Another CEO change for New World Development does not materially alter operations, and the Hong Kong-listed real estate developer’s valuation remains intact, says Morningstar Equity Research analyst Jeff Zhang.
New World Development announced the resignation of CEO Eric Ma on Nov 29, along with the appointment of Huang Shaomei as his successor.
This was unexpected, given that Ma just replaced Adrian Cheng as CEO in September.
“Despite scant details on the latest management reshuffle, we believe this reflects pronounced challenges for New World Development to deleverage amid a weak property market in Hong Kong and mainland China, in our view,” says Zhang in a Nov 29 note. “However, we expect no material impact on New World Development's strategic focus on divesting non-core assets and accelerating new projects' sales to improve its balance sheet.”
Hence, Zhang is maintaining his key assumptions and an HK$8.50 ($1.47) fair value estimate on the company, along with his four-star rating against Morningstar’s five-tier scale. This indicates “appreciation beyond a fair risk-adjusted return is likely”.
While New World Development's shares become undervalued following the recent slump, Zhang prefers its peer Henderson Land Development given “better financial strength and more robust dividend yield”.
See also: New World Development’s CEO Eric Ma to leave after two months in succession saga twist
New World Development shares have fallen 44% year to date, while Henderson Land Development’s shares have risen 3.6% over the same period.
Asset disposal
New World Development has made further progress in asset disposal, including the HK$417 million sales of Kai Tak Sports Park to parent company Chow Tai Fook Enterprise on Nov 28.
See also: New World Development to be removed from Hang Seng Index
That said, this accounts for less than 1% of New World Development's more than HK$140 billion debt as of June, and Zhang estimates that its net gearing ratio remains above 50% currently.
“We also foresee more asset sales to meet the HK$13 billion divestment target for fiscal 2025 (ending June 2025), as less than HK$5 billion has been completed so far,” writes Zhang. “Although this will weigh on the company's rental income, we think newly opened K11 malls in Ningbo and Shanghai should provide some buffers.”
Positively, New World Development saw sequential growth in residential unit sales in mainland China thanks to policy easing. It reported that home transaction volume for the first week of October surpassed the whole of September, with projects in Guangzhou as main contributors.
In Hong Kong, New World Development will “likely” launch a new project in North Point “in coming months”, says Zhang. He thinks these projects should translate to a 23% contracted sales growth y-o-y for mainland China and Hong Kong combined in FY2025 ending June 30, 2025.
As at 3.04pm, shares in New World Development are trading 14 Hong Kong cents higher, or 2.18% up, at HK$6.57.
