Sun Hung Kai Properties

SHKP may drop 20pc in worst case, says Daiwa

PUBLISHED : Saturday, 30 June, 2012, 12:00am
UPDATED : Saturday, 30 June, 2012, 12:00am

Shares of Sun Hung Kai Properties might fall 20 per cent further, in the worst-case scenario resulting from the anti-corruption investigation into the tycoon brothers who run the firm, Daiwa Capital Markets says.

That would occur if new and more serious charges were raised against joint chairmen Thomas Kwok Ping-kwong and Raymond Kwok Ping-luen by the Independent Commission Against Corruption (ICAC), Daiwa property analyst Jonas Kan wrote in a report dated yesterday.

In anticipation of a conclusion to the investigation in the coming weeks, Daiwa outlined four scenarios for the outcome and its impact on SHKP's stock price.

'Given the reputational damage that the incident is causing for the individuals, we think it is reasonable to expect the ICAC to make a decision as to whether to formally charge them or not in the not-too-distant future,' Kan said in the report.

The Sunday Morning Post had reported that all nine people out on bail in connection with the ICAC's probe into allegations of bribery and misconduct in public office relating to SHKP will report back to the anti-graft agency on July 13, by which time the Department of Justice is expected to have made a decision on whether to prosecute them.

They include the two joint chairmen, their eldest brother, ousted former chairman Walter Kwok Ping-sheung, SHKP executive director Thomas Chan Kui-yuen, former Hong Kong chief secretary Rafael Hui Si-yan and four unidentified persons.

It is three months since the two younger Kwoks were arrested for alleged corruption on March 29.

There could be a further sell-off in the stock if the pair were charged with offences more significant and serious than what had been discussed in the media, Daiwa said.

'The share price may test lower ground, but we would see support at about HK$74,' Kan said in the report. Shares of SHKP rose 1.16 per cent to HK$91.15 yesterday.

In the best-case scenario, however, the share price could rebound - if the ICAC declares there is insufficient evidence to initiate charges against the Kwok brothers.

The other two scenarios Kan mentioned would be if there was insufficient evidence to make a case against them at this point, and if they were formally charged with offences similar to those expected.

Daiwa said the market's concerns would still linger, which could cap any upside to the share price in the near future, unless the ICAC declared the case closed.

In the face of the uncertainty, Daiwa maintains a hold rating on the stock pending clarity on the investigation, but it sees a good entry point at a share price of HK$87 or below for long-term investors.

Its six-month target price is HK$102.20, based on a 47 per cent discount from the stock's average price since 1990.