[ET Net News Agency, 17 January 2018] Wharf (Holdings) (00004) won a luxury site at
Lung Cheung Road for HK$12.45bn. The tender price represents an AV of HK$28,531 psf. Back
in Oct 2016, Kerry (00683) had bought a residential site at Lung Cheung Road at an AV of
HK$21.2k psf. That represents an increase in land cost of 35% over the past 15 months,
said Citi Research.
The research house estimated the ASP of this project at completion to be HK$45k psf on
saleable area. By assuming HK$6k per sq ft all-in construction cost and a 0.9x
GFA-saleable conversion ratio in a 4-year construction period, the project should have a
neutral NAV impact (negative HK$138mn) to Wharf's NAV.
With criticism that Wharf is facing a lack of investment opportunities in HK, the
acquisition of Lung Cheung Road site represents an urgency among management to show to
investors that Wharf continues to focus on HK development properties (this is similar to
Wheelock).
However, the acquisition of HK residential projects may further increase the overlap of
group functions between Wheelock and Wharf, and this increasing overlap may become the key
reason for the potential privatisation of Wharf in the future, Citi noted.
With Wharf's share price up 22% year-to-date, Citi believes market has paced up the
privatisation expectation of Wharf by Wheelock. One major argument for potential
privatisation is that Wharf is having HK$70bn cash on hand, which could be used to fund
the capital requirement for future privatisation needs.
Citi believes the usage of part of the cash may help to cool down the privatisation
expectation in the market. However, given Wharf has delivered Rmb26bn of contracted sales
in China for 2017 together with a disposal proceed of HK$9bn for 8 Bay East, the
acquisition of a HK$12.45bn site may not be enough to drive down market expectations. (KL)