1、,Neutral,67.50,66.20,2.9,PE,Company report,IndustrialsConglomeratesEquity Hong Kong,abcGlobal Research,The Wharf (Holdings) (4 HK)Downgrade to N: Catching your breath after a year-long run,Target price (HKD)Share price (HKD)Forecast dividend yield (%)Potential return (%) 4.9Note: Potential return eq
2、uals the percentagedifference between the current share price andthe target price, plus the forecast dividend yield, Wharf should see gradual rental and sales price growth thisyear as we wait for property leading indicators to pick up Wharfs maturing China property pipeline and rental growthshould d
3、rive a 19% earnings growth pa in 2013-14e,DecHSBC EPSHSBC PE,2011 a 2012 e2.44 3.6820.2 12.9,2013 e4.2315.7, Downgrade to N from OW despite lifting TP to HKD67.5 (fromHKD54); stock is fairly valued after a strong 2012 rally,Performance,1M,3M,12M,Absolute (%)Relative (%),7.83.5,24.213.4,51.228.8,Whar
4、fs Hong Kong rents to grow in 2013e. While property-leading indicators have,Note: (V) = volatile (please see disclosure appendix)24 January 2013Stephen Wan*AnalystThe Hongkong and Shanghai BankingCorporation Limited+852 2996 .hkMark Webb*Regional Head of Conglomerate andTransport ResearchThe Hongkon
5、g and Shanghai BankingCorporation Limited+852 2996 .hkView HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities (USA) Inc, and is notregistered/qualified pursuant to FINRAregulations,bottomed out in 2012, we await their definitive pick-up. Hong Kong retail sales data alsob
6、ottomed out in October 2012, while office rents in decentralised areas have continued to holdup. We expect Wharfs retail and office rents to grow 10% and 5% in 2013, respectively.China contract sales to improve. China contract sales value grew 35% in 2012 in theabsence of any highly restrictive poli
7、cies. As a result, Wharf exceeded its 2012 contractsales target of RMB12.7bn. Our property team expects the policy environment to remainbenign. We forecast Wharfs 2012 and 2013 contract sales value to reach RMB14.1bn andRMB15.1bn, respectively, driven by volume growth.Earnings to grow 19% pa in 2013
8、-14e from Hong Kong property rental growth, maturingChina property development sales, and the addition of Greentowns consensus earnings (3900HK, Not rated). We raise 2012e earnings by 11% from higher property bookings but makeminimal changes to 2013-14e. We are 6% and 14% above consensus for 2012e a
9、nd 2013e.Downgrade to N (from OW); shares are fully valued. We raise our SOTP-based appraisedvalue to HKD90 per share (from HKD72), mainly reflecting: 1) a lower Hong Kong net caprate, 2) the roll-forward of rents used in our valuation from 2012 to 2013, and 3) the markingof Greentown and Communicat
10、ions, Media and Entertainment (CME) investments to market.We base our HKD67.5 target price on an unchanged 25% conglomerate discount. A collapseof China property prices in the eastern and western regions is a key downside risk while lowerHong Kong interest rates is a key upside risk. We prefer Hutch
11、ison Whampoa (13 HK,Issuer ofreport:,The Hongkong andShanghai Banking,HKD86.05, OW, TP HKD101) within our Conglomerates coverage.,Corporation Limited,YE Dec,EBIT Net profit HSBC NP,EPS HSBC EPS,PB,Div yield FCF yield,Disclaimer &DisclosuresThis report must be readwith the disclosures andthe analyst
12、certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,20112012e2013e2014eIndexIndex levelRICBloombergSource: HSBC,HKDm11,08115,84215,91918,283,HKDm30,56829,23512,81215,693,HKDm HKD7,400 10.0911,154 9.6512,812 4.2315,693 5.18HANG SENG INDEX23,6020004.HK4 HK,HKD x2.44
13、 20.23.68 12.94.23 15.75.18 12.8Enterprise value (USDm)Free float (%)Market cap (USDm)Market cap (HKDm)Source: HSBC,x0.990.890.860.82,%1.62.52.93.5,%-11-30-142,0095025,337196,447,The Wharf (Holdings) (4 HK)Conglomerates24 January 2013Financials & valuationFinancial statements,Valuation data,abc,Year
14、 to,12/2011a,12/2012e,12/2013e,12/2014e,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Profit & loss summary (HKDm),EV/sales,7.22,4.61,6.49,5.51,RevenueEBITDADepreciation & amortisationOperating profit/EBITNet interestPBT,24,00412,451-1,37011,081-87334,641,35,79817,256-1,41515,842-1,12334,542,33,85417,
15、378-1,45915,919-1,10117,337,39,55119,789-1,50518,283-1,15220,351,EV/EBITDAEV/ICPE*P/Book valueFCF yield (%)Dividend yield (%),13.90.8120.20.99-11.11.6,9.60.6712.90.89-3.52.5,12.60.8515.70.86-0.32.9,11.00.8212.80.82-0.73.5,HSBC PBTTaxationNet profitHSBC net profit,10,603-3,30430,5687,400,15,652-4,249
16、29,23511,154,17,337-3,70412,81212,812,20,351-3,75515,69315,693,Note: * = Based on HSBC EPS (fully diluted)Price relative,Cash flow summary (HKDm),Cash flow from operationsCapexCash flow from investmentDividendsChange in net debtFCF equity,-586-36,926-16,7123,02910,776-39,796,11,943-24,214-26,2683,62
17、66,743-12,794,7,583-1,173-8,0955,4355,9476,682,14,907-1,220-8,3096,1987,50213,662,Balance sheet summary (HKDm),Intangible fixed assetsTangible fixed assets,297201,784,297224,584,297224,297,297224,012,Current assetsCash & othersTotal assetsOperating liabilities,83,81432,528317,97321,853,86,71730,8893
18、51,76626,452,83,35224,942357,55624,044,82,35517,440366,58222,673,Source: HSBCNote: price at close of 22 Jan 2013,Gross debtNet debtShareholders fundsInvested capital,75,99343,465203,257235,777,81,09750,208226,289256,602,81,09756,155233,666258,960,81,09763,657243,161266,551,HSBC appraised valuation s
19、ummaryHKDm HKD/share,% Comments,HK Inv Prop,203,838,67.3,62%,Cap rate of 4% (net),Ratio, growth and per share analysis,China Inv PropInvestment Prop,21,672225,511,7.274.4,7%69%,Cap rates of 5-6% (net),Year to,12/2011a,12/2012e,12/2013e,12/2014e,Dev PropUnder Dev,14,80858,974,4.919.5,5%18%,Discounted
20、 cash flowCost,Y-o-y % changeRevenueEBITDAOperating profitPBTHSBC EPS,23.918.120.3-10.81.8,49.138.643.0-0.350.7,-5.40.70.5-49.814.9,16.813.914.917.422.5,Total Dev PropTotal PropMTL / logisticsOtherEnterprise ValueNet debt (FY13e),73,783 24.4 23%299,293 98.8 92%12,667 4.2 4%14,323 4.7 4%326,283 107.7
21、 100%-53,755 -17.7,EV/EBITDA of 9.5xGreentown and iCable at marketprices, CME at 4x EV/EBITDA,Ratios (%)Revenue/IC (x)ROICROEROAEBITDA marginOperating profit marginEBITDA/net interest (x)Net debt/equityNet debt/EBITDA (x)CF from operations/net debt,0.14.74.011.551.946.214.320.63.5,0.15.65.29.348.244
22、.315.421.42.923.8,0.14.95.64.151.347.015.823.13.213.5,0.25.76.64.850.046.217.225.13.223.4,Equity Value 272,528 90.0Target Price 67.5Note: Inv Prop = Investment Properties, Dev Prop = Development Properties, MTL = Modern TerminalsSource: HSBC estimates,Per share data (HKD),EPS reported (fully diluted
23、)HSBC EPS (fully diluted)DPSBook value,10.092.441.0667.09,9.653.681.6674.70,4.234.231.9077.13,5.185.182.3380.27,2,The Wharf (Holdings) (4 HK)Conglomerates24 January 2013Catching your breath aftera year-long run Wharf performed well operationally in 2012, being well-positioned inthe decentralised off
24、ice areas in HK, and has outperformed HK retailsales growth and exceeded its 2012 China contract sales target Economic indicators suggest growth has bottomed out; weforecast gradual rental and contract sales growth in 2013 Downgrade to N (from OW) despite raising TP to HKD67.5 fromHKD54; stock is fa
25、irly valued trading at a 25% discount to NAV,abc,IntroductionWhat a year 2012 was for Wharf. Despite aslowdown in Hong Kong retail sales, lacklustreHong Kong office rents, and an uncertain Chinaresidential property market, Wharfs share pricewas up 73% in 2012 and outperformed the HangSeng Index (HSI
26、) by 40%. The share priceperformance was driven by Wharfs resilient retailrental growth despite the overall Hong Kongmarket experiencing a retail sales slowdown,while interest rates have continued to fall (HongKong ten-year swap rate fell from 1.86% on31 December 2011 to 1.41% a year later, beforere
27、covering back to 1.50% recently) whichsupported asset price increases. Finally,a recovery in China contract sales volumes alsosupported Wharfs share price.The most recent data suggests a better 2013. HKretail sales picked up in November (the latest,various developers remained robust in December.The
28、question is, how much of this has been pricedinto Wharfs share price?PropertiesHong Kong properties2013 market outlookHong Kong rental growth has diverged for mostof 2012, with Central experiencing decliningrents, while decentralised offices had stable rents.According to the most recent rental data
29、we have(source: Jones Lang LaSalle), Central spot rentsfell 9% in 1Q-3Q12 as a result of historically highrents and a weak financial sector. In contrast,decentralised office hubs benefited from tenantrelocations from Central areas such as WanChai/Causeway Bay had a 2% rental growthduring the same pe
30、riod, while Tsim Sha Tsuigained 4%. Overall, Hong Kong Grade A officespot rents grew 3% in 1Q-3Q12.,published data) to 9% y-o-y growth from 4% amonth earlier, while China contract sales data of3,HKD/sqft/mth,4Q90,3Q93,2Q96,1Q99,4Q01,3Q04,2Q07,1Q10,4Q12e,Mar-93,Mar-96,Mar-99,Mar-02,Mar-05,Mar-08,Mar-
31、11,70,60,50,30,7,0,0%,The Wharf (Holdings) (4 HK)Conglomerates24 January 2013We believe the outlook for HK Grade A officerents is stable. Despite rents being at seeminglyhigh levels, we do not expect rents to fall.From peak to trough (September 2008-September, Current rents adjusted for nominal GDPg
32、rowth are still substantially below the levelsof the mid-1990s.3. Rents still below 1990s peaks adjusted for inflation,abc,2009) during the global financial crisis, Grade Aoffice rents in Hong Kong fell 39%. However,despite our economists forecast of relatively weak,1009080,Spot office rent,global e
33、conomic growth in 2013, we expect rents tohold up. There are three major reasons for this.401. Grade A: Periods of rental declines since 1990,Period,Rent (HKD/year/sm)Peak Trough,Change %,20100,Jun-94Sep-97,Jun 96Dec-99,7,8435,953,5,0382,641,-36%-56%,Mar-01Sep-08,Dec-03Sep-09,3,9008,405,1,7695,169,-
34、55%-39%,Note: Average of Island East, Tsim Sha Tsui and Central rentsSource: Jones Lang LaSalle, CEIC, HSBC estimates,Source: Jones Lang LaSalle, Thomson Reuters Datastream, Grade A office rents have fallen y-o-y on fouroccasions in the last 20 years. In all but three,Hong Kongs nominal GDP growth w
35、asnegative before rents declined. In June 1994-, There is minimal supply expected to comeon-stream in 2012-14.4. Hong Kong office supply is limited,June 1996, rents fell even though Hong Kongsnominal GDP growth remained positive (butstill collapsed 10.6ppt from 16.2% to 5.6%during this period). Our
36、economist expectsHong Kongs nominal GDP growth to fallfrom 8.7% in 2011 to 2% in 2012.2. Nominal GDP growth drives HK rents,654321,(mn sqft)1990 1993 1996 1999 2002 2005 2008 2011 2014e,15%13%10%8%5%3%,20%15%10%5%0%-5%-10%,HK nominal GDP YoY growth (LHS)JLL Office rent YoY growth (RHS),100%80%60%40%
37、20%0%-20%-40%-60%,Supply Net absorption vacancy rateSource: Jones Lang LaSalleThe possible bottoming out of a key leadingindicator also supports a relatively benign outlookfor rents (figure 5). After Hudsons Hong Konghiring expectation index collapsed, there were,signs of bottoming out in 2012, alth
38、ough we have,Note: 1993-2011 correlation between Hong Kong nominal GDP growth and Hong Kongoffice rents was 0.67x with GDP leading rents by three months.Source: Jones Lang LaSalle, HK Census and Statistics Department, HSBC estimates,yet to witness a definitive rebound in thisindicator. This index is
39、 a good leading indicatorfor Grade A office rents, with a 0.5x correlation,on a six-month leading basis.4,1Q01,1Q02,1Q03,1Q04,1Q05,1Q06,1Q07,1Q08,1Q09,1Q10,1Q11,1Q12,Mar-93,Mar-96,Mar-99,Mar-02,Mar-05,Mar-08,Mar-11,Then:,Where,The Wharf (Holdings) (4 HK)Conglomerates24 January 20135. Office leading
40、indicator suggests a bottoming out,Capital values are a function of rents and,abc,80%70%60%50%,250200150,capitalisation rate applied to these rents.Based on a perpetuity formula, the capitalisationrate is driven by a combination of the risk-free,40%30%20%10%0%,Hiring Expectation LHSOffice rental ind
41、ex RHS,100500,rate, the perceived risk premium for holdingproperty investment assets, and perceptions of thelikely future annual growth in rent in perpetuity.7. Whats in the capitalisation rate?,If property,rent (pre-tax),which is,rent (pre-tax),Source: Hudson, Thomson Reuters Datastream,value =,Yie
42、ld,equivalent to,WACC g,In essence, we believe Hong Kong corporates willlikely face a period of low growth in 2013 andwill be reluctant to give up space because of thealmost complete lack of supply coming on streamfrom now until 2014. With Wharfs portfoliobeing in the decentralised hubs of Tsim Sha
43、Tsuiand Causeway Bay, we forecast an overall stableoffice spot rental growth of 5% in 2013.Capital values to stall6. Hong Kong office capital values versus nominal GDPgrowthHK nominal GDP - swap rate (LHS),yield = WACC-gWACC = pre-tax real risk free rate (Rf pre-tax) + inflation +risk premiumand: g
44、= annual growth in rentsSource: HSBC estimatesWe assume an average beta for Hong Kong-focused property investors of 0.8. The currentHKD 10-year swap rate is 1.5%, although this isvolatile. If we assume an equity risk premium of5% and use the last 25-year average annual rise inGrade A office prices o
45、f 3.8%, this implies acapitalisation rate of 1.7% for Grade A officewhich should be applied to the post-tax profit,10%5%0%-5%-10%-15%-20%,Office cap value YoY growth (RHS),120%100%80%60%40%20%0%-20%-40%-60%-80%,from these properties. As we apply a cap rate topre-tax income (i.e. EBIT), the appropria
46、te pre-taxcapitalisation rate, given that rental income istaxable, would be 1.7% divided by 0.835 (i.e. 1 -16.5%) = 2.0%. This compares to the current caprate of 3.2% (source: Jones Lang LaSalle, derived,from net rents).Clearly, assuming an average annual rental,Source: CEIC, Hong Kong Ratings and Valuation DepartmentSimilar to Grade A rents, capital values have onlyfallen on four occasions in Hong Kong over thepast 20 years; on three of these occasions,nominal GDP growth rates were negative.,
