New World Development Business Update Positive Despite Challenging Operating Environment

New World Development’s business update ahead of its June full-year result was positive despite the challenging operating environment in Hong Kong and mainland China. Management was clear in noting New World is unaffected by the current incidences of buyers suspending their mortgage payments in mainland China. The company cited the projects involve developers already in default, and mainly in Tier 3 and Tier 4 cities. The majority of New World’s land bank and projects are located in Tier 1 and New Tier 1 cities and are continuing to sell well. This was reflected in the company’s Hangzhou project and buyers' strong reception from reputable overseas developers are in line with what we have seen in previous downturns. Ongoing completion of residential projects in mainland China and Hong Kong are expected to result in HKD 35 billion to HKD 40 billion worth of contracted sales in each fiscal 2023 and fiscal 2024. While we expect New World’s residential projects to be unaffected, we believe the market is pricing in the developer’s exposure to mainland China, attributing to its share price underperformance relative to its Hong Kong peers. The group’s exposure to China includes toll roads, which contributed to around 14% of group operating profit last year.