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Cheung Kong (Holdings) is brokers' top pick among property developers due to its exposure to other sectors and low-cost agricultural land bank for redevelopment despite a mixed outlook for the property market.

 Goldman Sachs has downgraded the property sector to market weight from overweight as it expects developers to cut prices to reduce their stockpiles.

 Average price cuts of 10 per cent are forecast, leading to a 4 to 8 per cent drop in developers' net asset values.

 The exception is Cheung Kong because of its exposure to non-property projects through its 49.9 per cent stake in Hutchison Whampoa.

 'We favour stocks with non-property exposures that provide growth prospects,' Goldman property analyst Ting Chuk-kwan wrote in a recent report.

 Hutchison accounts for 80 per cent of Cheung Kong's net asset value and 65 to 70 per cent of Cheung Kong's net profit, according to Goldman.

 It forecast that Cheung Kong could trade up to $76 in the next 12 months. The stock closed at $60 last Friday and Goldman rated the stock as a market outperformer.

 Morgan Stanley Dean Witter also favours Cheung Kong, rating it as a market outperformer, but for different reasons.

 The investment house believes that Cheung Kong's land bank will ensure it does not have to rely on government land auctions, which are expected to get more expensive as the economy recovers.

 'The winners are likely to be the companies that have already built up decent sized low-cost land banks in the form of agricultural land or sites for redevelopment,' Morgan Stanley managing director Peter Churchouse wrote in a recent report.

  Morgan Stanley expects profit margins for developers to fall but remain healthy at between 18 and 40 per cent, similar to the levels in the late 1980s before the property price boom in the 1990s.

 Research by Donaldson, Lufkin and Jenrette's Michael Green paints a very bearish outlook for the property sector.

 Despite rating Cheung Kong at underperform, he believed it was the sector's strongest counter.

 'We believe Cheung Kong is the best strategically positioned property company to tackle new property market conditions but the valuation parameters indicate downside within the one year rating time span,' Mr Green wrote in a recent report.

 New World Development is also rated outperform by Morgan Stanley, as being in a good position to avoid the progressively more expensive land auctions.

 Yet Goldman rates New World Development as market perform with a 12-month price target of $18 in line with its view of the property sector.

 Goldman sees some of the company's strengths lying outside the local property market with possible boosts to its share price coming from a higher valuation of its telecommunications assets and a better outlook in the mainland.

 While the company could also return to its previous volumes in the Hong Kong property market, Goldman does not see any of the catalysts for a strong recovery in the near term.

 Owing to Goldman's neutral outlook for the whole sector, no other developer receives a market outperform rating.



Cheung Kong's diversity ensures property top spot