deutsche bank landlords’ valuations imply zero value for developers residential exposure

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1、DeutscheBankMarketsResearchAsiaIndustryDateHongKongHKProperty13May2013PropertyIndustryUpdateTonyTsangJasonChing,CFALandlords’valuationsimplyzerovalueResearchAnalystResearchAnalyst(+852)22036256(+852)22036205fordevelopers’residentialexposuretony.tsang@db.comjason.ching@db.comWepreferdeveloper

2、soverlandlordsonattractivevaluationToppicksWhilewebelieveHongKong’sresidentialmarkethasseentheinflectionpointSHKPropertiesLtd(0016.HK),HKD109.00BuywiththeCCLindexnow4.2%offthepeakinmid-March,developers’shareSinoLandCo(0083.HK),HKD12.50Buypricesarefactoringinamuchsteeperpricedecline.Giventhat

3、mostWharf(0004.HK),HKD73.85Buydevelopershaveasizeableinvestmentpropertyportfolio,ifweapplythemarket-implieddiscountsonlandlords(currentlyat“+1SD”ofhistoricalCompaniesFeatureddiscounttoNAV)totheirrespectiveinvestmentportfolios,currentsharepricesCheungKongHldgs(0001.HK),HKD116.40Buymostlyimply

4、zerovaluefortheirresidentialexposure,whichwebelievereflects2012A2013E2014Eanoverreactiontothevariousroundsofgovernmentmeasures.WepreferP/E(x)9.311.19.6developersoverlandlordsonattractivevaluation.EV/EBITDA(x)0.71.0-0.1Price/book(x)0.80.80.7Valuationgapbetweendevelopersandlandlordsclosetohist

5、oricalhighDevelopershaveunderperformedlandlordsinthepast30monthsfollowingHangLungPropertiesBuytheintroductionofSpecialStampDuty(SSD):thesharepricesofthetwo(0101.HK),HKD29.80segmentshavefallen18%andrisen16%,respectively.Thedivergencein2012A2013E2014EP/E(x)24.822.620.6performanceisreflectedint

6、hegrowingvaluationgapbetweendevelopersandEV/EBITDA(x)23.716.916.1landlords,whichcurrentlystandsatclosetohistoricalhighlevelsandatthePrice/book(x)1.21.11.1“+1SD”levelofthehistoricalrange.Givendevelopers’growinginvestmentpropertyportfolios,whichnowmakeup67%oftheirGAVonaverage,weSHKPropertiesLt

7、d(0016.HK),HKD109.00Buy2012A2013E2014Ebelievethisvaluationgapshouldseemeanreversionahead.P/E(x)12.213.413.7OverallsalesvolumestillhoveringathistoricallowEV/EBITDA(x)10.412.212.0OverallmarketactivityisstillhoveringathistoricallowsfollowingthePrice/b