JPMorgan says Hong Kong property market has pool of undervalued assets

A “LARGE pool of undervalued assets” in Hong Kong’s property market may spur more bargain hunting among their majority shareholders as valuations hit a 30-year low, according to JPMorgan Chase & Co.

The city’s cash-rich property tycoons may take advantage of the cheap valuations to buy assets, conduct share buybacks, or take out minority shareholders at a time when developers and landlords are on average valued at a 63 per cent net asset value discount to the aggregate market capitalisation, JPMorgan analysts including Cusson Leung wrote in a note.

“We believe the uniqueness of the Hong Kong property and conglomerates sector is that their majority shareholders will not be shy to grab opportunities from the market downturn,” the analysts wrote.

The sector has been grappling with tumbling Hong Kong home transactions due to higher mortgage rates and sluggish economic growth in China. A MSCI gauge tracking Hong Kong developers has lost more than 16 per cent year-to-date, underperforming the benchmark Hang Seng Index which is down about 5 per cent.

The city’s property sector is trading at a combined market cap of HK$1.1 trillion (S$188.6 billion), while their aggregated net asset value amounted to HK$3 trillion, according to JPMorgan. That represents a large pool of undervalued assets that majority shareholders can choose from, it added.

Some families may be more active than others in taking advantage of the valuation dislocation, such as Li Ka-Shing-backed CK Asset Holdings. Other developers include Wharf Real Estate Investment, Kerry Properties, Swire Pacific, Swire Properties and Henderson Land Development, JPMorgan said.

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Shares of Wharf Real Estate Investment and Henderson Land both rose as much as 2 per cent on Tuesday.

Any corporate action taken by developers will be driven by their need to expand the business, deleverage, simplify group structures or prepare for succession planning, the bank said.

In June, Chow Tai Fook Enterprises proposed to take NWS Holdings private, in a move seen to boost the cash level of the latter’s holding firm New World Development. The companies are controlled by Hong Kong’s billionaire Cheng family. BLOOMBERG