Morgan Stanley: New World Development's dividend distribution meets expectations, target price HKD 102.3, recommends "Overweight"

Morgan Stanley's research report indicates that SHK PPT (00016.HK) has flat earnings per share for the full year, with dividends meeting expectations and a payout ratio maintained at 50%, implying a dividend yield of 4.1%. The company's management is currently not considering share buybacks or establishing a C-REIT.

In terms of business, local property development achieved contract sales of HKD 42.3 billion for the full year, compared to HKD 25.6 billion in the same period last year, with the group's target for the fiscal year 2026 set at HKD 30 billion. However, the profit margin for property development has decreased to 12%, down from 26% in the same period last year. The bank expects SHK PPT to record over HKD 30 billion in unrecognized sales for the fiscal year 2026, with a similar profit margin level.

Additionally, although renewal rents recorded negative growth, the company remains constructive about the outlook for the Hong Kong office and retail markets. For the fiscal years 2026 to 2027, significant increases in investment property income are expected from the IGC above the Kowloon High-Speed Rail Station and the ITC in Shanghai's Xujiahui.

SHK PPT's net debt ratio has also decreased from 17.8% in the first half of fiscal year 2025 to 15.1% for the full year. Benefiting from an increase in the allocation of floating-rate debt in RMB and HKD, the financing cost has dropped from 4.4% in the same period last year to 3.7%. The bank currently sets a target price of HKD 102.3 for SHK PPT, valuing it on a comprehensive basis, which corresponds to a 50% discount to the net asset value per share, with a rating of "Overweight."