JPMorgan Says HK Property Market Has Pool of Undervalued Assets

2023-07-11 12:24

A “large pool of undervalued assets” in Hong Kong’s property market may spur more bargain hunting among their

A “large pool of undervalued assets” in Hong Kong’s property market may spur more bargain hunting among their majority shareholders as valuations hit a 30-year low, according to JPMorgan Chase & Co.

The city’s cash-rich property tycoons may take advantage of the cheap valuations to buy assets, conduct share buybacks or take out minority shareholders at a time when developers and landlords are on average valued at a 63% net asset value discount to the aggregate market capitalization, JPMorgan analysts including Cusson Leung wrote in a note.

“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.

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%.

The city’s property sector is trading at a combined market cap of HK$1.1 trillion ($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 Ltd. Other developers include Wharf Real Estate Investment Co., Kerry Properties Ltd., Swire Pacific Ltd., Swire Properties Ltd. and Henderson Land Development Co Ltd., JPMorgan said.

Shares of Wharf Real Estate Investment and Henderson Land both rose as much as 2% Tuesday.

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 Ltd. 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.