Sun Hung Kai Properties:Good company,tough industry

Sun Hung Kai (SHKP) released the price list of first 166 units of Grand YOHOPhase II (20% of 826 units) at an ASP of HK$14.5k psf. The pricing of newunits is on par with comparable units in Phase I launched last September.

Assuming an ASP of HK$14.5k psf, sales could reach HK$9.4bn and grossmargin of the project would reach 54%. Its earlier launch Grand YOHO PhaseI last September was a great success with sales of ~HK$9bn in one month.

We view SHKP as one of the major developers to deliver and maintain itsleading position in the increasingly challenging HK market. We expect it todeliver: 1) the sector’s highest FY15-18E earnings CAGR of 19%; 2) marketshare expansion in terms of HK sales; and 3) resilient rental income growth.

Maintain Outperform.

2017 the Year of market share expansion. We estimate its saleableresources of new projects to reach HK$73bn in CY2017E. Its ample saleableresources should enable SHKP to launch its projects flexibly and adapt to therapidly changing market conditions. Key project launches include GrandYOHO Phase II (HK$9bn), Cullinan West (HK$12bn), LOHAS Park Phase 4(HK$14bn) and Park YOHO Phase 2 (HK$17bn).

Set to outperform in a challenging market. We believe SHKP, with anexisting sizable quality land bank (HK saleable resources of >HK$200bn), willhave a competitive advantage in coming years. We anticipate morechallenges in land bank replenishment for major developers, due to moreactive participation by mid-small scale developers and Chinese developers.

20% HK contracted sales CAGR growth in FY16-18E. We expect SHKP’ssales to grow reasonably well from HK$32bn in FY16 to HK$40bn (25%growth) in FY17E, versus its sales target of HK$33bn, reaching HK$46bn(15% growth) in FY18E.