New World Development Earnings: Valuation Cut by 41% on Higher Inventory and Lower Growth Forecast

We cut our fair value estimate on New World Development, or NWD, to HKD 10 per share from HKD 17, given a more conservative outlook for its inventory turnover and top-line growth. For first-half fiscal 2024 (ending June), NWD reported a 25% year-on-year drop in its core property businesses’ revenue, mainly due to subdued homebuying sentiment in Hong Kong and mainland China. Despite policy tailwinds in both regions, we foresee a tempered sales rebound and slower housing inventory clearance amid price softness. While first-half rental income from investment properties was more resilient, we project the pickup to moderate, with normalizing shopping footfall and weak demand for office space. As such, we lower our fiscal 2024-28 property businesses revenue compound annual growth rate assumption to 6.7% from 9.7%. That said, we like the firm’s debt redemption to contain the high net ratio of around 50%, and expect more repayment through the proceeds from the disposal of its nonproperty businesses. Given NWD’s limited valuation upside and lower regular dividend payouts, we prefer peer Henderson Land, given its stronger balance sheet and better risk/reward.