SHKP Earnings: Transferring Coverage; Strong Sales Despite Weak Hong Kong Residential Market

We transfer and resume coverage of Sun Hung Kai Properties, or SHKP, with a no-moat rating and fair value estimate of HKD 128 per share. This implies a price/book ratio of 0.6 times, in line with its average 10-year trading range. Although we expect the Hong Kong residential market to remain soft in the near term given the high interest-rate environment, we think the negatives have been priced in, with a 19% year-to-date decline in the company’s share price. We expect SHKP’s property leasing business, hotel operations, and data center operations to drive the bulk of its earnings growth for fiscal 2024 (ending June) and fiscal 2025. We also anticipate residential property demand in Hong Kong to rebound from the second half of 2024 following a pivot in the interest rate. This would positively drive SHKP’s fiscal 2026 earnings when the presold properties are completed and we expect three-year net profit CAGR of 18.3%.