Hong Kong Stock Market Review: Losses exceed market capitalization

Domestic real estate sales in August remained bleak. Although it has entered the traditional peak season of September and October, real estate companies will increase marketing efforts to boost overall transaction volume. However, without significant policy stimulus, the rebound is likely to be limited.

The news of lowering the interest rates on existing housing loans last week was not surprising, but doing so will definitely harm the profitability of banks. In the first half of the year, five state-owned banks have already experienced a decline in both revenue and net profit.

On the other hand, second-hand housing prices in Hong Kong continue to hit nearly an 8-year low. Whether the rate cut in September can bring some stimulation remains uncertain.

Similar pessimism is also reflected in NEW WORLD DEV, as the company issued its first profit warning, expecting a loss of HKD 19-20 billion. This is mainly due to a devaluation of assets of HKD 8.5-9.5 billion, as well as a book loss of HKD 8.3 billion from the sale of newly created shares. Excluding one-off factors, the core operating profit for the whole year is expected to be HKD 6.5-6.9 billion, a decrease of 18% to 23% year-on-year.

Although the company has been continuously selling properties this year, including the HKD 4 billion Park Central Shopping Centre and the HKD 3.9 billion Front Sea Building, the leverage remains at the highest level in the industry. Previously, the market expected a dividend of around HKD 0.5 this year, but it is likely to be lower now.

Last year, the company raised nearly HKD 21.8 billion by selling newly created shares, of which HKD 4 billion was distributed as a special dividend, which was considered a mistake, especially considering the company's debt scale of over HKD 190 billion, with annual interest expenses close to HKD 10 billion before capitalization.

In the short term, to solve the debt problem, the company believes it needs to continue selling assets, such as the recent news that China Resources plans to offer around HKD 9 billion to purchase K11 ART MALL. However, the K11 brand has performed well in mainland China and Hong Kong, and accounts for about 10% of the company's ongoing operating profit, so it may not be the first choice.

In any case, NEW WORLD DEV has many assets, such as 16 million square feet of farmland and HKD 200 billion in property investments. If it is willing to deleverage significantly, there is also a great potential for price-to-book ratio recovery.

However, the most important issue is that the major shareholders do not hold many shares and have a record of rights issue financing, leading to a continuous decline in stock price. Nevertheless, from another perspective, being fundamentally the worst also means it is the most speculative target that will benefit the most from the recovery of the Hong Kong property market in the future