Shun Tak Holdings
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Market misses potential of Shun Tak profit flood

SHUN Tak Holdings remains the major listed beneficiary of the booming economies of Macau and neighbouring Zhuhai. Yet its share price has so far failed to match its dynamic earnings outlook, making it a highly attractive investment.

The company continues to make the majority of its earnings from its jetfoil service between Hongkong and Macau, but property development profits will start to flood the company this year.

As of April, a government-approved nine per cent increase in jetfoil fares will help shore earnings growth for the next year.

In addition, Shun Tak is expanding capacity in its jetfoils by a further nine per cent, by installing extra seats.

HG Asia is forecasting $556 million net profit for last year, putting the shares on an undemanding price-earnings multiple of 12.5, based on yesterday's closing price of $5.55. But it is in the current year that the earnings growth will start to kick in.

The majority of earnings from property development this year are already secured, and given the dependable nature of the jetfoil business, current year earnings can be forecast with an unusual degree of confidence.


The major contributors are an already pre-sold site in Seymour Terrace and several property lots in Macau. In addition, cash will start to flow in from the massive Nova Taipa residential project in Macau.

HG Asia is forecasting a 42 per cent jump in earnings in the current year to $810 million, putting the shares on a PE of 8.8 and a yield of 5.6 per cent.

Shun Tak shares have always tended to trade at a premium to the market, due to the quality of its earnings and the level of cash flow. On this basis, there should be substantial upside potential.

China stocks have been all the rage since the visit by patriarch Deng Xiaoping to southern China early last year, and Shun Tak offers some appealing exposure to the China market.


Next year, earnings growth will come primarily from two sizeable property developments in Nanhai and Zhuhai.

China earnings offer a greater degree of uncertainty, but there are sufficient Hongkong and Macau projects to ensure that there would be only a minimal decline in property income if none of the China profits materialised.


Assuming a contribution, HG Asia is putting Shun Tak on a PE of 7.2 for next year.

Shun Tak has property developments in the planning stage in Guangzhou and Tianjin, and given the contacts of chairman Stanley Ho, it can be expected to become more involved in activities in China.

The share price of Shun Tak has scarcely moved over the past six months, and this provides an excellent opportunity for investors to play on the increasingly lucrative relationship between Macau and Zhuhai.