hong Kong property market,but we argue that things should improve from here.The housing policy direction has changed from a stance of tightening to loosening,as seen by the mortgage relaxation in October 2019.Over the past five months,the government has introduced four rounds of stimulus measures to stabilise the local economy.These should provide good support to the local real estate market.Many companies are proactively looking to secure growth via acquisitions instead of cutting their capex,which suggests investors should not be too pessimistic.Sub-sector preference Office Retail Residential.We think office and retail landlords look attractive from a valuation perspective.Alibabas listing in November 2019,the third-largest IPO in HKs history,showcases the attractiveness of the financial market despite the recent volatility.It will benefit office landlords,as many of their tenants engage in financial activities.Retail landlords are facing challenges similar to the previous downturn in 2013-17,but some have successfully managed to deliver growth via acquisitions.They have de-rated significantly and their valuations are becoming more attractive,in our view.Developers with more exposure to the mass market segment should continue to perform well given the policy support.Key upgrades and downgrades.We favour companies with diversified sources of earnings which can continue to grow despite the challenging market.We upgrade Hongkong Land,Champion REIT and Wharf Holdings to Buy from Hold,and downgrade Sino Land and Wheelock to Hold from Buy.We downgrade Langham,Henderson Land and Hysan Development to Reduce from Hold.Catalysts:1)an improvement in monthly retail sales growth,especially in 2H20e,2)more vibrant IPO activities in Hong Kong,and 3)a strong take-up rate in primary sales.13 January 2020 Raymond Liu*,CFA Analyst The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6743 Michelle Kwok*Head of Real Estate Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6918 Albert Tam*Analyst The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4395 Ganesh Siva*Associate Bangalore *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Hong Kong Real Estate Equities REMD Hong Kong 2020 Outlook:Scaling the wall of fear Equities REMD 13 January 2020 2 Focus charts the big picture Fig 1.Housing prices likely to drop 5-10%in 2020e Fig 2.HK property prices since the 1990s Source:Centaline,HSBC estimates;Index=100 as of July 1997 Source:Centaline,Bloomberg,HSBC;Index=100 as of July 1997 Fig 3.Quarterly retail sales growth in Hong Kong Fig 4.Hong Kong retail sales versus the exchange rate of RMB-HKD Source:Real Estate Intelligence Services(REIS)-Jones Lang LaSalle,HSBC Source:Census and Statistics Department,Refinitiv Datastream,HSBC Fig 5.Office rental growth Fig 6.Vacancy rate across the sub-districts of Hong Kong(end-Dec 2019)Source:Real Estate Intelligence Services(REIS)-Jones Lang LaSalle,HSBC Source:JLL,HSBC 020406080100120140160180200Jan/00Jan/01Feb/02Feb/03Mar/04Mar/05Apr/06May/07May/08Jun/09Jun/10Jul/11Aug/12Aug/13Sep/14Sep/15Oct/16Oct/17Nov/18Dec/19+48%+25%+31%+78%+133%-23%-7%-5%-13%-4%2020e to go down by 5-10%6,000 10,000 14,000 18,000 22,000 26,000 30,000 34,00020406080100120140160180200Jan-94 Mar-99 May-04Jul-09Sep-14 Nov-19Property price(LHS)Hang Seng Index(RHS)(30%)(20%)(10%)0%10%20%30%40%(15%)(10%)(5%)0%5%10%15%(30%)(25%)(20%)(15%)(10%)(5%)0%5%10%15%20%25%30%y-o-y change in retail sales(LHS)%y-o-y change in CNYUSD(RHS)0%2%4%6%8%10%12%14%16%18%03060901201501804Q994Q034Q074Q114Q154Q19Central rent(HKDpsfpm,LHS)Vacancy rate(%,RHS)0%2%4%6%8%10%12%14%5 year average1S.D.band(5-year avg)Latest vacancy12 month average 3 Equities REMD 13 January 2020 CK Asset 1113 HK Current price:HKD54.85 Target price:HKD73.30 Up/downside:+33.6%CK Asset has showcased its execution capability in terms of sourcing opportunities and achieving growth worldwide,which most of its local peers would find hard to achieve.Its recent successful acquisition of Greene King,one of the leading integrated brewers and pub retailers in the UK,is a good example.With a more diversified and resilient income stream,CKA deserves to trade at a better valuation to its peers,in our view.It is also well positioned to offset the economic weakness in Hong Kong.We estimate its recurrent income to likely double within the five year period of 2016-20e due to its strategic moves.Its 2020e contracted sales in Hong Kong should pick up given the launch of its mass market project in Tseung Kwan O.The company is trading at 0.54x FY20e PB,7.8x FY20e PE,a 54%discount to NAV;it offers a 4.2%FY20e dividend yield.Buy New World Development 17 HK Current price:HKD10.60 Target price:HKD12.70 Up/downside:+19.8%NWD has been accelerating its pace of expansion following the successful redevelopment of the Victoria Dockside project.With a stronger recurrent income and bigger balance sheet,NWD should be equipped to grow from acquisitions in the next few years.Its solid pipeline in rental properties and increasing presence in the Greater Bay Area should help drive sustainable earnings growth.We expect NWD to launch the largest mass/mid-end residential project(3,090 units)in Tai Wai,which could present a positive surprise to the market.What to expect?1)Faster project acquisition in GBA and 2)good property sales performance in Hong Kong and Shenzhen.The company is trading at 0.48x FY21e PB,12.1x FY21e PE,a 51%discount to NAV;it offers a 5.4%FY21e dividend yield.Buy Hongkong Land HKL SP Current price:USD5.74 Target price:USD6.90 Up/downside:+20.2%We believe the market is too pessimistic about the rental outlook of HKLs Central office portfolio.Its share price went down by 20%over the past nine months,and its current valuation looks unjustified,in our view.While rising vacancy rate could exert some pressure on rental income,HKL successfully managed its Central office portfolio with a long weighted average lease expiry of 4.7 years.A buoyant IPO equity market could provide good support to the demand of the office market,as c70%of its office tenants are engaged in financial activities.Its weighted average lease expiry increased from 3.7 years by end-2017 to 4.7%by the end of September 2019.We expect HKLs overall net rental income growth to come in at 6.2%y-o-y in 2019e and 0.8%y-o-y in 2020e.The company is trading at 0.34x FY20e PB,12.7x FY20e PE,a 47%discount to NAV;it offers a 4.2%FY20e dividend yield.Upgrade to Buy Swire Properties 1972 HK Current price:HKD25.10 Target price:HKD34.30 Up/downside:+36.7%While there has been a slowdown in office demand given the weakening global economy,SWP should be better placed compared with other office landlords given its high exposure to non-Central areas and its solid project pipelines,in our view.On top of its growing HK office portfolio(half of the revenue),its mainland China rental portfolio is growing rapidly and is becoming another key source of growth driver.We expect the company to complete two commercial projects in mainland China in 2020.We expect the company to declare a full-year 2019 DPS of HKD0.89,up 6.0%y-o-y,or a CAGR growth of 7.8%between 2016 and 2019.SWPs IP portfolio could expand by 10%to 24.1m sqft in the next two years on the completion of Shanghais Taikoo Li Qiantan and Beijings Taikoo Li Sanlitun West in 2020(GFA of 0.9m sqft),and Two Taikoo Place(GFA of 1.2m sqft)in 2021-22.The company is trading at 0.47x FY20e PB,17.3x FY20e PE,a 54%discount to NAV;it offers a 3.6%FY20e dividend yield.Buy Hang Lung Properties 101 HK Current price:HKD18.00 Target price:HKD22.40 Up/downside:+24.4%HLP is one of the best performers in 2019 with a share price growth of 15%(versus flattish performance of the sector).We continue to like HLP in 2020 and believe the re-rating process of the company is only mid-way through.Its growth momentum in its mainland China portfolio should persist in 2020,thanks to 1)incremental rental contribution after asset enhancement in Shanghai;2)new rental income from Kunming and Wuhan projects;and 3)positive wealth effect that is encouraging spending in malls.We expect the company to increase its DPS in 1H20e,reversing its previous DPS cut in 2H15.Net rental income growth should continue after accelerating 3.2%y-o-y in 1H19(+6.1%in 2H18).The company is trading at 0.59x FY20e PB,16.5x FY20e PE,a 46%discount to NAV;it offers a 4.3%FY20e dividend yield.Buy Source:HSBC estimates.Priced at 6 January 2020 Preferred stocks Equities REMD 13 January 2020 4 Fig 7.Changes to our ratings and target prices _ Changes to our ratings _ Upside/_ Changes to our target prices _ (HKD)Ticker Old New Downside(%)Old New%diff Hong Kong developers CK Asset 1113 HK Buy Buy 34%73.90 73.30 -0.8%Henderson Land 12 HK Hold D/G to Reduce-10%37.60 33.90 -9.8%New World Development 17 HK Buy Buy 20%12.70 12.70 0.0%Sino Land 83 HK Buy D/G to Hold 11%14.70 12.60 -14.3%Sun Hung Kai Properties 16 HK Buy Buy 16%145.20 136.00 -6.3%Wharf Holdings 4 HK Hold U/G to Buy 17%19.10 23.30 22.0%Wheelock 20 HK Buy D/G to Hold 7%58.80 55.40 -5.8%Average -2.2%Hong Kong landlords Hang Lung Properties 101 HK Buy Buy 24%23.80 22.40 -5.9%HKLand(USD)HKL SP Hold U/G to Buy 20%6.50 6.90 6.2%Hysan 14 HK Hold D/G to Reduce-14%36.20 26.70 -26.2%Kerry Properties 683 HK Buy Buy 23%31.50 30.20 -4.1%MTR Corp 66 HK Buy Buy 16%57.70 53.00 -8.1%Swire Properties Ltd 1972 HK Buy Buy 37%35.00 34.30 -2.0%Wharf REIC 1997 HK Buy Buy 18%56.70 53.10 -6.3%Average -6.6%REITs&Trusts Champion REIT 2778 HK Hold U/G to Buy 17%6.10 5.90-3.3%Fortune REIT 778 HK Buy Buy 23%12.30 11.10-9.8%Langham Hospitality 1270 HK Hold D/G to Reduce-20%3.11 1.87-39.9%Link REIT 823 HK Buy Buy 18%96.30 95.80-0.5%MNACT(SGD)MAGIC SP Buy Buy 14%1.33 1.32-0.8%Average -10.8%Average(overall)-6.1%Source:Bloomberg,HSBC estimates Key changes and valuation summary Fig 8.Changes to core profit(2019-21e)_ Old estimates _ _ New estimates _ _%diff _ (HKDm)2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Hong Kong developers CK Asset 30,397 26,281 26,553 30,400 25,884 24,963 0.0%-1.5%-6.0%Henderson Land 16,298 18,233 17,499 16,258 17,544 17,113-0.2%-3.8%-2.2%New World Development 8,929 9,631 12,009 8,832 8,977 11,199-1.1%-6.8%-6.7%Sino Land 6,095 10,448 6,789 5,749 10,468 5,912-5.7%0.2%-12.9%Sun Hung Kai Properties 34,777 34,573 34,451 32,844 32,156 35,794-5.6%-7.0%3.9%Wharf Holdings 6,569 6,689 6,690 6,536 6,682 6,793-0.5%-0.1%1.5%Wheelock 14,627 15,455 18,082 14,584 15,016 16,040-0.3%-2.8%-11.3%Average -1.9%-3.1%-4.8%Hong Kong landlords Hang Lung Properties 4,281 5,101 5,511 4,206 4,908 5,207-1.8%-3.8%-5.5%HKLand(USDm)1,057 1,063 1,201 1,057 1,056 1,164 0.0%-0.7%-3.1%Hysan 2,667 2,738 2,804 2,628 2,657 2,690-1.5%-3.0%-4.1%Kerry Properties 5,520 5,811 6,422 5,520 5,597 6,267 0.0%-3.7%-2.4%MTR Corp 11,861 14,048 14,256 10,650 12,486 12,579-10.2%-11.1%-11.8%Swire Properties Ltd 22,628 8,707 9,002 22,578 8,506 8,682-0.2%-2.3%-3.6%Wharf REIC 10,462 11,017 11,502 10,256 10,570 10,777-2.0%-4.1%-6.3%Average -2.2%-4.1%-5.2%REITs&Trusts Champion REIT 1,603 1,664 1,730 1,603 1,646 1,702 0.0%-1.1%-1.6%Fortune REIT 1,024 1,108 1,185 1,024 1,083 1,120 0.0%-2.3%-5.5%Langham Hospitality 408 420 427 276 155 199-32.4%-63.1%-53.4%Link REIT 6,161 6,630 7,135 6,153 6,678 7,112-0.1%0.7%-0.3%MNACT(SGDm)195 240 245 192 237 243-1.5%-1.3%-0.8%Average -6.8%-13.4%-12.3%Average(overall)-3.3%-6.2%-7.0%Source:HSBC estimates;MNACT&Link REIT are March year end and 2019e refers to FY 3/2020 5 Equities REMD 13 January 2020 HSBC vs.Consensus Our overall earnings forecasts are 3.0%below consensus for 2020 and 4.0%below for 2021.If we exclude Langham Hospitality,our forecast would be 1.3%and 2.0%below consensus for 2020-21,respectively.We note that earnings consensus for some property companies were revised up over the past three months(Fig.10).We believe the market has largely projected an overly pessimistic scenario and underestimates the resiliency of the Hong Kong real estate market.Over the past few cycles(2003,2008,2015 and 2018),we note that the pace of recovery was fast given the sound fundamentals of the Hong Kong economy.Fig 9.Core profit HSBC vs.Consensus(2019-21e)_ HSBC estimates _ _ Bloomberg consensus _%diff _ (HKDm)2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Hong Kong developers CK Asset 30,400 25,884 24,963 28,839 24,548 24,729 5.4%5.4%0.9%Henderson Land 16,258 17,544 17,113 15,937 16,922 17,043 2.0%3.7%0.4%New World Development 8,832 8,977 11,199 8,913 9,480 10,536-0.9%-5.3%6.3%Sino Land 5,749 10,468 5,912 5,030 10,009 7,855 14.3%4.6%-23.2%Sun Hung Kai Properties 32,844 32,156 35,794 34,253 36,687 35,515-4.1%-12.4%0.8%Wharf Holdings 6,536 6,682 6,793 6,668 7,328 7,629-2.0%-8.8%-11.0%Wheelock 14,584 15,016 16,040 15,250 15,813 17,235-4.4%-5.0%-6.9%Average 1.5%-2.5%-6.1%Hong Kong landlords Hang Lung Properties 4,206 4,908 5,207 4,478 4,832 5,036-6.1%1.6%3.4%HKLand(USDm)1,057 1,056 1,164 1,051 1,107 1,163 0.6%-4.6%0.1%Hysan 2,628 2,657 2,690 2,664 2,664 2,873-1.4%-0.3%-6.4%Kerry Properties 5,520 5,597 6,267 5,472 5,527 5,881 0.9%1.3%6.6%MTR Corp 10,650 12,486 12,579 11,594 13,021 13,881-8.1%-4.1%-9.4%Swire Properties Ltd 22,578 8,506 8,682 14,435 8,325 8,753 56.4%2.2%-0.8%Wharf REIC 10,256 10,570 10,777 10,077 10,249 10,433 1.8%3.1%3.3%Average 6.3%-0.1%-0.5%REITs&Trusts Champio