NWD Posted Robust 1H Revenue Growth While Margins Compressed

We maintain our fair value estimate of HKD 45 for New World Development 00017, or NWD, after the company delivered a robust 13% year-on-year revenue growth for the first half of fiscal 2023 (ended in December 2022). Overall revenue of HKD 40.2 billion for the first half materially beat Refinitiv consensus estimate of HKD 32.1 billion, due to strong performance from property sales booked and construction revenue. While profit margins were squeezed by COVID-19 restrictions, we view this as temporary and believe NWD’s profitability will rebound, given meaningful pickup in foot traffic to shopping malls and residential property sales. Despite lowering our fiscal 2023 revenue forecast on a more conservative project delivery outlook, our long-term assumptions on core businesses remain largely unchanged. We think NWD’s current share price has still not fully reflected prospective revenue growth and margin improvement under better operating efficiency.

While NWD’s property development has seen strong booking thanks to major projects delivered in Hong Kong, revenue from mainland China declined by over 30% year on year due to pandemic disruptions. That said, we are upbeat that revival of homebuyer sentiment and gradual pickup of housing prices will be the long-run positive. In the first half, NWD managed to replenish land bank in mainland China, with gross floor area, or GFA, remaining stable versus the end of fiscal 2022. Also, 65% of NWD’s total land bank is in the Greater Bay Area and Yangtze River Delta, which benefits a contracted sales rebound. For the Hong Kong market, we expect revenue growth to stay robust, given solid bookable resource through fiscal 2024. Although segment margins were weighed on by heightened land cost, we foresee a tempered recovery driven by rising housing demand over the next few years.