Sun Hung Kai Properties:Strong demand for new unit launch

Sun Hung Kai (SHKP) has delivered a strong set of contracted sales this yearand we expect this trend to continue. For the second time in August, thecompany delivered a 100% take-up rate for a batch of units launched in a newproject. The two projects are the Lime Gala and Grand YOHO, with the latterreceiving 16.7k intentions to purchase. This is equivalent to being 53x oversubscribedbased on the initial batch of 308 units for sale (27% of total 1,128units). All 308 units were sold over the weekend, fetching sales of HK$2.3bn,in line with our expectation. (For details please refer to our report titled SunHung Kai Properties - Set for strong sales in FY17).

We continue to see our top pick SHKP delivering and maintaining its leadingposition in the increasingly challenging HK market. We expect it to deliver: 1)the sector’s highest FY15-17E earnings CAGR of 15%; 2) market shareexpansion in terms of HK sales; and 3) resilient rental income growth.

Grand YOHO - 6% price hike in latest batch. SHKP released the latestbatch of 113 units at an ASP of HK$13.2k psf. Sales may exceed ouranticipation of HK$6.2bn (75% sold in FY17, ASP of HK$12k psf). Assumingan ASP of HK$13.5k psf, sales could reach HK$9.7bn with 50% GP margin iffully sold, or NAV accretion of HK$0.43/sh.

Investors account for ~40% of buyers, according to Hong Kong propertyagency Midland Holdings. This is consistent with our observation thatinvestors are returning to the market, following the return of the mass marketin the past few months. We expect the HK residential market will continue torecover. (For details please refer to report titled Hong Kong Property -Investors clearing new launches)The beginning of strong sales momentum in FY17. In the coming 12months, we expect the company to launch 8 key residential projects. Theseinclude Lime Gala (launched), Grand YOHO P1 (launched), Babington Hill(4Q16), Victoria Harbour (4Q16) and Nam Cheong station P1 (1Q17). Weforecast SHKP’s contracted sales will reach HK$33bn in FY16E and grow16% YoY to HK$38bn in FY17E, hitting a new high of HK$40bn in FY18E.