20181007-高盛-Hong_Kong_Real_Estate__More_to_watch_out_for_in_addition_to_just_rates_–_Mapping_the_4Q18_events_10页_296kb

Summary of Hong Kong Real Estate Market Analysis (4Q18)

Core Content

This document provides an analysis of the Hong Kong real estate sector, focusing on key events and market dynamics in the fourth quarter of 2018. It highlights the impact of interest rate hikes, the importance of secondary transaction volume, and the significance of upcoming policy and land tender events.

Main Points

• Sector Valuation: The Hong Kong real estate sector has seen a retreat in valuation to -1SD levels due to concerns over rising interest rates. The average discount-to-NAV for PropCos (excluding REITs) is at 50%, which is higher than the post-QE average of 39%.

• Interest Rate Impact: Rate hikes have caused investors to remain cautious about asset turnover in the physical residential market. Unless secondary transaction volume increases from current low levels, the wide NAV discount is expected to persist.

• Key Events in 4Q18E:

  • HK Chief Executive Policy Address (Oct 10): Expected to discuss land supply, public/private mix, and farmland conversion. The policy could affect the profit pool of developers.
  • Land Tenders: Several large land parcels are set for tender, including the Mansfield Road site (400k sq ft GFA) and various sites in the Kai Tak area.
  • Retail Sales and Tourism Data (End of Oct): Expected to show the first full month impact of the high-speed railway and potential high-base effects from previous growth.
  • Infrastructure Developments: The opening of the HK-Zhuhai-Macau Bridge and the operation of the West Kowloon High-speed Railway Station are key events that may influence retail and office sectors.

Key Land Tenders

• Mansfield Road Site Tender (Oct 12): A 400k sq ft luxury residential site in The Peak, with a market estimate of land premium ranging from HK$18 to 42bn.
• Kai Tak Area Tenders:
  • 4B Site 2: 682k sq ft residential site, estimated at HK$11-18bn.
  • 4C Site 3: 649k sq ft residential site, estimated at HK$9-17bn.
  • 4C Site 5: 512k sq ft commercial/hotel site, estimated at HK$7-8bn.

Investment Recommendations

• Retail Landlords: Positive outlook on retail rental landlords, with a recommendation to stay selective. Wharf REIC is highlighted as a Buy.
• Office Landlords: Hongkong Land is recommended as a Buy due to its strong position in the office sector.
• Top Pick: SHKP is the top pick for its steady rental cash flow and development land bank, which can help it weather earnings uncertainty.

Sector Risks

• Policy Headwinds: Ongoing government measures could negatively impact the sector.
• Rate Concerns: Rising interest rates continue to be a directional negative for developers.

Valuation Summary (Exhibit 5)

Investment Banking and M&A Considerations

• M&A Rank: Companies are ranked from 1 to 3 based on the probability of being acquired. A rank of 1 or 2 includes an M&A component in target price calculations.
• Quantum Database: A proprietary database for detailed financial analysis.
• GS SUSTAIN Strategy: Focuses on identifying high-quality industry leaders with sustainable competitive advantages and effective ESG management.

Disclosures

• Analyst Disclosures: Justin Kwok, CFA, certifies the views expressed in the report reflect his personal views.
• Regulatory Compliance: The report complies with U.S. and other jurisdictions' regulations, including FINRA rules and local securities laws.

Conclusion

The real estate sector in Hong Kong is facing challenges from rising interest rates and policy changes, but there are significant events in the fourth quarter of 2018 that may influence market dynamics. Investors are advised to remain selective and monitor key developments in land supply, infrastructure, and retail performance.