＜Research＞G Sachs Trims TPs for HK Landlords, But Adds TPs for CKA & SWIRE PACIFIC A

　　Goldman Sachs wrote in a report that Hong Kong conglomerates it covered briefly performed better in April and May this year after accumulating a 20% to 30% decline since 2Q23, supported by the cancellation of the Hong Kong government's property market control measures and the expectation of interest rate cuts at the beginning of the year. However, industry data have not shown much improvement since mid-May. High office vacancy rates and, in some cases, worsening growth in retail sales and broker lending, coupled with a delay in interest rate cuts, have caused the shares to give back most of their gains, with YTD declines of between 10% and 20%.

　　The exceptions were SWIRE PACIFIC A (00019.HK) +0.350 (+0.505%) Short selling $4.87M; Ratio 30.909% , which continued its share buyback, CKH HOLDINGS (00001.HK) -0.300 (-0.733%) Short selling $11.72M; Ratio 20.310% , which is expected to log a strong recovery in earnings from its ports and European telecoms businesses, CKI HOLDINGS (01038.HK) +0.200 (+0.393%) Short selling $9.12M; Ratio 18.042% , which is planning to conduct a second listing in the UK, and HENDERSON LAND (00012.HK) +0.050 (+0.222%) Short selling $4.49M; Ratio 27.717% , which is benefiting from the conversion of its agricultural land.

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　　Goldman revised its full-year outlook for the sector and now expected retail rents to fall 5% (earlier 3% rise), mainly due to the larger-than-expected impact of Hong Kong locals travelling out of the country and mainland tourists being diverted to Japan or South Korea. Office rents are projected to decline 7% (earlier 3% fall), as weak demand from the financial sector and increased hiring by the government or public sector will not be enough to compensate for the rise in vacancy rates.

　　As a result, Goldman adjusted its FY24 to FY26 profit forecasts for its Hong Kong conglomerates by -25% to +5%, and its target prices by -14% to +3%, while suggesting that their valuations are still attractive. Overall, the profit trend of conglomerates covered by the broker in 1H24 is expected to be divergent, with net profit of property developers expected to plummet about 20% YoY, but NEW WORLD DEV (00017.HK) -0.070 (-0.910%) Short selling $3.31M; Ratio 32.995% should be able to regain moderate profitability.

　　Meanwhile, the broker also expected a drop in earnings from landlord stocks, including Hongkong Land, WHARF HOLDINGS (00004.HK) -0.200 (-0.833%) Short selling $546.35K; Ratio 20.325% and HLD, which are expected to fall 29%, 24% and 19% YoY respectively, reflecting lower earnings from their development property segments and higher interest expenses. The broker also cut its target prices for a number of rent-collecting stocks, but raised its target prices for CKA and SWIRE.

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　　In addition, the broker forecasted MTR CORPORATION (00066.HK) +0.300 (+1.200%) Short selling $12.65M; Ratio 43.061% to post a 52% hike in net profit, benefiting from cross-border traffic, fare hikes and the sale of its residential unit inventory. WHARF REIC (01997.HK) 0.000 (0.000%) Short selling $2.79M; Ratio 31.397% and CKA are also predicted to see earnings growth as the former returns to positive rental growth from a lower base last year, while the latter sees cost pressures come down on the back of a recovery in 3UK earnings and solid growth in port throughput.

　　Goldman continued to favour companies with greater visibility of earnings recovery from low bases such as WHARF REIC and CKA, with dividend sustainability such as SWIRE and MTR, and SHK PPT (00016.HK) +0.050 (+0.071%) Short selling $15.61M; Ratio 31.038% for it being more directly benefiting from the property market easing measures.

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-22 12:25.)

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