Wharf stock edges up despite dilution fear

PUBLISHED : Saturday, 12 February, 2011, 12:00am
UPDATED : Saturday, 12 February, 2011, 12:00am

Shares of Wharf (Holdings) edged up yesterday despite Thursday's announcement of a potential HK$10.05 billion rights issue that could hurt earnings per share.

The developer, which is 50.2 per cent controlled by Wheelock and Co, saw its shares hit an intraday low of HK$50.45, down 4.9 per cent, in the morning. However, the stock bounced back in the afternoon to close the day 5 cents, or 0.09 per cent, higher at HK$53.10. It is still down 11.2 per cent so far this year.

Wharf said it intended to use the proceeds from the rights issue to finance additional property and related investment on the mainland. It planned to issue 275.39 million rights shares in the proportion of one rights share for every 10 existing shares held at HK$36.50 each.

The issue price represented a 31 per cent discount to the previous close, the company said.

Wheelock is the underwriter of the issue. Stephen Ng Tin-hoi and T.Y. Ng - both directors of Wharf - together with Wheelock agreed to subscribe 137.84 million shares, or 50.06 per cent of the rights issue.

According to the statement, any shares not taken up by the market will be taken by Wheelock.

Given the deep discount, the market would absorb all the rights shares, Citigroup said in its latest research report.

Citigroup noted that Wharf's rights issue in November 2007, which was sold at more than a 20 per cent discount to the market price, was also fully subscribed by the market.

The group has been aggressively acquiring high-quality land sites on the mainland, and its current mainland land bank has reached 125 million sq ft of gross floor area, according to Citigroup.

The most recent purchase was made last month when it won a tender for two plots of land in Suzhou, Jiangsu province, for 2.9 billion yuan (HK$3.43 billion). The land will be developed into luxury properties.

It will be Wharf's fifth project in the eastern mainland province. The combined area of the lakeside and riverside sites can be developed into about 384,000 square metres, with an average cost of about 7,560 yuan per square metre.

The expansion plan comes as Beijing continues to issue policies to cool the housing market.

On Tuesday, the People's Bank of China raised the deposit and lending rates by 0.25 percentage point, the latest effort to cool the property market and ease inflationary pressure.

At the end of last month, the State Council announced nationwide policies aimed at curbing housing demand and property prices. Citizens are barred from buying another home if they already own more than two properties in the city in which they are residents.

Citigroup said it had no plan to adjust the stock's targeted price of HK$60.50 a share, even though the earnings estimate for Wharf this year will decline by 5 per cent from HK$75.20 per share to HK$71.51 following the rights issue.

Based on current earnings estimates, Citigroup expects an earnings per share dilution of 8 per cent to 11 per cent as a result of the rights issue.

Wharf also operates container terminals and provides communications and media services in the city.

Watering down

Earnings per share could suffer as a result of the HK$10 billion issue

Citigroup expects the rights issue to cause per-share dilution of up to: 11%