Hong Kong Stock Market Review: Privatization Speculation
Chinese Estates' stock price has recently surged by nearly 30%, mainly due to the major shareholder proposing privatization again. However, the company's operating performance is poor, with reduced rental income and property development dividends. While the Hong Kong property market has shown signs of recovery in the short term, it still faces pressure from the economic and high interest rate environment. Other developers have interest expenses exceeding income, which may lead to further dividend cuts to repay debts. Cheung Kong's financial structure is solid but growth is slow unless assets are sold. The leasing situation of Phase II of the Cheung Kong Center may become a market catalyst
Under the privatization vision, CHINESE EST H surged nearly 30%.
Since the failed privatization at the end of 2021, there has been similar speculation every year. The main reason is that the company could have succeeded that year, but it was just unlucky. The opposition vote accounted for 10.75%, which just vetoed the privatization.
The company's stock price has been around 1 yuan since the beginning of this year, which is 75% lower than the privatization price of 4 yuan proposed that year. The major shareholders are more motivated to propose privatization again.
Of course, the current situation is not as good as it was back then. On the one hand, rental income as the company's main operating income has dropped from around 330 million in 2021 to 260 million last year. Based on the continuous decline in rental rates, for example, the rental rate in the Causeway Bay area dropped from over 95% in 2022 to 89% in 2023. On the other hand, dividends from property development have also been greatly reduced.
In the long run, affected by the trend of domestic consumption outflow, there is little hope for the commercial leasing business. More importantly, CHINESE EST H has not paid dividends in recent years, and the major shareholders are probably waiting for a better privatization opportunity. It is believed that the new privatization price is unlikely to return to 4 yuan. Even with a 100% premium before the surge, most small shareholders are deeply trapped. Continuing to drag on is also not meaningful.
From the current situation, after the relaxation of policies in the Hong Kong property market, sales have shown a brief recovery. However, the first-hand transaction volume in June is still insufficient, mainly due to the drag from the economy and the high interest rate environment.
Last week, NOVO Land project by Sun Hung Kai Properties sold 85% of its units on the first day. Although the average selling price was 11% lower than a batch launched in November 2023, the cancellation of the price protection discount reflects Sun Hung Kai's confidence to some extent. They believe that with limited supply in the short term, prices may have bottomed out, but there is still a long way to go for a reversal.
Apart from Henderson Land and Cheung Kong Property, other major developers have interest expenses far exceeding interest income. These companies are likely to continue reducing dividends to repay debts in a high interest rate environment.
Henderson Land has a stable financial structure, with most of its businesses mature and spread across developed countries globally. However, from another perspective, there will not be sudden high growth unless assets are sold. In addition, the current market pessimism lies in the leasing situation of Phase 2 of the Central Plaza, with rumors of only a 10% rental rate. However, this may be a catalyst for the future. Even if it is fully leased, it will not make a significant contribution to the 17 billion profit. A significant increase in the rental rate will have a greater impact on market sentiment