J.P.摩根-香港房地产：黑暗中的航行.pdf

jpmorganmarketsAsia Pacific Equity Research02 September 2019Hong Kong PropertyNavigating the darkness, Part IIHong Kong, SingaporeHead of HK Research, Conglomerates and PropertyCusson Leung, CFA AC(852) 2800-8526cusson.leungjpmorganBloombergJPMA LEUNG Jevon Jim(852) 2800-8538jevon.jimjpmorganRyan Li, CFA(852) 2800-8529ryan.lijpmorganKarl Chan(852) 2800-8513karl.chanjpmorganAvery Chan(852) 2800-8659avery.chanjpmorganJ.P. Morgan Securities (Asia Pacific) LimitedSee page 57 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Against a backdrop of persistent uncertainty, we have applied stress tests to all the Hong Kong property stocks under our coverage and shortlisted six OW stocks with conviction. The stress test assumptionsdeclines of 30% in residential prices, 30% in retail rents and 40% in office rentsare not our base case, but we believe looking through this lens helps to identify the stocks that still present considerable value despite the short-term depressed sentiment. Lingering uncertainties. Despite the 19% correction from their recent peaks, we believe the majority of Hong Kong property stocks have yet to discount all the uncertainties coming from: 1) continued China-US trade tensions; and 2) the current social unrest in Hong Kong that is taking a toll on the local economy. These risks are difficult to quantify at this stage given the unknown duration of events. As a result of our stress test to determine bear-case impacts for Hong Kong property companies, we are consolidating our OW list to only six names: CKA, NWD, Henderson Land, Wharf, HLP and Link REIT. We see further downside risks to stocks such as Hysan, Swire Prop, Wharf REIC and Sino Land. The bear-case scenario. Assuming the current home price-to-income ratio fallsback from the current 14x to its long-term average of 10x, this would imply a 30% decline in residential prices. If the current social unrest in Hong Kong leads to a 70% reduction in tourist spending and 10% decline in domestic consumption, we estimate Hong Kong retail sales would see about a 30% drop. Hong Kong CBD office rents are at a 160% premium to Singapore CBD rents. In the event of an unforeseeable confidence crisis in Hong Kong, we estimate an emigration of MNCs could contract the premium to about 60%, which is a similar level to those during the Asian Financial Crisis and Global Financial Crisis. This implies a 40% decline in office rents from the current level. A condensed OW list. These assumptions are not our base case, but having input these bear-case assumptions in our valuation model, the current NAV discounts for the developers/landlords would have narrowed from an average of 56%/55% to 47%/42%, respectively. However, in this bear-case reduced NAV scenario, we would not expect stocks to trade at a -2 S.D. discount to NAV but at -1 S.D. instead. Under this scenario, CKA, Henderson Land, NWD, Wharf, HLP and Link REIT still render upside from current price levels, in our view. Downgrading 4 stocks to UW and 2 stocks to N. We are downgrading Sino Land, Hysan, Swire Properties and Wharf REIC to UW; and Kerry Prop and Wheelock to N. With the 30% and 40% declines in retail and office rental in our bear-case assumptions, its not surprising that retail/office landlords like Hysan, Swire Prop and Wharf REIC would see the most negative potential impact on their NAV estimates. These stocks have also outperformed Hongkong Lands valuation by a wide margin. We are upgrading SHKP and Hongkong Land from UW to N given our stress tests indicate only moderate downside from current levels, as these two stocks have fallen a long way. We believe investors should consider closing short positions on these two stocks.2Asia Pacific Equity Research02 September 2019Cusson Leung, CFA(852) 2800-8526cusson.leungjpmorganEquity Ratings and Price TargetsMkt Cap Price Rating Price TargetCompany Ticker ($ mn) CCY Price Cur Prev Cur End DatePrev End DateCK Asset Holdings Ltd (1113) 1113 HK 25,067 HKD 53.25 OW n/c 68.80 Dec-19 79.00 n/cHenderson Land Development (0012) 12 HK 22,522 HKD 36.50 OW n/c 46.00 Dec-19 56.40 n/cKerry Properties (0683) 683 HK 4,910 HKD 26.45 N OW 27.30 Dec-19 38.40 n/cNew World Development (0017) 17 HK 12,746 HKD 9.78 OW n/c 10.50 Dec-19 14.20 n/cSino Land (0083) 83 HK 9,731 HKD 11.20 UW OW 9.70 Dec-19 15.70 n/cSun Hung Kai Properties (0016) 16 HK 41,033 HKD 111.10 N UW 103.24 Dec-19 127.20 n/cWheelock and Company Limited (0020) 20 HK 11,893 HKD 45.55 N OW 44.70 Dec-19 62.70 n/cThe Wharf (Holdings) Limited (0004) 4 HK 6,665 HKD 17.16 OW n/c 21.50 Dec-19 30.90 n/cHang Lung Properties (0101) 101 HK 10,158 HKD 17.72 OW n/c 19.10 Dec-19 20.50 n/cHongkong Land HKL SP 12,846 USD 5.46 N UW 5.10 Dec-19 5.85 n/cHysan Development Co (0014) 14 HK 4,235 HKD 31.75 UW OW 28.20 Dec-19 49.20 n/cSwire Properties (1972) 1972 HK 19,199 HKD 25.75 UW N 23.40 Dec-19 32.30 n/cWharf REIC (1997) 1997 HK 16,427 HKD 42.45 UW N 33.00 Dec-19 54.00 n/cChampion REIT (2778) 2778 HK 3,943 HKD 5.28 N n/c 5.10 Dec-19 6.90 n/cFortune REIT (0778) 778 HK 2,218 HKD 9.00 N n/c 9.70 Dec-19 10.50 n/cLink REIT (0823) 823 HK 23,624 HKD 88.00 OW n/c 99.90 Dec-19 108.60 n/cSource: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 30 Aug 19.3Asia Pacific Equity Research02 September 2019Cusson Leung, CFA(852) 2800-8526cusson.leungjpmorganTable of ContentsIncreasingly selective amid uncertainties.4What are the uncertainties?.4Methodology to quantify the downside to NAV .6Combining the worst-case assumptions.9A much more condensed OW list.10Upside risks .12Further downgrade risks.12What to expect from the upcoming policy address?.13CK Asset Holdings Ltd (1113).15Henderson Land Development (0012).18Kerry Properties (0683).21New World Development (0017).24Sino Land (0083).27Sun Hung Kai Properties (0016).30Wheelock and Company Limited (0020).33The Wharf (Holdings) Limited (0004).35Hang Lung Properties (0101).38Hongkong Land.40Hysan Development Co (0014).43Swire Properties (1972).45Wharf REIC (1997).48Champion REIT (2778).51Fortune REIT (0778).53Link REIT (0823).554Asia Pacific Equity Research02 September 2019Cusson Leung, CFA(852) 2800-8526cusson.leungjpmorganIncreasingly selective amid uncertaintiesThe Hang Seng Properties Index has corrected by 19% from its peak set in Apr 2019. This was a sharp correction in a short time span given the uncertainties lying ahead in the property market. Uncertainty implies the difficulty to quantify the actual downside risks when the market tends to err on the conservative side. While price drifts could be very sensitive to news flow, we believe most investors would start to map out a “worst case” scenario. Against this backdrop, we are stress-testing our assumptions to determine the worst-case impact to the Hong Kong property companies under our coverage. As a result of this exercise, we are consolidating our OW list to only 6 names: CKA, Henderson Land, NWD, Wharf, HLP and Link REIT. We see potential for further downside risks to stocks such as Hysan, Swire Prop, Wharf REIC and Sino Land.Figure 1: Historical steep declines of the HSP index Source: BloombergWhat are the uncertainties?Re-escalation of the China-US trade warWe believe this has a bigger impact on the Hong Kong property market than the current social unrest in Hong Kong given the high correlation between the Hong Kong and China economies. The import and export trades as well as the transportation and storage sectors account for about 17% of total employment in Hong Kong. The potential slowdown in the trading sector is likely to push the current unemployment rate to higher than 3%. The knock-on impact on domestic consumption is also unquantifiable at this stage.5Asia Pacific Equity Research02 September 2019Cusson Leung, CFA(852) 2800-8526cusson.leungjpmorganTable 1: Breakdown of Hong Kongs employment by sectorEmployment (000) % of totalProfessional 2) The high residential prices in Hong Kong since the global QE started in 2009 is one of the main reasons for the increasing income disparity in Hong Kong. If the Hong Kong government is to address the root causes behind the current social unrest, clamping down on residential prices will likely be one of its priorities;3) Tourist arrivals in Hong Kong have dropped by 20% Y/Y in July and close to 50% Y/Y over Aug 15-22, 2019, due to the different levels of travel alerts around the world. Tourist spending in Hong Kong accounts for about 30% of its retail sales. Our channel checks indicate high-end retail sales in Hong Kong havedropped 15-20% in July and Aug. Hotel occupancy has also dropped to about 30-40%; and4) The slowdown in economic activities, rise in unemployment rates and the negative impact on financial markets will create a downward spiral impact on the property market.Methodology to quantify the downside toNAV Given the low level of visibility on the above-mentioned issues, we adopt a “worst-case” scenario methodology. We arrive at our so-called “worst-case” NAV for each of the property companies in order to arrive at our tactical price targets, which are based on -1 S.D. discount to the reduced NAVs. The primary objective of our worst-case analysis is to identify stocks that are still good for investment even under this sort of scenario.Our worst-case assumptions are as follows:1) Residential prices to drop 30%: The average home price-to-household income (private households) is at about 14x. The long-term average of 10x for Hong Kong will imply private residential prices falling by 30%. This is not our base-case forecast but rather what the magnitude of the fall will look like when residential prices are considered to be at reasonable levels again.Figure 3: HK private households Price-to-Income time seriesSource: CEIC, Centaline, J.P. Morgan estimates0.02.04.06.08.010.012.014.016.093 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 197Asia Pacific Equity Research02 September 2019Cusson Leung, CFA(852) 2800-8526cusson.leungjpmorganTable 2: Impact of home price decline on NAV Residential prices% impact on NAV -10% -20% -30% -40% -50%CKA -1% -2% -3% -4% -5%SHKP -4% -7% -11% -15% -18%Henderson Land -2% -5% -7% -10% -12%Kerry Properties -2% -5% -7% -10% -12%New World Development -2% -4% -5% -7% -9%Sino Land -2% -5% -7% -10% -12%Wheelock -3% -6% -8% -11% -14%Wharf Holdings -2% -4% -6% -8% -10%Hang Lung Prop 0% 0% 0% 0% -1%HK Land (in US$) 0% 0% 0% 0% 0%Hysan Development 0% -1% -1% -1% -2%Swire Properties 0% 0% 0% 0% 0%Wharf REIC 0% 0% 0% 0% 0%HK$ impact on NAV -10% -20% -30% -40% -50%CKA -1.10 -2.20 -3.30 -4.41 -5.51SHKP -8.53 -17.07 -25.60 -34.13 -42.67Henderson Land -2.42 -4.84 -7.26 -9.68 -12.10Kerry Properties -2.17 -4.25 -6.32 -8.40 -10.47New World Development -0.49 -0.97 -1.46 -1.95 -2.43Sino Land -0.61 -1.22 -1.83 -2.44 -3.05Wheelock -2.55 -5.11 -7.66 -10.21 -12.77Wharf Holdings -1.14 -2.28 -3.42 -4.56 -5.70Hang Lung Prop -0.04 -0.09 -0.13 -0.17 -0.22HK Land (in US$) 0.00 0.00 0.00 0.00 0.00Hysan Development -0.24 -0.49 -0.73 -0.97 -1.21Swire Properties 0.00 0.00 0.00 0.00 0.00Wharf REIC 0.00 0.00 0.00 0.00 0.00Source: J.P. Morgan estimates2) CBD office rents to drop 40%: Hong Kong CBD office rents are currently at about a 157% premium to Singapore CBD office rents due to the strong demand from China corporates and stable political environment. As the China economy is slowing down and the political environment becomes increasingly unstable, the market may start to factor in the possibility that the premium will contract in the long term. Assuming the Hong Kong-Singapore office premium contracts to 60%, this will imply about a 40% drop in office rents from current levels. This forms our worst-case scenario for the office market.Figure 4: Premium of HK vs Singapore CBD office rentsSource: JLL0%50%100%150%200%250%300%0.05.010.015.020.01995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019Hong Kong CBD office rent (US$/sqft/month)Singapore CBD office rent (US$/sqft/month)HK/Sing Premium -RHS8Asia Pacific Equity Research02 September 2019Cusson Leung, CFA(852) 2800-8526cusson.leungjpmorganTable 3: Impact of office rentsdecline on NAVOffice rents% impact on NAV -10% -20% -30% -40% -50%CKA -2% -3% -5% -6% -8%SHKP -2% -4% -5% -7% -8%Henderson Land 0% -1% -1% -1% -1%Kerry Properties -1% -1% -1% -2% -2%New World Development -1% -2% -4% -5% -6%Sino Land -1% -2% -3% -4% -5%Wheelock 0% 0% 0% 0% 0%Wharf Holdings 0% 0% 0% 0% 0%Hang Lung Prop -1% -1% -2% -3% -3%HK Land (in US$) -6% -11% -17% -22% -28%Hysan Development -4% -8% -11% -15% -19%Swire Properties -5% -9% -14% -19% -23%Wharf REIC -3% -6% -9% -12% -15%HK$ impact on NAV -10% -20% -30% -40% -50%CKA -1.93 -3.85 -5.78 -7.71 -9.64SHKP -4.85 -8.38 -11.90 -15.43 -18.96Henderson Land -0.26 -0.53 -0.79 -1.06 -1.32Kerry Properties -0.49 -0.89 -1.29 -1.68 -2.08New World Development -0.32 -0.65 -0.97 -1.30 -1.62Sino Land -0.26 -0.51 -0.77 -1.02 -1.28Wheelock 0.00 0.00 0.00 0.00 0.00Wharf Holdings 0.00 0.00 0.00 0.00 0.00Hang Lung Prop -0.24 -0.48 -0.72 -0.95 -1.19HK Land (in US$) -0.72 -1.44 -2.16 -2.88 -3.60Hysan Development -3.03 -6.06 -9.09 -12.11 -15.14Swire Pr