New World makes biggest stock buyback since December to boost share price as financial toll from The Pavilia Farm demolition rises

The developer repurchased 3 million of its own shares at HK$37.1 each for HK$112.04 million on Friday, according to a filing to the HKEX

The stock plunged 5.7 per cent on Monday, after the 3.9 per cent decline a day earlier following its plan to tear down two apartment blocks

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Home buyers queueing up to vie for The Pavilia Farm apartments in Tai Wai at New World Development’s sales office in Tsuen Wan on November 22, 2020. Photo: Jonathan Wong

Published: 5:42pm, 12 Jul 2021Updated: 11:07pm, 12 Jul 2021

New World Development made its biggest share buy-back in nearly seven months last week, as it sought to put a floor under its share price the day after announcing the unprecedented demolition of two apartment blocks still under construction to fix defects.

The developer repurchased 3 million of its own shares at between HK$37.10 and HK$37.65 each for HK$112.04 million (US$14.43 million) in total on Friday, according to a filing to the Hong Kong stock exchange. The stock plunged by as much as 5.7 per cent on Friday to an intraday low of HK$36.20, after Thursday’s 3.9 per cent drop following its announcement to tear down and rebuild blocks 1 and 8 at The Pavilia Farm III in Tai Wai.

“They will buy more if the [company’s] share price continues to remain weak, given the positive outlook” of Hong Kong’s residential property market against the stock’s “very cheap” price, trading at about 55 per cent discount to net asset value, said CGS-CIMB Securities’ managing director Raymond Cheng.

The buy-back, the biggest since the developer bought 6.6 million of its own stock in December, adds to the tally of compensation and deferred earnings that New World has to bear in the financial year ending in March 2022. The developer could end up spending HK$1.2 billion – excluding its buy-back – or about 15 per cent of its expected profit for the year, to fix the problems, analysts said.

New World Development’s The Pavilia Farm residential property project atop the Tai Wai subway station on July 8, 2021. Towers 1 and 8 earmarked for demolition are highlighted in red. Photo: Sam Tsang

Based on a property price of HK$15 million, a buyer on a cash payment mortgage plan will receive an extra subsidy and interest compensation totalling HK$1.15 million. The total compensation and additional construction cost will work out to about 9 per cent of the contracted sales expected to come from The Pavilia Farm III, said UOB Kay Hian the brokerage.

Considering that Phases 1 and 2 recorded HK$24 billion in sales, the impact from the additional costs on the whole project sales could be around 3 per cent, brokers said.