Sun Hung Kai Properties, Hong Kong’s largest property developer, experienced a significant drop in its fiscal 2023 net profit, leading to a sharp decline in its shares. On the first day of trading after the company announced its weaker-than-expected earnings for the year, the shares plummeted by 10% to 79.40 Hong Kong dollars. This marked their largest intraday fall since September 2021. It is worth noting that the Hong Kong Stock Exchange was closed on Friday due to a black rain warning.
According to Sun Hung Kai, its fiscal 2023 net profit stood at 23.91 billion Hong Kong dollars (US$3.05 billion), a decline from the previous year’s earnings of HK$25.56 billion. This decrease was primarily attributed to a drop in profit from property sales.
Following the release of these financial results, Jefferies analysts downgraded their rating on Sun Hung Kai’s stock from buy to neutral. They also adjusted their target price from HK$115.00 to HK$80.00. The analysts justified these actions by pointing out that the company’s sold but unbooked balance suggested that it would only see a modest recovery in its development projects. Moreover, Jefferies noted that Sun Hung Kai’s guidance of a 40%-50% payout ratio in fiscal 2024 (revised from around 60% earlier) indicated a potential cut in dividends next year.
On the other hand, Citi analyst Ken Yeung expressed optimism in a research note, anticipating that Sun Hung Kai would deliver steady performance in its contracted sales. Yeung emphasized the property developer’s sufficient land bank and predicted that rental income would likely increase with the launch of new projects in fiscal 2024. With this in mind, Citi maintained its buy call on Sun Hung Kai’s stock but adjusted its target price from HK$127.90 to HK$103.30. The adjustment reflects Citi’s prolonged negative outlook on the Hong Kong property market.
