New World China Land - one of the largest listed mainland property developers - has seen its share price slump 58.4 per cent since its listing debut on July 16. The company underperformed both the Hang Seng Index and red-chip index, which rose 0.4 per cent and fell 15.5 per cent respectively, during the period. Its loss was also heavier than stocks in the same sector, with Henderson China Holdings, China Resources Beijing Land and Beijing North Star falling 24.8 per cent, 35 per cent and 28.9 per cent, respectively. Morgan Stanley Dean Witter - the listing's joint lead manager - gave an 'outperform' recommendation on the stock with a $10 one-year target price in a September 6 research report, when it was trading at $5.70. The counter closed last Friday at $3.95, representing a 71.82 per cent discount to Morgan Stanley's estimated net asset value of $14.02 a share. 'We are still maintaining our outperform rating . . . we are positive on its long-term prospect, considering the sharp discount to net asset value of almost 70 per cent,' said Kenny Tse, one of the report's co-authors. 'It's definitely a long-term story, not a one to two-year horizon.' For some investors, such patience does not come as easily. A manager of an investment fund which had subscribed to US$300,000 of New World China shares said: 'We dumped the shares soon after it fell to 20 per cent below its initial public offering price to stop losses. The company does have some value, but the sector's road to recovery is still very long.' A group of convertible bond-holders who had converted into shares through the float are understood to have sold to cut losses, which exacerbated the share-price fall. The owner of the largest mainland land bank reserve - 22.4 million square metres - among Hong Kong-listed mainland developers, New World China was tipped by Morgan Stanley to be 'an option on the world's largest and potentially fastest-growing property market'. However, the flotation met negative developments including souring cross-strait relations, rising interest rates and weakening sentiment towards shares with links to the mainland. An analyst at an Asian brokerage expected the mainland property sector to take two to three years to pick up, given the uncertainty around the legal and regulatory framework, limited mortgage financing and sluggish demand. 'There seems to be a bit of a vacuum in demand at the moment, as the government is gradually shifting the burden of housing costs from state enterprises to workers,' he said. He said that while the steep discount of the counter to its net asset value seemed attractive relative to other stocks, 'investors may ask for a greater discount given asset valuation in mainland properties may involve greater subjectiveness'. Henry Kwong, an analyst at HSBC Securities, whose sister firm HSBC Investment Bank Asia was the listing's sponsor, said: 'Its share price has certainly been undervalued. I think the mainland property sector is under-covered by analysts and not fully understood by investors.' He pointed to high growth of aggregate mortgage lending in the mainland - which is expected to rise to 100 billion yuan (about HK$93.09 billion) this year from 70 billion yuan last year - as a factor behind the sector's growth. This is despite the low base of comparison as the mainland's mortgage market only began two to three years ago. He gave New World China a one-year target share price of $9.50.
