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Jitters send century-old Wharf's shares down after spinoff

[HONG KONG] Wharf Holdings Ltd traded below analysts' estimates on the first day of trading excluding the value of investment properties that will be separately listed, signaling that the excitement over the spin off has ebbed.

Shares slipped 2 per cent to HK$26.95 at the midday break in Hong Kong, on the first day trading excluding the value of Wharf Real Estate Investment Co, a US$29 billion commercial property unit that has been spun off from the century-old conglomerate. That is below a fair value consensus of HK$28 per share, according to a median estimate of seven analysts surveyed by Bloomberg News.

Wharf REIC - which will start trading on Nov 23 - has a median estimated fair value HK$49.5 per share, the survey shows.

Wharf Holdings, founded in 1886 and one of the original seven members on the Hang Seng Index 50 years ago, conducted a strategic review of its Hong Kong retail properties business in March. The plan, which includes the spinoff of two flagship shopping malls, Harbour City and Times Square, spurred a share price rally of 28 per cent from March 9 to Aug 9 as investors expected a high and stable dividend payout from the new entity. The shares have since declined more than 10 per cent.

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After the split, Wharf will become a holding company and run the rest of its business which includes the development of residential properties, some investment properties in mainland China and a container terminal in Hong Kong. This new structure has raised concerns on the valuation of the stock, particularly after the company's management said in a briefing last week that it will limit its investments in China to up to 50 per cent of its total equity in an attempt to quell the misconception that it is a pure-play China property company.

"We are not sure what the focuses of its business are," wrote Cusson Leung, a Hong Kong-based analyst at JPMorgan Chase & Co, in a note published on Nov 12. The rest of Wharf may trade at a "substantial" discount to its net asset value, Mr Leung wrote.

Wharf's current share price "looks attractive", CIMB Securities Ltd's analysts Raymond Cheng and Siu Fung Lung wrote in an e-mail to clients. The firm set its fair value estimate for Wharf at HK$32 and believes the company's focus on Hong Kong property development "may not necessarily be bad" as the city's real estate market may have better prospects, according to a report it published on Nov 12.