Sun Hung Kai Properties

Newcomer Sino-Ocean banking on pan-Bohai Rim land reserves

PUBLISHED : Friday, 14 September, 2007, 12:00am
UPDATED : Friday, 14 September, 2007, 12:00am

What distinguishes listing candidate Sino-Ocean Land Holdings and other Hong Kong-traded mainland developers? Some analysts suggest taking a look at where its projects are located.

While other mainland players primarily focus on Shanghai, Hangzhou, Beijing or southern cities like Shenzhen and Guangzhou, Sino-Ocean is selling the concept of the pan-Bohai Rim - the latest economic zone to receive the central government's blessing to surge ahead in the next five years.

More than 80 per cent of its 8.59 million square metres of gross floor areas' worth of land reserves is located in four key cities of the region - Beijing, Tianjin, Dalian and Shenyang.

'I believe economic development of these cities will be positive,' said Castor Pang Wai-sun, strategist at Sun Hung Kai Financial.

The HK$11.9 billion offering opens to retail subscription today and will close next Wednesday.

Established in 1993, the company is a venture of Cosco International, a Hong Kong-listed property unit of shipping giant Cosco Group, and chemical conglomerate Sinochem (Hong Kong).

Seventy per cent of its turnover comes from medium- to high-end residential development. The remaining income comes from investments in office, retail, serviced apartments and hotels.

The pan-Bohai Rim posted 14.3 per cent growth in disposable income last year, which was higher than the 13.6 per cent in the Yangtze River Delta and the 7.6 per cent for the Pearl River Delta.

'It will be a stimulus to their property markets and good for the company's outlook,' Mr Pang said.

On Wednesday, the mainland said housing prices in 70 major cities rose 8.2 per cent last month from a year earlier, compared with a 7.5 per cent rise in July. Despite continued measures to curb the housing sector, home prices nationally have jumped four months in a row.

Average property prices across 70 cities rose 1.4 per cent last month from July, the National Development and Reform Commission, the top economic planning agency, said in a report on its website.

Price rises in Beijing were 12.1 per cent up from a year earlier, with new homes surging 13.5 per cent and second-hand homes growing 10.6 per cent. Tianjin saw new home prices up 7.1 per cent and 6.6 per cent in the second-hand homes when compared with the same month last year. New homes in Dalian rose 7.7 per cent and second-hand homes were 8.4 per cent higher than August last year. New home prices in Shenyang rose 5.4 per cent and second-hand units rose 6.8 per cent in capital values from a year earlier.

In the three months ended March, the company's net profit was 398.9 million yuan, against 54.3 million yuan for the same period last year. For the whole of last year, the company's net profit rose 52.39 per cent to 570.4 million yuan.

Sino-Ocean Land expects earnings for this year to come in at 1.63 billion yuan, 190 per cent higher than last year.

'I do not see any problem in the short-term growth of the stock when it starts trading later this month,' Mr Pang said.

After its Asian roadshow finished, the offering received more than US$10 billion in institutional orders, according to sources close to the offering. That is equal to eight times more orders than available in the tranche.

Mr Pang said would-be investors' confidence in Sino-Ocean had been boosted by investments by cornerstone investors, including Henderson Land Development chairman Lee Shau-kee, China Life Insurance (Group), Government of Singapore Investment Corp, HKR International and the Kwok family of Sun Hung Kai Properties.

However, some analysts said there were some uncertainties about its medium and long-term prospects.

'Mainland companies usually will raise funds for expansion through the issuance of new shares. However, the single largest shareholder, Cosco International, will see its interest in Sino-Ocean fall to 21.56 per cent from 30.8 per cent after listing. Sinochem's shares will fall to 15 per cent. Any share placement or rights issue will further dilute their holdings in the company,' said Eric Yuen, analyst at Dao Heng Securities.

'Will this affect their fund-raising decision and, as a result, limit the pace of expansion?'

Other concerns are whether the central government will impose further measures to regulate the real estate sector.

Li Ming, executive director and chief executive of Sino-Ocean, said the company was confident in its outlook and would strengthen its competitiveness to prepare for any possible imposition of measures.

Optimists said those were not major issues. 'As long as the overall picture of the mainland property market and economy in China are promising, prospects of mainland developers will be not bad,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.

Real demand for homes remained strong and that would sustain the housing sector, while office and hotel properties would also see good returns, they said.

What the analysts think

Eric Yuen Chi-fung, analyst, Dao Heng Securities

Pros: Real demand will be boosted by strong economic growth in pan-Bohai Rim

Cons: Diversified shareholding structure

Kenny Tang Sing-hing, associate director, Tung Tai Securities

Pros: Strong land reserve of 8.59 million square metres

Cons: The maximum price-earnings multiple of 21 times is not extremely attractive

Castor Pang Wai-sun, strategist, Sun Hung Kai Financial

Pros: Tie-ups with big-name strategic investors

Cons: More measures will be imposed by the central government to regulate the property sector