20131007-美银美林-SHKP_cut_ASP_at_The_Cullinan_by_25__to_lure_investors_11页_571kb

SHKP Cut ASP at The Cullinan by 25% to Lure Investors

Core Content Summary

In October 2013, Sun Hung Kai Properties (SHKP) reduced the advertised selling price (ASP) for The Cullinan, a luxury residential project in West Kowloon, by 25%, offering a range of discounts and incentives to attract investors. The project, part of the Kowloon Station Package Five, consists of 825 units with an average unit size of 950 sqf. SHKP priced 181 units at HK$29k psf on saleable area, which is aligned with the secondary market price. The effective ASP after all discounts and rebates is estimated to be HK$22-23k psf.

Key Incentives and Discounts

SHKP provided the following incentives to facilitate sales:

1. 3% discount for SHKP club members.
2. 2% discount for not seeking a second mortgage.
3. 3-9% cash rebate for shorter payment periods.
4. 70% rebate on stamp duty (including Buyer's Stamp Duty and Double's Stamp Duty).

These incentives allow purchasers to save up to 25% of the total cost, which includes the purchase price and stamp duty.

Expected Margins and Sales Proceeds

Despite the price cuts, SHKP is still expected to achieve 50-60% margins, down from 70-80% previously. The remaining 311 units are projected to generate HK$8-9bn in proceeds. This is significant for SHKP as it would help:

1. Lock in 40% of its HK$19bn sales target.
2. Secure HK$4-5bn in development profit for FY14, compared to HK$6.1bn in FY13.
3. Generate cash flows that would lower its net gearing (from 12.5% in FY13) and support the RMB21.7bn land payment for the Shanghai Xujiahui project.

Impact on NAV and Market Valuation

The 70% stamp duty rebate was unexpected and may have a limited impact on SHKP’s Net Asset Value (NAV), reducing it by around 3% even if applied to all projects. This incentive is likely to target luxury projects with a higher proportion of mainland buyers and investors, as it helps reduce their stamp duty burden. SHKP’s current NAV is HK$177/share, and its stock is trading at a 42% discount to NAV and 0.7x P/BV, indicating attractive valuations.

Implications for NWD's The Austin Project

NWD is expected to launch The Austin in October or early November 2013. Given the less favorable location and the fact that The Cullinan is completed flats, The Austin is likely to be priced at a 10% discount compared to The Cullinan’s ASP. Assuming similar incentives, the project could achieve a 18% margin, which would lower NWD’s NAV by 0.6%. This may also affect the overall market dynamics, as developers with higher exposure to luxury flats face greater pressure to offer discounts.

Property Price Correction and Market Trends

The report suggests that developers' price cuts for primary launches will accelerate property price correction and help rebound primary volumes to a normal level of 1,000 units per month. Developers with significant exposure to luxury flats, such as SHKP and NWD, are expected to be more impacted by these price cuts. Developers who recently purchased land at high prices, like Kerry and some mid-sized developers, may have less room to cut prices and may need to sell at thin margins or hold inventory.

Developer Valuation Overview

The following table summarizes the valuations of major developers in the Hong Kong property sector:

Conclusion and Recommendations

• CK is recommended as the top pick due to its strong exposure to mass property and attractive valuations.
• NWD and SHKP are also recommended due to their attractive valuations and potential to meet sales targets.
• Price correction is expected to continue, with residential prices likely to decline by 20-25% by 2014, and primary volumes to rebound.
• The 70% stamp duty rebate is likely to be applied selectively to luxury projects, not all of SHKP’s developments.