Hong Kong Property:Land pusher-More bullish on luxury

Sold!

Kerry Properties (683 HK) successfully acquired Beacon Hill luxury residentialsite with a total sales value of HK$7.27bn, or AV of HK$21.2k psf. It is in linewith market estimate of HK$18k-22k psf. There were 11 developers in totalparticipating in this land tender. Mainland developers participated, includingCR Land, Shimao and Logan Property. We estimate no NAV accretion with aGP margin of 16%, based on residential ASP assumption of HK$35k psf andthe timing of presales in 2019. We estimate Kerry’s pro-forma net gearing willincrease by 8.9% ppt to 37.1% post land purchase.

Implications

More bullish on luxury residential segment. We view developers havemore positive outlook on the luxury segment. Apart from Kerry acquiring thisluxury residential site, CK Property acquired the luxury residential site in KauTo at a price 33% above the market estimate last month.

It is consistent with our view that mid-range/high-end segment will outperformthe mass-market segment. We expect 2017 property price to go up 5%,mostly in mid-range/high-end segment. We recently saw the return ofupgraders, which helped stabilise the physical market. Kerry’s Mantin Heights,which we view as the key proxy for upgraders, saw robust sales of HK$2.1bnin September, exceeding total sales since its debut in March to August 2016 .

Another luxury residential site in Beacon Hill. In February 2015, Kerryacquired the first residential site in Beacon Hill at a total sales value ofHK$2.39bn or AV of HK$20.5k psf. The newly acquired site is situated veryclose to the previous site. The former site is of lower plot ratio at 1.0x whilethe new one is higher at 1.5x and average cost is 3% higher.

Up for sale

In the coming 1-2 months, there will be 2 Kai Tak and 2 Tai Po residentialsites for sales. We believe there will be keen competition and could providemore colour on the outlook for HK residential market. Our top picks are SunHung Kai (16 HK), New World (17 HK) and CK Property (1113 HK).