Mainland China Operation Underpins New World Development’s 1H Fiscal 2022

There was no change in underlying trends in no-moat New World Development, or NWD’s, first-half fiscal 2022 result. While the Hong Kong operation performed better as the coronavirus situation eased in the second half of calendar 2021, mainland China performed strongly, particularly in property development, on the booking of high margin projects in the Greater Bay Area. Booking for residential development in Hong Kong was lower against the same period last year, due to the timing on completion of the projects. Management noted HKD 6 billion in residential booking is expected in the second half and HKD 24.8 billion in fiscal 2023. The positive for Hong Kong was the investment properties, where operating margin improved at K11 Musea with operating expense declining 30% year on year. As noted at the business update earlier this year, positive rental reversion is expected for K11 Musea as tenants move on to the second leasing cycle. There is no change in our view the completion of investment properties in both Hong Kong and mainland China remains the key for the group in the medium term. Its 11 Skies in Hong Kong is expected to be opened in phases from 2022 and there is no change in the pre-leasing target of 65% for the office tower by mid-2022. The office tower is currently 48% committed. Our fair value estimate of HKD 48 per share is unchanged and we continue to see NWD as undervalued.