Morningstar Tags Sun Hung Kai Properties as Undervalued but Praises Henderson Land’s Higher Dividend Yield
Friday, Sep 6, 2024 3:00 am ET
2min read Morningstar has recently released a research report maintaining the fair value estimate of Sun Hung Kai Properties (00016.HK) at 115 HKD. The firm adjusted the forecast for the company's basic earnings for the fiscal year 2025 by decreasing it by 13%, while keeping the predictions for 2026-2027 unchanged. Notably, Morningstar has indicated that Sun Hung Kai Properties is currently undervalued, but their top pick remains Henderson Land (00012.HK), highlighting its attractive dividend yield of 7.5%, which surpasses Sun Hung Kai's 5.5%. From a balance sheet perspective, both companies maintain a healthy debt ratio within the range of 18-22%.
Sun Hung Kai Properties is a major property sales and investment holding company with a diversified portfolio. Its operations are divided into six segments: Property Sales, Property Leasing, Telecommunications, Hotel Operations, Transportation Infrastructure and Logistics, and Other Businesses. The Property Sales and Leasing segments are primarily active in Hong Kong, Mainland China, and Singapore. The Telecommunications segment involves providing mobile phone services, data center operations, and IT infrastructure.
Henderson Land, similarly, focuses on property development and investment, with business operations categorized into Property Development, Property Leasing, Department Store Operations, Hotel Operations, and Utilities and Energy segments. Their financial services include construction, project management, and property management.
Sun Hung Kai Properties' latest annual report exhibited resilience within its Property Leasing segment, the second-largest revenue contributor for the company. For the fiscal year 2023/24, the company reported a revenue of 71.506 billion HKD and a total income of 83.636 billion HKD, including joint ventures. Operating profits stood at 26.752 billion HKD, with shareholders’ attributable profits amounting to 19.046 billion HKD, down from 23.907 billion HKD the previous year.
Despite a negative impact from a revaluation loss of 2.412 billion HKD on investment properties, the Property Leasing income returned to positive within the fiscal year. Property Development took the lead as the primary revenue source, accounting for 27.422 billion HKD or 32.8% of total revenue. Property Leasing generated 24.991 billion HKD, a 2.8% year-on-year increase, making up 29.9% of total revenue. Other segments like Hotels, Telecommunications, and Logistics showed moderate growth.
Sun Hung Kai Properties has established prominent commercial landmark projects across Mainland China and Hong Kong, with flagship properties such as the Hong Kong International Finance Centre and the International Commerce Centre showcasing higher concentration and stronger quality in core areas.
In Hong Kong, the firm boasts 24 completed shopping malls covering 1.14 million square meters. Office properties span about 1.02 million square meters, predominantly in key commercial districts. These assets contribute significantly to a stable rental income around 18 billion HKD annually. However, the future growth potential of the leasing income remains under scrutiny given the current pressure on Hong Kong's retail and office sectors.
Despite market uncertainties, Sun Hung Kai Properties continues to enhance its asset quality in Hong Kong. Notable projects include Yuen Long MTR station’s shopping mall, YOHO MALL II, which opened in June 2024, and the base mall of Kwun Tong’s The Millennity, slated for a December 2024 opening. Additionally, the West Kowloon Terminus development project, expected to complete in 2026, includes Grade A offices and a shopping mall, with UBS already leasing an entire building.
The growth trajectory in Mainland China is also promising. Initiated with the Beijing apm project, the company now concentrates primarily on Shanghai and Guangzhou. Future projects anticipate substantial commercial property developments by mid-2027, including 5.551 million square feet of retail and 9.157 million square feet of office space. The second Mainland IFC in Nanjing launched operations in January 2024, with Shanghai ITC Phase III Tower A already boasting a 70% occupancy rate.
This strategic expansion is set to bolster the company’s leasing income, as evidenced by a 12% increase in the latest fiscal year, reinforcing Sun Hung Kai Properties' robust position both in Hong Kong and Mainland China.
Sun Hung Kai Properties is a major property sales and investment holding company with a diversified portfolio. Its operations are divided into six segments: Property Sales, Property Leasing, Telecommunications, Hotel Operations, Transportation Infrastructure and Logistics, and Other Businesses. The Property Sales and Leasing segments are primarily active in Hong Kong, Mainland China, and Singapore. The Telecommunications segment involves providing mobile phone services, data center operations, and IT infrastructure.
Henderson Land, similarly, focuses on property development and investment, with business operations categorized into Property Development, Property Leasing, Department Store Operations, Hotel Operations, and Utilities and Energy segments. Their financial services include construction, project management, and property management.
Sun Hung Kai Properties' latest annual report exhibited resilience within its Property Leasing segment, the second-largest revenue contributor for the company. For the fiscal year 2023/24, the company reported a revenue of 71.506 billion HKD and a total income of 83.636 billion HKD, including joint ventures. Operating profits stood at 26.752 billion HKD, with shareholders’ attributable profits amounting to 19.046 billion HKD, down from 23.907 billion HKD the previous year.
Despite a negative impact from a revaluation loss of 2.412 billion HKD on investment properties, the Property Leasing income returned to positive within the fiscal year. Property Development took the lead as the primary revenue source, accounting for 27.422 billion HKD or 32.8% of total revenue. Property Leasing generated 24.991 billion HKD, a 2.8% year-on-year increase, making up 29.9% of total revenue. Other segments like Hotels, Telecommunications, and Logistics showed moderate growth.
Sun Hung Kai Properties has established prominent commercial landmark projects across Mainland China and Hong Kong, with flagship properties such as the Hong Kong International Finance Centre and the International Commerce Centre showcasing higher concentration and stronger quality in core areas.
In Hong Kong, the firm boasts 24 completed shopping malls covering 1.14 million square meters. Office properties span about 1.02 million square meters, predominantly in key commercial districts. These assets contribute significantly to a stable rental income around 18 billion HKD annually. However, the future growth potential of the leasing income remains under scrutiny given the current pressure on Hong Kong's retail and office sectors.
Despite market uncertainties, Sun Hung Kai Properties continues to enhance its asset quality in Hong Kong. Notable projects include Yuen Long MTR station’s shopping mall, YOHO MALL II, which opened in June 2024, and the base mall of Kwun Tong’s The Millennity, slated for a December 2024 opening. Additionally, the West Kowloon Terminus development project, expected to complete in 2026, includes Grade A offices and a shopping mall, with UBS already leasing an entire building.
The growth trajectory in Mainland China is also promising. Initiated with the Beijing apm project, the company now concentrates primarily on Shanghai and Guangzhou. Future projects anticipate substantial commercial property developments by mid-2027, including 5.551 million square feet of retail and 9.157 million square feet of office space. The second Mainland IFC in Nanjing launched operations in January 2024, with Shanghai ITC Phase III Tower A already boasting a 70% occupancy rate.
This strategic expansion is set to bolster the company’s leasing income, as evidenced by a 12% increase in the latest fiscal year, reinforcing Sun Hung Kai Properties' robust position both in Hong Kong and Mainland China.
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