ASIAN INSIGHTS ed- JS / sa- CS/CW 17 July 2018 DBS Group Research . Equity Bridge of tourists New mega infrastructure creates better links with China Higher tourist visitation a boost to retail & hotel sectors Top picks: Wharf REIC (1997), Luk Fook (590) & Sa Sa (178) New mega infrastructure creates better links with China. The soon-to-be-commissioned Express Rail Link (XRL) & HK-Zhuhai-Macau Bridge (HZMB) will result in better transportation connectivity between HK & Mainland China. We estimate XRL could bring in 3m additional Mainland tourists p.a. from 2019, lifting tourist arrival numbers by a decent 7% CAGR for 2017-20. But we should not underestimate HZMB’s medium-term potential after the Tuen Mun- Chek Lap Kok Link & SKYCITY come onstream by 2020. In the longer run, prosperity of the Greater Bay Area could raise mobility within the region and increase its GDP (+9% CAGR to US$4.6tn by 2030) and spending power, hence further supporting the positive prospects. Increased tourist visitation: a boost to retail and hotel sectors. Riding on flourishing inbound tourism, the HK retail and hotel sectors should run on a multi-year uptrend. Better retail sales could beef up turnover rents and strengthen retail reversionary growth. Hotels should also be able to raise room rates further, pushing up the Revenue per available room (RevPAR) by 8-10% a year during 2018-19, in our view. Stock recommendations. Major HK-based retailers like Chow Tai Fook, Luk Fook, Chow Sang Sang and Sa Sa, and department store operator Lifestyle will outperform their peers to capture sound sales growth. They should benefit even more from better operating leverage ahead, given at least c.50% of their HK/Macau revenue comes from PRC tourist consumption. With a strong retail footprint in Tsim Sha Tsui & Causeway Bay, Wharf REIC & Hysan Development also stand to benefit from the booming retail market. In the hotel sector, Langham Hospitality Investments and Regal REIT are our preferred pure Hong Kong plays. Far East Consortium also offers investors a good exposure to the three-to-four-star hotel market. HSI: 28.316 ANALYST Jeff YAU CFA, +852 2820 4912; [email protected]Mavis HUI +852 2863 8879; [email protected]Ian CHUI +852 2971 1915; [email protected]Jason LAM +852 29711773 [email protected]Top picks Source: DBS Bank (Hong Kong) Limited (“DBS HK”) Note: Prices used as of 6 July 2018 Closing 12-m Ticker Mkt Cap Price tgt Px Recom HK$bn (HKD) (HKD) Hong Kong Property Far East Consortium 35 HK 10 4.52 5.53 BUY Hy san Dev elopment 14 HK 44 42.4 51.15 BUY Langham Hospitality 1270 HK 7 3.17 3.68 BUY Regal REIT 1881 HK 7 2.3 2.61 BUY Wharf REIC 1997 HK 171 56.45 65.4 BUY Consumer Chow Sang Sang 116 HK 10.18 14.82 20.65 BUY Chow Tai Fook 1929 HK 85.60 8.34 n.a. NR Lifestyle 1212 HK 26.60 16.70 18.72 BUY Luk Fook 509 HK 18.99 31.65 40.75 BUY Sa Sa 178 HK 14.59 4.53 6.51 BUY Asian Insights SparX Hong Kong Property & Retail Sector Refer to important disclosures at the end of this report
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Hong Kong Property & Retail Sector...also stand to benefit from the booming retail market. In the hotel sector, Langham Hospitality Investments and Regal REIT are our preferred pure
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ASIAN INSIGHTS
ed- JS / sa- CS/CW
17 July 2018 DBS Group Research . Equity
Bridge of tourists New mega infrastructure creates better links with China
Higher tourist visitation a boost to retail & hotel sectors
Top picks: Wharf REIC (1997), Luk Fook (590) & Sa Sa (178)
New mega infrastructure creates better links with China. The
soon-to-be-commissioned Express Rail Link (XRL) & HK-Zhuhai-Macau
Bridge (HZMB) will result in better transportation connectivity
between HK & Mainland China. We estimate XRL could bring in 3m
additional Mainland tourists p.a. from 2019, lifting tourist arrival
numbers by a decent 7% CAGR for 2017-20. But we should not
underestimate HZMB’s medium-term potential after the Tuen Mun-
Chek Lap Kok Link & SKYCITY come onstream by 2020. In the longer
run, prosperity of the Greater Bay Area could raise mobility within the
region and increase its GDP (+9% CAGR to US$4.6tn by 2030) and
spending power, hence further supporting the positive prospects.
Increased tourist visitation: a boost to retail and hotel sectors.
Riding on flourishing inbound tourism, the HK retail and hotel
sectors should run on a multi-year uptrend. Better retail sales could
beef up turnover rents and strengthen retail reversionary growth.
Hotels should also be able to raise room rates further, pushing up
the Revenue per available room (RevPAR) by 8-10% a year during
2018-19, in our view.
Stock recommendations. Major HK-based retailers like Chow Tai
Fook, Luk Fook, Chow Sang Sang and Sa Sa, and department store
operator Lifestyle will outperform their peers to capture sound sales
growth. They should benefit even more from better operating
leverage ahead, given at least c.50% of their HK/Macau revenue
comes from PRC tourist consumption. With a strong retail footprint
in Tsim Sha Tsui & Causeway Bay, Wharf REIC & Hysan Development
also stand to benefit from the booming retail market. In the hotel
sector, Langham Hospitality Investments and Regal REIT are our
preferred pure Hong Kong plays. Far East Consortium also offers
investors a good exposure to the three-to-four-star hotel market.
Hong Kong Property & Retail Sector Refer to important disclosures at the end of this report
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 2
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one off treatise on the topic, and invite feedback from our readers, and in particular welcome follow on questions worthy of closer examination.
Table of Contents
Investment summary 3
New infrastructure to link Hong Kong and China 4
Inbound tourism – from strength to strength 10
Retail market recovery gaining momentum 11
Hotel boom underway 16
Retailers 19
Retail landlords 20
Hotel plays 21
Appendix 22
HK retail sales 22
PRC tourist data 24
Greater Bay Area 25
Stock Profiles 34
Far East Consortium 34 Hysan Development 34 Langham Hospitality Investments 34 Regal REIT 34 Wharf REIT 34 Chow Sang Sang 34 Chow Tai Fook 34 Lifestyle International 34 Luk Fook Holdings 34 Sa Sa 34
Note: Prices used as of 6 July 2018
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Investment summary
Forthcoming mega infrastructure projects to link up Hong
Kong with Mainland China. With the forthcoming
commissioning of the Express Rail Link (XRL) and Hong Kong-
Zhuhai-Macau Bridge (HZMB), Hong Kong will become better
connected with Mainland China than ever before, thus linking
Hong Kong to a brighter future.
Express Rail Link shortens travelling time, pointing to better
connectivity. Targeted for commissioning in the third quarter of
2018, the 26-kilometre XRL will link up Hong Kong with
Shenzhen, Guangzhou, and the high-speed railway network in
Mainland China. The travelling time between Hong Kong and
major cities in China will be considerably shorter.
Better than air travel for those within six hour travelling radius
by train. The benefits of using the XRL diminishes for Mainland
travellers when travel distance increases. We believe the XRL
would primarily attract those residing within a six-hour
travelling radius by high-speed train due to time and cost
savings. Residents in Wuhan and Xiamen are cases in point. On
the other hand, travelling to Hong Kong by air remains more
time and cost efficient for those residing in Shanghai and
Beijing.
Additional 3 million tourists per annum. We estimate that XRL
would bring in an additional three million Mainland tourists per
annum from 2019, made up of both day-trippers and
overnight visitors. This represents c.5% of total tourist arrivals.
Appeal to business travellers and middle income class. A mega-
sized office project is planned to be built above the West
Kowloon Terminus of the XRL. Coupled with easy accessibility
to Central, the XRL should hold strong appeal to business
travellers from China. Besides, the high-speed train should
become the preferred mode of transportation among frequent
individual travellers, mainly the middle income class and leisure
travellers, commuting between Mainland China and Hong
Kong.
Hong Kong-Zhuhai-Macau Bridge to be preferred transport
mode between New Territories and Macau/Zhuhai. The HZMB
is expected to come onstream in the second half of 2018,
greatly improving the connectivity between Hong Kong and
the western Pearl River Delta. In particular, the HZMB will be
the preferred transportation mode to commute between New
Territories and Macau/Zhuhai.
Enormous long-term potential to be unlocked. Between these
two infrastructure projects, the XRL should give a stronger
boost to Hong Kong’s inbound tourism initially. But long-term,
the potential of the HZMB should not be overlooked especially
when the Tuen Mun-Chek Lap Kok Link and SKYCITY becomes
operational.
Since Hong Kong’s hotel and retail industry are highly
dependent on Mainland tourists, improving the accessibility of
Mainland tourists into Hong Kong via XRL and HZMB should
give the recovering retail and hotel sectors an additional push.
Top brand retailers selling luxuries and cosmetics to also take
the lead. In view of at least 20-30% higher price points in
Mainland China mainly attributable to taxes, PRC tourists save
more when buying premium global brands and jewelleries &
watches in HK/Macau that are within close proximity.
Cosmetics have also been their favourite merchandises
considering their affordable average ticket sizes to suit
everyone. Hence, these categories will benefit the most along
with a rising number of Mainland visitors, as already seen in
their strong contribution of c.50% or higher HK/Macau sales in
these segments. To best play on the tourist boom, we like
prominent HK-based operators, including Chow Tai Fook, Luk
Fook and Chow Sang Sang in jewelleries & watches; Sa Sa in
cosmetics; as well as Lifestyle’s department stores that mainly
focus on luxuries & cosmetics. Most of these retailers are
trading at an undemanding valuation, offering about 15-30%+
upside on a 12-month horizon.
Wharf REIC and Hysan Development emerge as prime
beneficiaries of the retail market boom. Retail plays, especially
those selling expensive luxury items and cosmetics, should
continue to see better retail sales growth. This should translate
into higher turnover rent, immediately followed by stronger
retail reversionary growth in the years ahead. These factors
should drive the earnings growth for major retail landlords
including Wharf REIC and Hysan Development. Wharf REIC is
trading at 26% discount to our assessed current net asset
value (NAV) while Hysan Development is trading 44% below
our estimated current NAV. Despite these shares’
outperformance year-to-date (YTD), there is scope for further
share price appreciation in the year ahead with retail sector
expected to go from strength to strength.
Langham Hospitality Investments, Regal REIT, and Far East
Consortium to tap growing demand for hotel accommodation.
Revenue per available room (RevPAR) of Hong Kong hotels
should remain on an upward trajectory in the foreseeable
future. Far East Consortium, Langham Hospitality Investments,
and Regal REIT should benefit from this favourable sector trend
in our view. Overall, Langham Hospitality Investments and
Regal REIT are each currently offering distribution yields of
>6% for FY18-19. These stocks are BUYs with respective TPs of
HK$3.68 and HK$2.61. Far East Consortium is trading >60%
below our appraised current NAV. In addition to a recovery in
hotel earnings in Hong Kong, its overseas business expansion
will also play a crucial role in dictating its share price
performance. Maintain BUY with TP of HK$5.55
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New infrastructure to link Hong Kong and China
The Express Rail Link to be commissioned soon. Serving as
the final phase of the Guangzhou-Shenzhen-Hong Kong
Express Rail Link, the 26-km long Hong Kong Section of the
Express Rail Link (XRL) is an underground high-speed
railway line running from West Kowloon Terminus to
Shenzhen Futian, which is then linked with the Guangshen
(Guangzhou and Shenzhen) section that has been
inaugurated in phases since 2011.
Construction works for the XRL commenced in Jan 2010.
The project was 98.6% completed as of Dec 2017. It is
targeted to open in 3Q18 with trial operations commenced
in 2Q18.
The XRL is funded by the Hong Kong SAR Government,
while MTR Corporation (MTRC) is entrusted for the design
and construction of the XRL. MTRC will also be appointed as
the operator of the XRL under a service concession
agreement upon completion of construction.
The legislation of co-location arrangement was recently
enacted by the legislative council of the HKSAR. The co-
location arrangement will maximise the service convenience
for passengers and enables the line to realise the full
transport, economic, and social benefits.
Due to several difficulties encountered since construction on
the project commenced, the estimated project cost was
revised up to HK$84.42bn from the original budget of
HK$65bn with project completion delayed to 3Q18. The
government agreed to finance the project up to the revised
estimated cost of HK$84.42bn with further cost overruns to
be borne by MTRC. As a result of cost overruns, the overall
expected Economic Internal Rate of Return (EIRR) of the XRL
project has reduced from c.6% to c.4% according to the
HKSAR Government estimates made in 2015.
The high-speed cross boundary XRL will connect Hong Kong
to Shenzhen, Guangzhou and then to the National High-
speed Railway (HSR) Network in China. The HSR network
has been rapidly expanding over the past decade. It started
from only one HSR line (Beijing-Tianjin intercity railway) in
2008 connecting the two major cities with a total length of
c.120km, and has progressed towards the formation of a
national high-speed rail grid that comprises of eight high-
speed rail corridors (four between north and south and four
between east and west) with a total length of c.25,000km
by end-2017. In 2018, China will extend the total HSR
length by 3,500km to c.28,500km with targets to achieve
30,000km (covering c.80% of large cities) and 38,000km by
2020 and 2025 respectively.
Map of China’s High-Speed Rail network
Source: DBS HK
China’s High-Speed Rail development targets
Source: China Railway, DBS HK
Pursuant to a Memorandum of Understanding signed
between HKSAR Government and China Railways
Corporation in Jan 2018, XRL will operate using 127 train
pairs on a daily basis in the early stages of service
commencement. Of this, 114 train pairs will provide short-
haul services between West Kowloon Terminus and
Futian/Guangzhou South station as detailed in the table on
the next page. Fares are expected to lie between HK$80 and
HK$260. The remaining 13 pairs are direct long-haul trains
to cities including Xiamen, Wuhan, Hangzhou, Shanghai,
and Beijing.
Hong Kong
Shantou(2.5 hrs)
Xiamen(3.5 hrs)
Nanchang(4.5 hrs)
F uzhou(5 hrs)
Nanjing(8 hrs)
Hangzhou(7 hrs)
Nanning(4 hrs)
Changsha(4 hrs)
Beijing
Xi'an(9 hrs)
Kunming(6.5 hrs)
Zhengzhou(7 hrs)
Chongqing(11.5 hrs)
Chengdu(12 hrs)
Shanghai(8 hrs)
Wuhan(5 hrs)
Guangzhou
0
5,000
10,000
15,000
20,000
25,000
30,000
2017A 2018E
Total HSR length
Length of HSR (km)
Asian Insights SparX Hong Kong Property & Retail Sector
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Expected ticket fare
Source: HKSAR Government, DBS HK
Planned daily train pairs
Source: HKSAR Government, DBS HK
Reduced transportation time. It is clear that the XRL will
shorten the travelling time between Hong Kong and
Mainland China. Based on the estimates from the HKSAR
Government, the XRL could save an aggregate of c.39m
hours of travelling time on an annual basis. For example, the
travelling time between Hong Kong to Shenzhen (Futian)
and Guangzhou will be shortened to 14 minutes and 48
minutes respectively. It takes 4 hours to travel to Hong Kong
from Xiamen and 7 hours 45 minutes from Shanghai. This
makes it easier for Mainland travellers to pay a visit to Hong
Kong or vice versa.
Estimated travelling times between Hong Kong and China cities (Short-haul services)
Source: HKSAR Government, DBS HK
Estimated travelling times between Hong Kong and China cities (Long-haul services)
Source: HKSAR Government, DBS HK
Primary attraction of Chinese visitors from within the 6 hour
travelling radius. Our analysis suggests that the cost and
time benefits by travelling on the XRL diminishes as the
distance increases. When distance increase, it is not only
time required for travelling with the XRL that increases but
also the corresponding cost rises dramatically and could
exceed that of air travel. As shown in the table below, travel
to Hong Kong from Beijing and Shanghai compares
unfavourably with air travel in terms of time and cost. On
the other hand, those residing in Wuhan and Xiamen would
find it more time and cost effective to travel to Hong Kong
by XRL. All factors considered, we believe the launch of XRL
would primarily help to attract more visitors residing within
the 6-hour travelling radius by high-speed train such as
Wuhan, Xiamen and other nearby cities.
0
50
100
150
200
250
300
Futian ShenzhenNorth
Humen GuangzhouSouth
Expected ticket fare (HK$)
0
10
20
30
40
50
60
70
80
90
Humen GuangzhouSouth
Futian ShenzhenNorth
Daily train pairs (pairs)
0
10
20
30
40
50
60
Futian ShenzhenNorth
Humen GuangzhouSouth
Time of travel (mins)
0
100
200
300
400
500
600
Shanto
u(C
hao
shan S
tation)
Chan
gsh
a
Xia
men
Wuhan
Nan
hca
ng
Fuzh
ou
Zhengz
hou
Han
gzh
ou
Shangh
ai
Bei
jing
Time of travel (mins)
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Comparison between travel by air and HSR
Source: DBS HK
The XRL project is expected to bring in a meaningful
number of additional Mainland tourists, both day-trippers
and overnight visitors, to Hong Kong. The HKSAR
Government estimates the daily ridership of XRL to reach
c.109,200 upon commencement of services in third quarter
2018, gradually increasing to 119,200 by 2021 and 149,800
by 2031. About 49% of such commuters are expected to be
non-Hong Kong residents including business travellers
(18%) and non-business travellers (31%). Assuming 1) an
equal split between inbound and outbound travellers, and
2) 30% of inbound travellers are additional travellers carried
by the XRL, our calculation shows that the XRL will bring in
an additional 0.76m, 3.02m and 3.11m of Mainland visitors
in 2018, 2019 and 2020 respectively. These represent 1.3%,
5.2% and 5.3% of total visitors in 2017.
Breakdown of ridership of XRL
Source: HKSAR Government, DBS HK
Breakdown of cross-border travellers (after XRL is operational)
Source: HKSAR Government, DBS HK
Better connectivity with Mainland China. To conclude,
leveraging on the connection to China’s rapidly expanding
HSR network, the forthcoming XRL will open up a new
alternative to travel between Hong Kong and Mainland
China, strengthening the accessibility of Hong Kong among
those visitors in other cities outside of Guangdong.
Appeals to business travellers… . The XRL is served by West
Kowloon Terminus which is one of largest high speed train
stations around the globe with usable floor area of 4.3
million square feet. West Kowloon Terminus is in downtown
Hong Kong. It is adjacent to Kowloon Station above which
the renowned International Commerce Centre (ICC) and
Elements (a luxury shopping mall) are located. Hong Kong
Station is just one stop away from Kowloon Station. It is in
core Central, Hong Kong’s main business district.
Moreover, a commercial project standing above West
Kowloon Terminus will be up for tender in the next nine
months. This mega sized development will offer total gross
floor area (GFA) of 3.16 million square feet, primarily for
office use. We believe that this strategically located office
development will become an attractive alternative choice for
office users in Central when completed in 2025. With easy
accessibility to key business areas, the XRL should hold
strong appeal to business travellers from Mainland China.
Asian Insights SparX Hong Kong Property & Retail Sector
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… and also middle class leisure travellers. We also expect
the high-speed train to be a preferred mode of transport
among frequent individual travellers commuting between
Mainland China and Hong Kong, who are usually from the
middle income class and leisure travellers. They would have
travelled to Hong Kong before. In addition to shopping,
they would also like to explore and experience this city in
their own way when visiting Hong Kong again. Over time,
we expect more Mainland tourists to travel to Hong Kong
individually instead of in group tours. The commissioning of
the XRL offers travellers more flexibility when planning trips
to Hong Kong. With improved connectivity following the
opening of the XRL, we expect more individual travellers
(from Mainland China) making frequent visits to Hong Kong
particularly over long weekends or holidays.
Express Rail terminus in West Kowloon
Source: DBS HK
Hong Kong-Zhuhai-Macau Bridge (HZMB)
The Hong Kong-Zhuhai-Macau Bridge (HZMB) links up Hong
Kong, Zhuhai, and Macau. This mega infrastructure project
will greatly improve the connectivity between Hong Kong
and Western Pearl River Delta (population: >32 million). It
should play a crucial role in the Great Bay Area initiative.
Map of Hong Kong Zhuhai Macau Bridge
Source: HK Highways Department
Population of cities in the Western Pearl River Delta
Source: CEIC
The HZMB consists of a main bridge and link roads which
connect to boundary crossing facilities at each of the three
territories. Construction of the main bridge commenced
back in late 2009. The HZMB is anticipated to be
commissioned later this year.
The main bridge is a dual 3-lane carriageway which spans a
23km suspension bridge and a 6.7km subsea tunnel. On the
eastern end of the HZMB, a boundary crossing facility is
being constructed on an artificial island immediately east of
the airport and two highways, the Hong Kong Link Road
(HKLR, 12km) and the Tuen Mun Chek Lap Kok Link (TM-
CLKL, 9km). The HKLR connects the Hong Kong boundary
crossing facility to the main bridge. The TM-CLKL connects
Tuen Mun, the boundary crossing facility, and North Lantau
Island.
Currently, motor vehicles travelling from Hong Kong to
Zhuhai and Western Guangdong province have no choice
but to travel north and take a 200-km detour via the Humen
0
1000
2000
3000
4000
5000
6000
7000
8000P
op
ula
tio
n '0
00
per
son
s
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Bridge. The HZMB is expected to reduce travel time and
distance between Hong Kong and Zhuhai by up to 60% to
80%. We expect this improvement in connectivity to drive
an increase in both passenger and freight traffic between
Hong Kong and cities in the Western Pearl River Delta.
Travelling distance/time between Hong Kong & Zhuhai
Source: DBS HK
According to a feasibility study conducted in 2008, traffic
flow for the HZMB is estimated at 9,200-14,000 vehicles per
day initially. The government has not provided any updates
to this projection.
For the long-term traffic flow forecast, the consultants
forecast that 29,100 vehicles and 42,000 vehicles will use
the HZMB per day by 2030 and 2037 respectively. This
translates into respective passenger flows of 126,000 and
175,000 per day.
After the opening of the HZMB, there will be a 24-hour bus
service covering the cross boundary facilities. It will be
served by 120 buses. Travelling time is about 40 minutes. It
is estimated that the maximum daily ridership could reach
96,000. In response to high demand, the Mainland and
Hong Kong authorities increased the quota for Mainland-
Hong Kong cross boundary private cars (dual license plates)
by 7,000 to 10,000 in Dec-17.
Currently, the high-speed ferry service is the most popular
transport mode for passengers commuting between Hong
Kong and Macau/Zhuhai. According to the Hong Kong
Marine Department, there were 36 catamarans and 11
jetfoil vessels operating between Hong Kong and Macau in
2017.
The main operators are TurboJET, owned by Shun Tak
(242.HK), and Cotai Water Jet, owned by Sands China
(1928.HK). There are two main high-speed ferry terminals in
Hong Kong - Shun Tak Centre in Sheung Wan and China
Hong Kong City in Tsim Sha Tsui. Smaller piers include
SkyPier, which is directly connected to the Hong Kong
International Airport, and Tuen Mun Ferry Terminal. In
2017, 12.5m passengers arrived in Hong Kong and 14.8m
passengers departed from Hong Kong via these ferry
terminals.:
Hong Kong-Zhuhai-Macau Bridge to be preferred transport
mode between New Territories and Macau/Zhuhai The ferry
ride usually takes around 60 to 75 minutes depending on
sea and weather conditions. The capacity of the ferries
range from 180 to >400 passengers, depending on the
vessel. The ferries to and from Shun Tak Centre and Macau
depart every 15 minutes from 7am to midnight with fewer
frequent sailings from midnight till 7am. Both Shun Tak and
Cotai Water Jet have additional sailings during peak hours.
Basic fares for each leg of the trip ranges from HK$160
(Macau to HK) to HK$170 (HK to Macau). Fares for shuttle
bus services between cross boundary facilities is HK$80. If
we take into account transportation costs needed to get to
cross boundary facilities, the overall cost should be similar
for taking ferry and bus rides
For Hong Kong Island residents, the ferry is still the most
convenient transportation option to Macau even with the
HZMB. For those residents in the New Territories, the HZMB
is expected to save up to 30 minutes of travelling time.
Assuming daily traffic flow of 8,400 vehicles in 2019, daily
ridership is estimated at 38,300. Assuming 51% of such
commuters are non-Hong Kong residents and an equal split
between inbound and outbound travellers with 30% of
inbound tourists being additional travellers carried by the
HZMB, our analysis suggests that the HZMB should bring in
additional inbound tourists of 1.07m in 2019, rising to
1.12m in 2020 and 1.22m in 2021. Overall, in comparison
to the XRL, we expect the HZMB to initially bring in fewer
tourists to Hong Kong.
Enormous long-term potential to be unlocked. However, the
long-term benefits of HZMB are expected to gradually flow
in when the TM-CLKL and SKYCITY come onstream starting
from 2021.
The Tuen Mun-Chek Lap Kok Link Road (TM-CLKL)
The Tuen Mun-Chek Lap Kok Link Road (TM-CLKL) is a 9km
highway which connects Tuen Mun and North Lantau
Island. The TM-CLKL has a 5km subsea tunnel northern
section and a 4km bridge/viaduct southern section. Using
existing roads, residents of Tuen Mun and western New
Territories have to travel >30km to the airport. The new TM-
CLKL will cut the distance by up to 22km.
Upon completion in 2020 at the earliest, the north-western
New Territories should benefit from increased tourist flow.
This augurs well for hotels such as Hong Kong Gold Coast
Hotel and shopping centres like V. City and Tuen Mun Town
Plaza in the area.
Moreover, feasibility studies for the 9km Tuen Mun Western
Bypass (TMWB) linking the Shenzhen Bay Bridge in the
north and the TM-CLKL in the south began in Oct 2017.
Current V ia HZMB Sav ings
Origin Dest inat ion Distance
(km)
T rav el
T ime
Distance
(km)
T rav el
T ime
Distance/T rav el
T ime
Kwai Chung
Container Port HK
Zhuhai > 200km 3.5hr 65km 75min >60%
HK International
Airport
Zhuhai > 200km 4hr 40km 45min >80%
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Tuen Mun-Chek Lap Kok Link Road (TM-CLKL)
Source: HK Highways Department
SKYCITY – a new destination for both locals and tourists.
Proposed by the Hong Kong Airport Authority, SKYCITY,
which was first announced in 2016, is Hong Kong’s major
integrated development with retail complexes, dining and
entertainment facilities, hotels and offices. This project will
be developed in phases. Sitting on approximately 25
hectares of land, SKYCITY is in close proximity with the
passenger terminals of the Hong Kong International Airport
on one hand and cross boundary facilities of the HZMB on
the other. Upon the commissioning of the HZMB and TM-
CLKL, the strategically located SKYCITY will see major
improvements in transportation connections. This new
destination should attract substantial interest from local
residents particularly those in the western New Territories,
as well as Mainland Chinese visitors, especially those from
the Greater Bay Area.
SKYCITY
Source: HK Airport Authority
The Airport Authority has gradually been awarding the
development rights of various land sites to private
developers in accordance with the development schedule of
the entire project.
In Feb 2017, Regal Hotels international was awarded the
development rights for a new hotel at SKYCITY by the
Airport Authority for a consideration payable in form of a
non-refundable rental payment of HK$2.189 bn. The
estimated total investment cost is close to HK$5bn. The
hotel project is the first phase of the SKYCITY integrated
development..
With a site area of 71,580 square feet, this hotel project has
permissible gross floor area of 362,750 square feet. Regal
Hotels plans to develop a 13-storey 1,203 room hotel with
extensive banquet, meeting and food and beverage
facilities. Branded as Regala Skycity Hotel held under a sub-
lease from the Airport Authority, it will operate as a full
service hotel targeting commercial, airline related, leisure
and meeting businesses. The foundation works has
commenced with project completion targeted for 2020.
In May 2018, New World Development was awarded the
rights to develop and manage the commercial development
at SKYCITY near the HKIA at Chek Lap Kok. This commercial
site is located at Site A2 and A3 of SKYCITY. Scheduled for
completion in phases from 2023-27, this development will
comprise retail, dining and entertainment facilities with a
maximum gross floor area of 3.77m square feet. The Airport
Authority will grant a lease to New World Development on
this commercial development for a term up to Sep 2066.
Pursuant to the agreement, New World Development will
pay the Airport Authority the higher of a guaranteed rent or
revenue rent that represents 20% of gross revenue derived
from the project (with subsequent adjustment to 30%)
throughout the lease term. The total investment cost is
estimated at c.HK$20bn.
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 10
Inbound tourism – from strength to strength
Inbound tourism recovery, starting from early 2017, has
continued to gather momentum in 2018. Total visitor
arrivals grew 9.6% to 25.9m in Jan-May 2018 (5M18), led
by Mainland Chinese tourists. The number of Mainland
tourists rose 12.7% to 20.1m, representing 78% of total
visitors. Overnight visitors and same day travelers from
Mainland China grew 8.9% and 15.2% respectively. The
short haul market registered a 1.7% fall in tourist arrivals,
dragged by Taiwan and Southeast Asia. Among short haul
markets, Japanese visitors showed 5.3% growth while those
from South Korea fell marginally
Visitors from long haul markets grew modestly by 3.2% in
5M18. In particular, tourists from the US/Canada grew
5.4%.
Visitor arrivals growth – overall
Source: HK Tourism Board, CEIC
Visitor arrivals growth – China
Source: HK Tourism Board, CEIC
For the full year of 2018, we project that the total number
of visitor arrivals will grow 7.6% to 62.9m, mainly driven by
Chinese tourists. Overnight visitors and day-trippers from
China are forecast to rise 7.4% and 11.8% respectively,
which takes into account the opening of XRL and HZMB.
The long haul market should remain broadly stable.
Due the full-year effect of XRL and HZMB, we estimate
11.5% growth in Mainland tourists in 2019. This should in
turn lead to another 9.1% rise in overall tourist arrivals.
Overall, we project total visitor arrivals to post 3-year CAGR
of 6.8% in 2017-20, with the corresponding growth of
8.4% and 4.9% for day-trippers and overnight visitors. The
increase would be primairly driven by Mainland Chinese
visitors. We forecast overnight visitors and day-trippers from
China to rise at a 3-year CAGR of 6.7% and 9.9%
respectively. The corresponding growth for day-trippers
should be higher due to the completion of HZMB which
would enhance the connectivity between Hong Kong and
Great Bay Area.
Total visitor arrivals
Source: DBS HK
(30)
(20)
(10)
0
10
20
30
40
50
Jan/0
8
Jul/08
Jan/0
9
Jul/09
Jan/1
0
Jul/10
Jan/1
1
Jul/11
Jan/1
2
Jul/12
Jan/1
3
Jul/13
Jan/1
4
Jul/14
Jan/1
5
Jul/15
Jan/1
6
Jul/16
Jan/1
7
Jul/17
Jan/1
8
Yoy, %May-18: 8% y-o-y
9.6% y-o-y5M18:
(40)
(30)
(20)
(10)
0
10
20
30
40
50
60
Jan/0
8Ju
l/08
Jan/0
9Ju
l/09
Jan/1
0Ju
l/10
Jan/1
1Ju
l/11
Jan/1
2Ju
l/12
Jan/1
3Ju
l/13
Jan/1
4Ju
l/14
Jan/1
5Ju
l/15
Jan/1
6Ju
l/16
Jan/1
7Ju
l/17
Jan/1
8
Yoy, %May-18: 10.6% y-o-y
12.7% y-o-y5M18:
0
10
20
30
40
50
60
70
80
2014 2015 2016 2017 2018F 2019F 2020F 2021F
(m p
erso
ns)
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 11
Retail market recovery gaining momentum
HK retail sales continued to log sequential improvements
and achieved a strong growth of 13.7% year-on-year (y-o-y)
during Jan-May 2018. Specifically, categories well-liked by
Mainland tourists scored the best performance, including
jewellery & watches (+22.8%), and cosmetics & medicines
(+17.4%). Such robust growth was predominantly driven by
increasing sales volume, as Mainland tourist arrival numbers
also grew strongly by 12.9% to 20m visitors during the
period, versus a mere 3.9% growth in 2017.
HK total retail sales by value & volume (% change y-o-y)
*Jan-Feb data were combined to avoid seasonality impacts from the Chinese New Year.
Source: Census & Statistics Dept.
HK retail sales by category, Jan-May 18 (% change y-o-y)
Source: Census & Statistics Dept
Our channel checks also pointed to strong same-store sales
growth (SSSG) in the first half of 2018 across key retailers in
HK. Luxury watch retailers including Emperor Watch and
Oriental Watch achieved >30% SSSG. Major department
store operator, Lifestyle, also achieved double-digit SSSG for
its flagship SOGO Store in Causeway Bay given strong
efforts in product-mix refinement (2017 SSSG: +4.3%). In
addition, Sa Sa scored c.20% SSSG, inclusive of a robust
25.3% SSSG in the second quarter. Leading jewellery
retailers like Chow Tai Fook, Luk Fook and Chow Sang Sang
all posted SSSG in the teens during the first half of 2018.
Moreover, key global luxury brands like Prada were
estimated to have recorded >10% SSSG during the period.
Estimated SSSG in HK/Macau in first six months 2018 (% change y-o-y)
Note: all data are from channel checks and estimates, and had been adjusted to calendar-year basis
Source: DBS HK
Mainland tourists are crucial
Local demand YTD remains supportive, on the back of a
stable economy and the increase in purchasing power of the
middle class after salary tax cuts in the 2017/18 tax year.
More importantly, continuous improvement in tourist arrival
numbers has helped to boost retail sales growth in HK. As
HK/Macau are tax-free shopping paradises with close
proximity to China, Mainland visitors consistently contribute
to a significant portion of retail revenue in both cities. Some
examples to highlight include Prada which is estimated to
capture c.70% of its HK/Macau sales from Chinese tourists.
Sa Sa, Lifestyle’s SOGO Store (Tsim Sha Tsui), as well as Luk
Fook also captured 69%, c.60% and 58% of their
respective HK/Macau sales from Mainland visitors.
-4%
0%
4%
8%
12%
16%
20%
May-
17
Jun-1
7
Jul-17
Aug-1
7
Sep-1
7
Oct
-17
Nov-
17
Dec
-17
Jan-F
eb 2
018*
Mar-
18
Apr-
18
May-
18
Total Retail sales (value) Total Retail sales (volume)
22.8
%
17.4
%
13.9
%
13.0
%
7.2
%
1.5
%
13.7
%18.8
%
17.7
%
11.8
%
10.1
%
4.0
%
-1.4
%
12.2
%
-3%
2%
7%
12%
17%
22%
Jew
elle
ry, w
atch
es, cl
ock
s &
valu
able
gifts
Medic
ines
& c
osm
etics
Dep
art
men
t st
ore
s
Clo
thin
g, fo
otw
ear
& a
llied
pro
duct
s
Food, a
lcoholic
drinks
&to
bacc
o
Superm
arke
ts
Tota
l
Sales value Sales volume
-5%
5%
15%
25%
35%
45%
55%
Orien
tal W
atc
h
Emper
or W
atch
Life
styl
e (S
OG
O,
CW
B) Sa
Sa
Luk
Fook
Chow
Tai
Fook
Chow
San
g S
ang
Prad
a
2017 1H18E
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 12
Sales contribution from Mainland tourists in HK/Macau (FY17)
# FY17 = 12 months ended Mar 2018
Note: Mainly based on sales transactions settled by China UnionPay, Alipay, WeChat Pay or RMB
Source: DBS HK
A good correlation between sales of discretionary products
and Mainland visitor numbers also reinstates the importance
of tourist consumption in HK. Taking Sa Sa as an example
(demonstrated in the chart below), the close relationship is
especially seen when we trace performance trends between
changes in tourist numbers in HK and Sa Sa’s sales
transactions over the years. A much higher average ticket /
basket size from Mainland tourists (>HK$600) versus Sa Sa’s
local consumers (>HK$200) further highlights the
significance of Chinese tourists in driving sales momentum
of HK/Macau retailers.
Sa Sa: sales volume vs. Mainland tourists to HK/Macau
Source: HK Tourism Board, Company, DBS HK
Last year, Mainland tourist spending in HK reached
HK$189bn in total, out of which HK$131bn (69%) was
spent on shopping, HK$21bn (10.9%) on hotel bills,
HK$20bn (10.8%) on restaurants, and the remainder on
miscellaneous items. Specifically, as much as 88% of
spending by day visitors was for the purchase of
merchandise compared to 60% for overnight visitors. Given
that the proportion of same-day visitors is on an upward
trend, hitting 61.3% of total Chinese tourists in Jan-May
2018 (2017: 58.3% of total), coupled with expectations of a
faster increase in same-day Chinese travellers visiting HK as
transport links with China improves (e.g. high-speed rail,
HK-Zhuhai-Macau Bridge, etc.), we see very good prospects
in the outlook of some leading retailers in HK/Macau. This is
particularly the case for those offering popular product
categories amongst Chinese tourists, such as cosmetics,
jewelleries, high-end watches, and major global brands.
Chinese visitor spending in HK (2017)
Source: CEIC
Chinese tourists to HK (% of overnight visitors vs. same-day)
Source: CEIC
c.70%
69%
c.60%
58%
45%
44%
c.40%
0% 20% 40% 60% 80%
Prada
Sa Sa #
Lifestyle (SOGO, TST)
Luk Fook #
Chow Tai Fook #
Chow Sang Sang
Lifestyle (SOGO, CWB)
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
PRC tourist arrivals in HK (%y-o-y)
Sa Sa: No. of transactions (%y-o-y)
Sa Sa: Average basket size (%y-o-y)
88.14%
60.22%68.99%
11.86%
39.78%31.01%
Same-day Overnight All
Shopping Non-shopping
0%
10%
20%
30%
40%
50%
60%
70%
Jan-1
7
Mar-
17
May-
17
Jul-17
Sep-1
7
Nov-
17
Jan-1
8
Mar-
18
May-
18
% Overnight % Same-day
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 13
HK: the biggest beneficiary
Among the major preferred destinations of Mainland
travellers, including domestic tourism within China as well
as outbound travelling to popular tourist destinations like
Japan, South Korea and Singapore, HK pulls in the highest
value of Mainland tourist shopping receipts as a proportion
of total retail sales. This ratio reached 29.3% last year,
which was way above that from other regions and should
expand further.
2017 Mainland tourists’ shopping receipts (as % of retail sales)
Source: CEIC
Diverting inbound Mainland tourists to HK/Macau
So far, a majority of Mainland tourists arrive in HK via trains,
buses, charter shuttles or private cars. In 2017, 84% of all
Chinese visitors come to HK by land, 12% by air, and 4% by
sea. As travelling by land is relatively more affordable,
especially for those based in Southern China, improving
infrastructure including HZMB and XRL should offer more
options for Mainland visitors to come to HK and Macau.
Chinese Visitor Breakdown by Transportation in 2017
Source: CEIC
Last year, as many as 5bn domestic tourists travelled within China, versus merely 131m Chinese tourists that travelled out of the country. As such, improving transport connections between HK/Macau and China could potentially redirect some of the domestic travellers into these two cities, especially HK that is the preferred spot among the top outbound destinations of Mainland Chinese.
Taking the new High-Speed Rail as an example, passengers
could shorten their travel time from various PRC cities upon
its inauguration, especially across the Southern China
Province. This should then create better opportunities to
unlock and channel some of the Chinese inbound tourist
receipts, which amounted to over US$700bn in 2017, into
HK/Macau.
Total spending by Chinese domestic tourists (US$bn)
Source: CEIC
29.3%
2.8%1.6% 1.5% 0.6%
0%
5%
10%
15%
20%
25%
30%
35%
HongKong
Singapore SouthKorea
China Japan
By Land84%
By Air12%
By Sea 4%
473.5
534.0
615.1
713.0
0
100
200
300
400
500
600
700
800
2014 2015 2016 2017
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 14
China's total number of outbound tourists (m)
Source: CEIC, Chinese Outbound Tourism Research Institute
Top destinations of China’s inbound / outbound tourists
Source: Global Independent Travel Report 2017
Currency fluctuation could potentially be a swing factor on
the retail market growth and is among the key things to
watch for. Recently, the Rmb resumed its depreciation trend
against the HK dollar, and this may weigh on the cross
border spending by Mainland tourists.
All considered, we forecast total retail sales values to rise
c.10% in 2018, after allowing for the slightly higher
comparison base starting from second half 2017, followed
by c.8% in 2019. The growth should be mainly supported
by improving tourist spending and local consumption on
discretionary items.
Despite a swift recovery in the retail market, high-street
shops generally recorded much lower rents upon lease
renewals or re-lettings, as the rentals are substantially lower
now than a few years ago.
High street shop rental growth (core areas, accumulative)
Source: CBRE Research, 4Q17
While rentals across street-level stores in the major shopping
districts of HK had corrected for three consecutive years, we
still expect some rent cuts to take place on lease renewals in
2018. Based on a normal 3-year term, this year, retailers are
seeking to re-negotiate for shop rentals that were anchored
since 2015, which are still generally much higher than the
current market level. Besides, among key retail chains that
we have talked to, most of them are looking for at least a
single-digit to 10%+ rental cut upon lease renewals for
street-level stores this year, and are well-prepared to
relocate if landlords refuse to reduce their rentals.
Against this backdrop, we should be able to see retailers’
posting lower rental expenses for 2018 despite some recent
signs of higher asking rents. In the next 2-3 years, even if
the HK retail market rebounds further from rising Mainland
tourist consumption, we expect rental hikes to merely have
a small impact on operating costs. Better sales momentum
along with rising shoppers’ traffic should also enhance
operating leverage and safeguard profitability of key
retailers.
10.3
130.5
400.0
0
50
100
150
200
250
300
350
400
450
2000 2017 2030F
9% CAGR (2017-30F)
16% CAGR (2000-17)
1 Beijing 1 Hong Kong
2 Shanghai 2 Bangkok
3 Chengdu 3 Phuket
4 Chongqing 4 Tokyo
5 Xiamen 5 Bali
6 Hangzhou 6 Singapore
7 Guangzhou 7 Macau
8 Xian 8 Chiang Mai
9 Sanya 9 Seoul
10 Qingdao 10 Osaka
11 Nanjing 11 Taipei
12 Dali 12 Nha Trang
13 Lijiang 13 Kyoto
14 Suzhou 14 Sabah
15 Tianjin 15 Kuala Lumpur
Inbound tourist s Outbound tourist s
Asian Insights SparX Hong Kong Property & Retail Sector
ASIAN INSIGHTS
Page 15
Prime shopping malls are faring much better than high
street shops. Landmark malls such as Harbour City and
Times Square recorded single-digit rental reversions.
Potential Catalyst: Improving hotel market and successful project sales Where we differ: Market.has higher earnings estimate for FY19-20 Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Ian CHUI +852 2971 1915 [email protected] Jason LAM +852 29711773 [email protected]
Price Relative
Forecasts and Valuation FY Mar (HK$ m) 2017A 2018A 2019F 2020F Turnover 5,005 5,831 6,117 6,622 EBITDA 1,694 2,220 2,203 2,157 Pre-tax Profit 1,567 2,156 1,604 1,533 Net Profit 1,118 1,567 1,142 1,144 EPS (HK$) 0.51 0.69 0.50 0.50 EPS Gth (%) 40.7 34.4 (28.0) 0.1 PE (X) 8.8 6.5 9.1 9.1 P/Cash Flow (X) 8.4 82.6 (5.2) 2.2 EV/EBITDA (X) 9.5 7.2 7.3 7.4 DPS (HK$) 0.19 0.22 0.22 0.22 Div Yield (%) 4.1 4.9 4.9 4.9 Net Gearing (%) 31 29 37 27 ROE (%) 10.7 13.2 8.6 8.2 Est. NAV (HK$) 12.7 13.8 Disc. to NAV (%) (64) (67) Earnings Rev (%): Nil NIl Consensus EPS (HK$): 0.67 0.74 Other Broker Recs: B:3 S:0 H:0
ICB Industry: Financials ICB Sector: Real Estate Holding & Development Principal Business: Engages in property development & investment, hotel investment & operations, and car park and facility mangement operations across different cities Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”) Thomson Reuters, HKEX
Hotels are a bright spot
• Local hotels going from strength to strength
• Overseas investments to drive long-term growth
• BUY with HK$5.53 TP
Local hotels going from strength to strength. Supported by the
return of overnight visitors, Far East Consortium’s (FEC) hotels in
Hong Kong have recorded sequential operational improvements.
RevPAR growth in 2HFY18 (Oct-17 to Mar-18) improved by 13.5%
from 1HFY18’s 8.3% as room rate growth accelerated. In addition
to the revival of overnight visitor arrivals from China, FEC has
attracted a diversified base of international travelers, particularly
from South Korea and South East Asia. Opened for business in Jan-
17, Silka Tsuen Wan has rapidly ramped up its operations. With a
portfolio of nine three-to-four star hotels (2868 rooms) spread
across Hong Kong, FEC should continue to benefit from the hotel
market upturn. Given improving hotel asset valuations, we do not
rule out the possibility of the company crystallising the hidden value
of its hotels via disposal if opportunity knocks.
Overseas investments to drive long-term growth. In recent
months, FEC turned positive on the prospects of Singapore’s high-
end residential market. Since Mar-18, the company has acquired
four residential lots/properties in Singapore through different
channels. They will altogether provide attributable saleable area of
0.3m sf. Total attributable land cost was S$562m. FEC has also
expanded its footprint into the gaming sector with the acquisition
of Trans World Corporation and 4.99% stake in The Star
Entertainment to complement its “Asian Wallet“ strategy. Even
allowing for these recent overseas investments, its financial risk
should remain manageable.
BUY with HK$5.53 TP. The stock is trading at 64% discount to
our assessed current NAV with dividend yield of 4.9% for FY19.
Valuation is by no means expensive. The company is currently riding
on the prevailing hotel market upcycle in Hong Kong. Moreover, it
is proactively pursuing overseas investments, which could serve as
share price catalyst if they bear fruit. BUY with HK$5.53 TP,
premised on 60% discount to our Jun-19 NAV estimate.
At A Glance
Issued Capital (m shrs) 2,297
Mkt Cap (HK$m/US$m) 10,381 / 1,323
Major Shareholders (%)
Chiu (Tat Cheong David) 46.8
Chiu (Te Ken Deacon) 6.8
Value Partners Ltd. 6.0
Free Float (%) 40.4
3m Avg. Daily Val. (US$m) 0.4
Asian Insights SparX
Far East Consortium
Bloomberg: 35 HK | Reuters: 0035.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Far East Consortium
Page 35
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F
Potential Catalyst: Stronger retail market Where we differ: Market has similar earnings estimate for FY19 Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Ian CHUI +852 2971 1915 [email protected] Jason LAM +852 29711773 [email protected]
ICB Industry: Financials ICB Sector: Real Estate Holding & Development Principal Business: Property leasing with core focus in Causeway Bay
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”) Thomson Reuters, HKEX
Creating a better shopping experience
• Riding on retail market upturn
• Offices at Lee Garden Three largely committed
• BUY with HK$51.15 TP
Riding on the retail market upturn. In 5M18, the overall tenants’ sales (excluding Apple) grew strongly by c.30% led by Lee Gardens hub and Hysan Place, both of which showed remarkable retail sales growth of > 30%. Lee Theatre hub, however, posted growth of just 7-8%, below the market average, dragged by certain tenants. Turnover rents should receive a boost from sharply improved tenants’ sales. This should help offset the income shortfall led by the departure of high paying Ralph Lauren. The majority of space surrendered by Ralph Lauren has been re-let. In 2018, about 35% of lease is scheduled for expiry in terms of floor area. Of this, 80% has been or will be renewed at slightly higher rents. The remaining premises will be re-let. Despite potentially negative rental reversion, the trade mix refinement should enhance customers shopping experience. Lee Garden Three retail arcade had a soft opening in late May with commitment rate of c.90%. It hosts mainly lifestyle and F&B tenants. Offices at Lee Garden Three largely committed. Office occupancy remains firm at 97%. About 24% of office floor area is scheduled for roll over in 2018. Reversionary growth is expected to moderate to 5-6% on higher expiring rents. With Goldman Sachs taking up five floors for its back office operations, the office portion of the newly built Lee Garden Three is 95% committed with a significant portion of tenants relocating from Central/Admiralty. Residential portfolio, mainly Bamboo Grove, should see positive reversionary growth but occupancy has yet to recover partly due to renovation works. BUY with HK$51.15 TP. The stock is trading at 44% discount to our assessed current NAV. From an historical viewpoint, valuation is inexpensive. The company is benefitting from the prevailing retail market upturn. Continued trade/tenant mix optimisation could enhance the shopping experience. Despite short-term earnings drag, this should boost the portfolio’s long-term competitiveness. BUY with HK$51.15 TP. This is premised in 35% discount to our Jun-19 NAV estimate.
At A Glance
Issued Capital (m shrs) 1,046
Mkt Cap (HK$m/US$m) 44,359 / 5,652
Major Shareholders (%)
Lee Hysan Company Ltd 41.4
Silchester International Investors, L.L.P. 8.0
First Eagle Investment Management, L.L.C. 5.0
Free Float (%) 45.6
3m Avg. Daily Val. (US$m) 5.1
Asian Insights SparX
Hysan Development
Bloomberg: 14 HK | Reuters: 0014.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Hysan Development
Page 37
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Potential Catalyst: Improving hotel market Where we differ: Market has similar DPU estimate for FY18. Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Ian CHUI +852 2971 1915 [email protected] Jason LAM +852 29711773 [email protected]
Price Relative
Forecasts and Valuation FY Dec (HK$ m) 2016A 2017A 2018F 2019F Gross Revenue 706 694 708 762 Net Property Inc 594 581 592 638 Net Profit 410 1,146 356 378 Distribution Inc 501 437 420 447 DPU (HK$) 0.26 0.22 0.20 0.21 DPU Gth (%) 4 (15) (7) 5 Div Yield (%) 8.0 6.8 6.3 6.6 Gross Gearing (%) 36 35 33 32 Book Value (HK$) 5.65 5.93 6.32 6.54 P/Book Value (x) 0.6 0.5 0.5 0.5 Earnings Rev (%): (6) (3) Consensus DPU (HK$): 0.15 0.17 Other Broker Recs: B:1 S:1 H:1
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”) Thomson Reuters, HKEX
Facelift at Eaton to boost competitiveness
• Renovation allows Eaton to better cater to targeted travelers
• Higher RevPAR at The Langham and Cordis
• BUY with HK$3.68 TP
Renovation to allow Eaton better capture targeted
travelers. The renovation at Eaton’s hotel entrance has been
completed and the food hall at the basement is already operating.
The co-working space is targeted to be completed in Aug-18 . The
retail shops would be leased to F&B tenants. Hence, F&B and retail
income from Eaton is expected to recover gradually from 2Q18
onwards. In Mar-18, Langham Hospitality Investments
commenced its room renovation programme at Eaton, to be
carried out in four phases. This would reduce the number of
rooms available in the meantime, thus diluting room revenue.
Despite the short term income shortfall, this initiative should
enable the hotelier to better tap the demand from millennial
travelers and enhance the long-term competitiveness of Eaton.
Higher RevPAR at The Langham and Cordis. Aided by the
revival of overnight visitor arrivals, The Langham in Tsim Sha Tsui
and Cordis in Mongkok registered RevPAR growth of c.9% in
4M18, primarily led by better room rates. F&B revenue grew in the
mid-single digits. This should lead to higher gross operating
profits. On the other hand, despite higher room rates, RevPAR of
Eaton in Yau Ma Tei was marginally lower, dragged by reduced
occupancy as a result of ongoing renovation works.
BUY with HK$3.68 TP Langham Hospitality Investments offers distribution yields of 6.3-6.6% for FY18-19. With a portfolio of three strategically located hotels in Kowloon, Langham Hospitality Investments should be well placed to riding on the hotel sector upturn led by improving inbound tourism. Despite the short term business disruption, the renovation should allow Eaton to boost its long-term competitiveness. BUY with DDM-based TP of HK$3.68
At A Glance
Issued Capital (m shrs) 2,099
Mkt Cap (HK$m/US$m) 6,654 / 848
Major Shareholders (%)
Great Eagle Holdings Ltd 62.5
Free Float (%) 37.5
3m Avg. Daily Val. (US$m) 0.3
Asian Insights SparX
Langham Hospitality Investments
Bloomberg: 1270 HK | Reuters: 1270.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Langham Hospitality Investments
Page 39
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Potential Catalyst: Improving hotel makret Where we differ: n.a. Analyst Jeff YAU CFA, +852 2820 4912, [email protected] Ian CHUI+852 2971 1915, [email protected] Jason LAM +852 29711773, [email protected]
Price Relative
Forecasts and Valuation FY Dec (HK$ m) 2016A 2017A 2018F 2019F Gross Revenue 973 958 1,020 1,094 Net Property Inc 944 927 988 1,062 Net Profit 564 2,488 493 514 Distribution Inc 502 472 486 510 DPU (HK$) 0.15 0.15 0.15 0.16 DPU Gth (%) 0 (6) 3 5 Div Yield (%) 6.7 6.3 6.5 6.8 Gross Gearing (%) 37 38 36 34 Book Value (HK$) 4.13 4.75 5.19 5.52 P/Book Value (x) 0.6 0.5 0.4 0.4 Earnings Rev (%): 0 0 Consensus DPU (HK$): 0.15 0.16 Other Broker Recs: B:2 S:0 H:0
ICB Industry: Financials ICB Sector: REITs (HK) Principal Business: Owns and operates hotels in HK
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”) Thomson Reuters, HKEX
Room to grow
• Hotel RevPAR headed higher
• Potential acquisitions to spice up distributions
• BUY with HK$2.61 TP
Hotel RevPAR headed higher. Aided by the revival of overnight
visitor arrivals from Mainland China, Regal REIT’s hotels witnessed
solid RevPAR growth of >10% in 4M18, mainly led by higher
room rates. The “Regal” branded hotels performed better than
“iclub” branded hotels. Given positive operating leverage, we
forecast gross operating profit from initial hotel portfolio to be
c.9% higher in FY18. As a result, initial hotel portfolio should see
remarkable growth in variable rents in addition to 2.5% increase
in base rents. This, coupled with the full-year rental contributions
from newly acquired iclub Ma Tau Wai Hotel, should more than
offset the income shortfall from iclub Sheung Wan Hotel and iclub
Fortress Hill Hotel, and increased cash finance costs.
Potential acquisitions to spice up distributions. Its parent Regal
Hotels International, through P&R Holdings, is developing iclub
Mongkok Hotel and iclub SoHo Hotel which are anticipated to
open for business in 2019. They are located near Mongkok and
Sheung Wan MTR stations, pointing to convenient transportation
accessibility. Potential acquisitions of these two limited service
hotels could add spice to Regal REIT’s future distribution income.
BUY with HK$2.61 TP. Regal REIT is trading at distribution yields
of 6.5-6.8% for FY18-19. The new mega infrastructure projects
including the Express Rail Link and Hong Kong-Zhuhai-Macau
should improve the connectivity between Hong Kong and
Mainland China, and should stimulate the growth of inbound
tourism. This augurs well for Regal REIT’s growth prospects.
Potential yield-accretive acquisitions could add to its investment
appeal. BUY with HK$2.61 TP. With all debts on floating rate
basis, interest rate hike remains the major investment risk.
At A Glance
Issued Capital (m shrs) 3,257
Mkt Cap (HK$m/US$m) 7,492 / 955
Major Shareholders (%)
Regal Hotels International Holdings Ltd 74.6
Nuveen LLC 10.5
Free Float (%) 14.9
3m Avg. Daily Val. (US$m) 0.2
Asian Insights SparX
Regal REIT
Bloomberg: 1881 HK | Reuters: 1881.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Regal REIT
Page 41
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Potential Catalyst: stronger retail market Where we differ: Market has slightly lower earnings estimate for FY18-19 Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Ian CHUI +852 2971 1915 [email protected] Jason LAM +852 29711773 [email protected]
Price Relative
Forecasts and Valuation FY Dec (HK$ m) 2017A 2018F 2019F Turnover 20,904 15,992 16,641 EBITDA 15,495 12,448 13,007 Pre-tax Profit 14,433 11,254 11,651 Underlying Profit 9,500 9,330 9,638 EPS (HK$) 3.13 3.07 3.17 EPS Gth (%) 11.4 (1.8) 3.3 PE (X) 18.0 18.4 17.8 DPS (HK$) 0.95 1.96 2.00 Div Yield (%) 1.7 3.5 3.5 Net Gearing (%) 20 19 18 ROE (%) 4.7 4.4 4.3 Est. NAV (HK$) 76.6 81.6 Disc. to NAV (%) (26) (31) Earnings Rev (%): Nil Nil Consensus EPS (HK$): 3.05 3.25 Other Broker Recs: B:9 S:0 H:6
ICB Industry: Financials ICB Sector: Real Estate Holding & Development Principal Business: Engaged mainly in property investments and hotel operations in Hong Kong. Owns a 72% stake in Harbour Centre Development (51.HK). Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”) Thomson Reuters, HKEX
Riding on rising retail consumption
• Robust retail sales growth to boost turnover rents
• Usage conversion to exploit earnings potential of Harbour City
• BUY with HK$65.40 TP Robust retail sales growth to boost turnover rents. Benefitting from improved tourist spending and increased local consumption, Wharf REIC’s two landmark shopping malls recorded notable increases in tenants’ sales. Retail tenants’ sales growth at Harbour City in Tsim Sha Tsui accelerated to 37% in 1Q18, from 2017’s 9.1%. Times Square showed encouraging retail sales growth of 23% in the same period, and this compares favourably with 1.1% in 2017. Both malls outperformed the overall Hong Kong retail sector. Key contributor to robust tenants’ sales was luxury product sector thanks to an upswing in inbound tourism. Electronics/audio visual sector also posted a solid performance, reversing the previous downtrend. Spectacular retail sales improvement should boost the turnover rents which stood at HK$738m or 8% of the company’s retail revenue in FY17. Moreover, this also underpins stronger reversionary growth in the years ahead. Overall, we forecast Harbour City and Times Square to show 5-6% growth in retail income in FY18 led by notably higher turnover rents and favourable rental reversion. Usage conversion to exploit the earnings potential of Harbour City. Wharf REIC is converting the serviced apartments at Hampton Court into office premises. Conversion works are expected to be completed in 3Q19. In view of higher rental yields for office, this initiative should be value accretive despite the minor income shortfall during the period of usage conversion. The Murray, a Niccolo hotel converted from an ex-government building, opened for business early this year. Although the inbound tourism recovery has been gathering momentum, this luxury hotel is not expected to make any meaningful contributions initially due to depreciation and amortisation expenses (c.HK$140m p.a.)
BUY with HK$65.40 TP. The stock is trading at 26% discount to our
appraised current NAV. With strong foothold in the retail property
market, Wharf REIC should stand to benefit the most from the retail
market upturn. From this perspective, we see further upside potential for
its share price. BUY with HK$65.40TP, based on 20% discount to our
Jun-19 NAV estimate.
At A Glance
Issued Capital (m shrs) 3,036
Mkt Cap (HK$m/US$m) 171,395 / 21,838
Major Shareholders (%)
Wheelock and Co Ltd 61.6
Free Float (%) 38.4
3m Avg. Daily Val. (US$m) 21.0
Asian Insights SparX
Wharf REIC
Bloomberg: 1997 HK | Reuters: 1997.HK Refer to important disclosures at the end of this report
DBS HK's discussion of the issuer (Chow Tai Fook (1929 HK)) in this report will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBS HK.
sa- CS / CW
NOT RATED
Last Traded Price (6 Jul 2018):HK$8.34 (HSI : 28,316)
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters, HKEX
More strategic moves to drive growth • The leading regional jewellery play that will benefit from rising
spending power & mobility of Mainland Chinese consumers
• Additional product, brand & store varieties should all help
beefing up market share further
• Aside from infrastructural improvements in HK/Macau, medium-
term potentials include Greater Bay Area development, S. China.
Size matters. As the leading jewellery retailer in Greater China with strong heritage of nearly 90 years, Chow Tai Fook (“CTF”) possesses one of the best position to sustain growth. In recent years, its efforts to explore into new brands & products, roll-out of new store labels, tapping into new markets (e.g. Japan), and enhancement of its IT & systems for better big data analyses could all provide more potential growth drivers in medium run. Coupled with sound YTD sales momentum in its core HK/Macau markets, robust online performance in China, and the impending opportunities from infrastructural & economic enhancement in the Greater Bay Area, CTF is well-poised to better ride on an improving business outlook. Sound YTD performance. CTF scored 17% SSSG in HK/Macau, as well as 7% SSSG in China during Jan-Mar 2018. Recent sales momentum for Apr-Jun 2018 should sustain a similar growth level. While the company is guiding mid single-digit SSSG for HK/Macau and low single-digit SSSG for China in FY19, we believe they are prudent guidance, especially with HK/China already scoring double-digit SSSG in 1Q FY19, the low base for 3Q FY19 (3Q FY18: 5% SSSG), and impending inauguration of the HK High-Speed Rail (Sep 2018) to potentially bring more Mainland tourists into HK/Macau. Chinese visitor consumption contributed 45% of CTF’s HK/Macau revenue in FY18 (FY17: 44%) and sees ample room to expand ahead. Good efforts on newer strategies. In recent years, CTF has rolled out new products and store labels to extend its reach to different customers. Aside from its earlier acquisition of the US label “House Of Fire” (US$150m), the company also launches its own brand “T Mark” that offers traceable diamonds, as well as SOINLOVE and MONOLOGUE stores that mainly serve the niche wedding market and young consumers, respectively. All such moves should enhance its ability to further expand its leading market share in the region.
At A Glance
Issued Capital (m shrs) 10,000
Mkt Cap (HK$m/US$m) 85,600 / 10,906
Major Shareholders (%)
Chow Tai Fook (Holding) Ltd. 89.3
Free Float (%) 10.7
3m Avg. Daily Val. (US$m) 6.3
ICB Industry: Consumer Services / General Retailers
41
61
81
101
121
141
161
181
201
221
3.8
4.8
5.8
6.8
7.8
8.8
9.8
10.8
11.8
12.8
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Relative IndexHK$
Chow Tai Fook (LHS) Relative HSI (RHS)
Asian Insights SparX
Chow Tai Fook
Bloomberg: 1929 HK EQUITY | Reuters: 1929.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Chow Tai Fook
Page 47
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F
Turnover 51,246 59,156 65,109 69,970 Net Fixed Assets 5,633 6,861 7,419 7,880 Cost of Goods Sold (36,283) (42,943) (47,264) (50,792) Invts in Assocs & JVs 20 62 0 0
Gross Profit 14,963 16,213 17,845 19,177 Other LT Assets 1,480 1,335 1,317 1,280 Other Opng (Exp)/Inc (10,584) (10,382) (11,320) (11,882) Cash & ST Invts 7,943 7,944 8,702 8,326
Operating Profit 4,378 5,832 6,525 7,295 Inventory 29,259 34,929 33,020 36,181 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 0 0 0 0 Associates & JV Inc 0 0 0 0 Other Current Assets 5,066 6,438 5,572 5,614
Net Interest (Exp)/Inc 0 0 0 0 Total Assets 49,402 57,570 56,030 59,281 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 5,693 8,359 6,475 6,958
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters, HKEX
Accelerated SSSG • Latest SSSG in core HK/Macau markets ascended further to over
20% in 1Q FY19, vs. 18% in 4Q FY18 and 9% in FY18
• Good business outlook and better operating leverage also
reinforce promising prospects
• Trading at an undemanding c.11x 12-mth rolling PE, at >4% yield,
BUY
Strengthening performance. Luk Fook has recently reported a 13.8% y-o-y increase in revenue for FY18. Better operating leverage in HK/Macau & Overseas, especially into 2H FY18 had lifted segmental margins and helped boosting overall earnings growth by 44%. With a strengthening sales trend for FY19, especially given impending infrastructural improvements (e.g. HK High-speed Rail) and vibrant development of the Greater Bay Area of China, travelers’ mobility should improve, hence creating better prospects for tourist consumption in HK/Macau.
Sustainable sales momentum. In 1Q FY19, Luk Fook’s same-store sales growth (SSSG) strengthened further to over 20% in HK/Macau, thanks to stronger contribution from Mainland visitors (FY18: 58% of HK/Macau sales) and supportive local demand. China is seeing a mixed trend, with gem-set sales resuming growth while gold product sales remain quite soft; e-commerce performance stays robust though and should grow by at least 30% even on a higher base (FY18: up 88.7% to reach 15.5% of China retail revenue). Overall, Luk Fook targets at double-digit SSSG for HK/Macau and a single-digit SSSG for China in FY19. No less than 120 stores will also be added in China during FY19, predominantly licensed stores. Another 5 stores could be added in HK/Macau, plus 3-5 new openings in overseas markets (e.g. Malaysia, Philippines).
Better profitability. Riding on robust SSSG to better dilute the overheads, key cost items had seen decent improvement. For instance, we saw a 0.5ppt decline in rental cost ratio to 5.7% of sales, and 0.2ppt reduction in advertising & promotional expense ratio to 0.6% of sales during FY18. Looking ahead, better operating leverage given a strengthening SSSG, and normalizing wholesale gross margin that was affected in FY18, by some one-off price adjustments and an exceptionally high-base, should benefit profitability and support earnings growth for FY19-20. At A Glance
Issued Capital (m shrs) 587
Mkt Cap (HK$m/US$m) 18,993 / 2,420
Major Shareholders (%)
Luk Fook (Control) Ltd. 39.9
Silchester International Investors, L.L.P. 11.1
Free Float (%) 49.1
3m Avg. Daily Val. (US$m) 4.6
ICB Industry: Consumer Services / General Retailers
60
80
100
120
140
160
180
200
220
11.5
16.5
21.5
26.5
31.5
36.5
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Relative IndexHK$
Luk Fook Holdings (LHS) Relative HSI (RHS)
Asian Insights SparX
Luk Fook Holdings
Bloomberg: 590 HK EQUITY | Reuters: 0590.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Luk Fook Holdings
Page 51
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Mar 2017A 2018F 2019F 2020F FY Mar 2017A 2018A 2019F 2020F
Turnover 12,807 14,578 16,751 18,822 Net Fixed Assets 812 821 848 877 Cost of Goods Sold (9,530) (10,837) (12,452) (13,987) Invts in Assocs & JVs 176 163 163 163
Gross Profit 3,277 3,741 4,299 4,835 Other LT Assets 260 353 353 353 Other Opng (Exp)/Inc (1,988) (2,069) (2,350) (2,633) Cash & ST Invts 1,862 2,098 1,644 1,797
Operating Profit 1,289 1,673 1,949 2,202 Inventory 6,973 7,992 9,012 9,931 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 541 725 833 935 Associates & JV Inc (54) (30) (24) (19) Other Current Assets 56 64 64 64
Net Interest (Exp)/Inc 15 23 22 24 Total Assets 10,679 12,215 12,917 14,121 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 (52) 0 0 ST Debt 437 726 816 921
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DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 17 Jul 2018 09:29:38 (HKT) Dissemination Date: 17 Jul 2018 19:24:09 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
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ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate
1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests
2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Langham Hospitality Investment Limited (1270 HK), Fortune Real Estate Investment Trust (778 HK), Sands China Limited (1928 HK) and New World Development Company Limited (17 HK) recommended in this report as of 13 Jul 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Langham Hospitality Investment Limited (1270 HK) and Fortune Real Estate Investment Trust (778 HK) recommended in this report as of 13 Jul 2018.
4. DBS Bank Ltd, DBS HK, DBSVS, DBS Vickers Securities (USA) Inc (“DBSVUSA”), or their subsidiaries and/or other affiliates beneficially own a total of 1% of the issuer's market capitalization of Langham Hospitality Investment Limited (1270 HK) and Fortune Real Estate Investment Trust (778 HK) as of 13 Jul 2018.
5. Compensation for investment banking services:
DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Far East Consortium International Limited (35 HK), Wharf REIC (1997 HK), Regal Hotels International Holdings Limited (78 HK) and Csi Properties Limited (497 HK) as of 30 Jun 2018.
6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Far East Consortium International Limited (35 HK), Wharf REIC (1997 HK) and Csi Properties Limited (497 HK) in the past 12 months, as of 30 Jun 2018.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security
discussed in this document should contact DBSVUSA exclusively.
7. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.
DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
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Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
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This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
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This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor,
Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
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United Arab Emirates
This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank (Hong Kong) Limited
18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2820-4888, Fax: (852) 2521-1812
Asian Insights SparX Hong Kong Property & Retail Sector
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DBS Regional Research Offices
HONG KONG DBS Bank (Hong Kong) Ltd Contact: Carol Wu 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 852 2820 4888 Fax: 852 2521 1812 e-mail: [email protected]
MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]
SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]