The Global Point_ Friday, 28 February 2025

Summary of Key Points from the Conference Call Company Overview - Company: SHK Properties (0016.HK) - Industry: Real Estate Development and Investment in Hong Kong Core Insights and Arguments - Financial Flexibility: The company maintains a strong balance sheet and financial flexibility, with a recurring profit mix of approximately 70% [1] - Sales Performance: Robust sales in Hong Kong, with a significant increase in property sales, particularly from Cullinan Sky Phase 1, which is expected to contribute HK$11.1 billion in contracted sales to be booked in the second half of FY25 [1][5] - Profit Forecast: Expected flat profit for FY25, supported by good-margin bookings and land resumption profits of HK$1.1 billion, but offset by a provision of HK$1 billion for Cullinan Sky [1] - Dividend Policy: The company targets a dividend payout ratio of 40-50%, forecasting a dividend per share (DPS) of HK$3.80, yielding 5.1% despite a flat interim DPS [1][5] Financial Performance - Revenue Trends: Combined revenue for FY22/23 was HK$83.4 billion, with property sales declining from HK$35.4 billion in FY21/22 to HK$29.1 billion in FY22/23, but showing a significant increase in the first half of FY25 [5] - Operating Profit: Operating profit margin for combined operations decreased from 44.2% in FY21/22 to 41.6% in FY22/23, with expectations of further decline due to lower-margin developments [5] - Net Profit: Underlying net profit attributable to shareholders was HK$23.9 billion for FY22/23, with a forecasted decrease to HK$21.7 billion for FY23/24 [5] Market Position and Outlook - Asset Turn: The company has consistently demonstrated a strong ability for asset turnover, crucial given the upcoming sizable new launches estimated at 4,000 units over the next 10 months [1] - Rental Income Growth: Projected rental income growth of 6% and 10% year-on-year for FY26 and FY27, respectively, supported by a strong investment property pipeline [1] - Geographical Focus: The company is viewed as a proxy for the Hong Kong residential sector, benefiting from a stable rate outlook, with the 10-year U.S. Treasury yield at 4.2% [1] Additional Important Insights - Debt Management: The company aims to lower its gearing ratio to 17.8% by December 2024, with total debt expected to decline by 10% [5] - Investment Properties: Fair value of investment properties increased from HK$398.7 billion in June 2022 to HK$403.6 billion in June 2023, indicating a stable asset base [5] - Market Sentiment: The overall sentiment in the real estate sector is cautiously optimistic, with expectations of gradual recovery in property sales and rental markets [1][5] This summary encapsulates the key points discussed in the conference call, highlighting the financial performance, market outlook, and strategic initiatives of SHK Properties within the real estate industry.