“We believe the uniqueness of the Hong Kong property and conglomerates sector is that their majority shareholders will not be shy to grab opportunities from the market downturn,” the analysts wrote.
HK Developers' Shares Underperform Benchmark
The sector has been grappling with tumbling Hong Kong home transactions due to higher mortgage rates and sluggish economic growth in China. A MSCI gauge tracking Hong Kong developers has lost more than 16% year-to-date, underperforming the benchmark Hang Seng Index which is down about 5%.
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The city’s property sector is trading at a combined market cap of HK$1.1 trillion (US$141 billion), while their aggregated net asset value amounted to HK$3 trillion, according to JPMorgan. That represents a large pool of undervalued assets that majority shareholders can choose from, it added.
Some families may be more active than others in taking advantage of the valuation dislocation, such as Li Ka-Shing-backed CK Asset Holdings. Other developers include Wharf Real Estate Investment Co, Kerry Properties, Swire Pacific, Swire Properties and Henderson Land Development Co, JPMorgan said.
Shares of Wharf Real Estate Investment and Henderson Land both rose as much as 2% Tuesday.
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Any corporate action taken by developers will be driven by their need to expand the business, deleverage, simplify group structures or prepare for succession planning, the bank said.
In June, Chow Tai Fook Enterprises proposed to take NWS Holdings private, in a move seen to boost the cash level of the latter’s holding firm New World Development Co. The companies are controlled by Hong Kong’s billionaire Cheng family.
