1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ We think the hote
2、l segment will be hit harder than residential and commercial/retail investment properties We forecast USD5.0-6.5bn of investment-grade and USD1.5-2bn of high-yield supply in 2020e Initiate Overweight on CKA,downgrade Regal to Underweight;buy CSIPTY21&Perp-22c,EMPINT21&22,FAEACO21;open buy on FAEACO
3、Perp-24c and NWDEVL Perp-24c Hitting a roadblock Multiple headwinds have taken a toll on Hong Kongs economy.Q3 GDP contracted for the second consecutive quarter,falling 2.9%y-o-y and 3.2%q-o-q,bringing Hong Kong into a technical recession.Consumer confidence and business sentiment remain downbeat,wi
4、th some indicators showing that the slowdown has also weighed on the residential and rental property markets.According to the Land Registry,overall residential purchases recorded two consecutive months of decline before rising 16.1%m-o-m in October to 4,001 transactions,and 43.9%m-o-m in November to
5、 5,756 units.The slump was reversed partially due to the government introducing mortgage measures to help first-time homebuyers.Even so,home prices fell for five consecutive months to October,but were still up 4.6%ytd as of end-October.We expect to see moderate dips rather than big declines in resid
6、ential property prices,given the structural shortage of housing supply,and that homebuyers will likely stay on the side-lines and wait for the price correction to pan out.9 December 2019 Roanna Chau Associate,Credit Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 3941 7186 Kei
7、th Chan Head of Corporate Credit Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4522 Hong Kong Property Fixed Income Credit Hong Kong 1.Hong Kong residential property prices(January 1997-November 2019)Source:Bloomberg,Centaline,HSBC,S&P 020406080100120140160
8、180200Feb-97Sep-97Apr-98Nov-98Jun-99Jan-00Aug-00Mar-01Oct-01May-02Dec-02Jul-03Feb-04Sep-04Apr-05Nov-05Jun-06Jan-07Aug-07Mar-08Oct-08May-09Dec-09Jul-10Feb-11Sep-11Apr-12Nov-12Jun-13Jan-14Aug-14Mar-15Oct-15May-16Dec-16Jul-17Feb-18Sep-18Apr-19Nov-19Hong Kong residential property prices(CCL Index)Asian
9、Financial CrisisSevere Acute Respiratory Syndrome(SARS)epidemicGlobal Financial Crisis2020 Credit Outlook:Shaken,not stirred Fixed Income Credit 9 December 2019 2 2.Hong Kong visitor arrivals(January 2017-October 2019)Source:Hong Kong Census and Statistics Department,Hong Kong Tourism Board,HSBC Hot
10、el segment to feel the pain The tourism sector has been hit particularly hard.Visitor arrivals have been on a downward trend starting from July,which saw the first contraction since January 2018(down 4.8%y-o-y).More recently,they dropped 44%y-o-y to 3.3 million in October,with the number of visitors
11、 from mainland China falling 46%y-o-y to 2.5 million.From a y-t-d perspective,total visitors have more than halved from the 6.8 million recorded in January.The performance of other tourism-related businesses such as hotels,retail sales,food and beverage(F&B)businesses has also been dented.Hotel occu
12、pancy rates dropped the most in August,stabilised in September,but might see a steeper fall in October,in our view.October retail sales figures were down 24.3%y-o-y to HKD30.1bn.Retail sales peaked in January this year(HKD48bn)but have been on a downward trajectory since then.Although overall retail
13、 performance has softened,and F&B tenants have been under pressure,we think it will stabilise gradually.For the Hong Kong property market,we estimate the tourism and/or tourism-related businesses,especially the hotel segment,will be hit harder by the global economic slowdown and the current situatio
14、n in Hong Kong than residential property and commercial/retail investment properties.3.Hong Kong 2019 y-t-d hotel occupancy rate Source:Bloomberg,CEIC,HSBC -50%-40%-30%-20%-10%0%10%20%30%40%50%Jan-17Feb-17Mar-17Apr-17May-17Jun-17Jul-17Aug-17Sep-17Oct-17Nov-17Dec-17Jan-18Feb-18Mar-18Apr-18May-18Jun-1
15、8Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-1901,0002,0003,0004,0005,0006,0007,0008,000Visitors from Mainland China(000)Other visitor arrivals(000)Total visitor arrivals(y-o-y;LHS)40%50%60%70%80%90%100%Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-1
16、9Sep-19High Tariff AMedium TariffHigh Tariff B 3 Fixed Income Credit 9 December 2019 4.Hong Kong total retail sales(September 2018-October 2019)Source:Hong Kong Census and Statistics Department,HSBC Expect credit quality to remain resilient for most players While some property developers in Hong Kon
17、g have gradually ventured overseas to diversify their operations,a large number of names remain heavily concentrated in Hong Kong,in terms of both their total assets and also the geographical breakdown of their revenue contribution(see Figure 5).We also note that a number of mid-sized developers hav
18、e made the transition from developers to landlords as their development land banks depleted and intense competition made it more difficult to replenish land banks via public tender.A lack of experience in converting farmland,which top-tier developers are utilising as a source of land replenishment,i
19、s another reason why some of these developers have gradually shifted their emphasis to growing their investment property portfolio.This,in turn,increases the exposure of their portfolios to investment properties like shopping malls and hotels,which are more reliant on visitor arrivals and tourist sp
20、ending in Hong Kong.That said,less than c10%1 of total revenue comes from hotel and hotel-related businesses for names like CK Asset,CSI Properties,Hang Lung,Henderson Land,Hongkong Land,New World Development and Sun Hung Kai Properties.For developers with slightly more exposure,namely Far East Cons
21、ortium,Kerry Properties,PCPD and Swire Properties,a large part of their hotel portfolios are situated outside Hong Kong.5.Property developers exposure to Hong Kong in terms of revenue and total assets Source:Company data,HSBC;Note:Size of bubble indicates scale of relative asset base,based on latest
22、 full year results _ 1 Calculated based on latest full-year annual reports-30%-25%-20%-15%-10%-5%0%5%10%010,00020,00030,00040,00050,00060,000Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Total retail sales(HKDm)y-o-y%change(RHS)CK AssetCSI PropertiesEmperor Inte
23、rnationalFar East ConsortiumHenderson LandHongkong LandHang Lung PropertyKerry Properties New World DevelopmentRegal HotelsSun Hung Kai PropertiesSwire Properties 0%20%40%60%80%100%0%20%40%60%80%100%120%of total revenue from HK portfolio%of total assets in Hong KongPCPD Fixed Income Credit 9 Decembe
24、r 2019 4 In particular,we note Far East Consortium announced its intention to spin off certain non-Hong Kong hotel assets as a stapled unit on the Singapore Stock Exchange(28 November).As for Emperor International,around 32%of the groups top-line comes from hotel and hotel-related businesses.Nonethe
25、less,we note that a larger portion of this contribution is attributable to the groups gaming operations in Macau.Regarding Regal Hotels International,88%of its revenue comes from hotel businesses,with 95%of total revenue coming from Hong Kong,and also 90%of its assets is located in Hong Kong.We expe
26、ct to see thinning credit quality buffers for the group given its relatively leveraged balance sheet and larger reliance on hotels/tourism-driven operations.With that,we downgrade our fundamental recommendation on Regal Hotels International to Underweight from Neutral.Key upside risks include better
27、-than-expected performance of the groups hotel portfolios in Hong Kong,or active measures taken by the group to maintain/improve its credit metrics,for instance,disposals of units in Mount Regalia in Kau To(50%/50%JV with Paliburg Holdings)and/or Regalia Bay in Stanley,Hong Kong.For more details on
28、individual credits,please see the corporate 2-pagers.Nonetheless,most of the property names from Hong Kong have a long operating history.They have withstood multiple property cycles in Hong Kong over the past 30-40 years,not to mention the Asian and Global Financial Crises,along with the Severe Acut
29、e Respiratory Syndrome(SARS)epidemic in 2002-03.We believe their development property businesses will face challenges but at the same time,we do not envision steep drops in residential property prices.Despite prospects of slower economic growth,we expect rental income from commercial properties and
30、also retail developments to remain stable versus the hotel business.Rental upside might be limited going forward,but the impact should be cushioned by staggered lease expirations.Stress-testing the Hong Kong hotel business In addition,we conducted a stress test to analyse the property developers sen
31、sitivities towards weaker tourism arrivals and consequently weaker performance of their Hong Kong hotel portfolios.We base the assumption on the latest full-year financials,and incorporate a 50%drop in revenue from the hotel segment in Hong Kong.In Charts 6 and 7,we look at the impact on EBITDA marg
32、ins and EBITDA/interest coverage.In line with our fundamental recommendations,the clear underperformer would be Regal Hotels,whereby a 50%drop in hotel revenue in Hong Kong would push EBITDA margins c44ppt lower,and into a negative territory of-8.3%(from 35.8%as of December 2018),per our estimate.As
33、 for EBITDA/interest coverage,which stood at 1.71x by end-December 2018,the same drop would result in the metric falling to negative 0.4x.6.Stress test:impact of 50%drop in HK hotel revenue on EBITDA margins Source:HSBC estimates,HSBC,Company data,S&P -20.0%-10.0%0.0%10.0%20.0%30.0%40.0%50.0%60.0%CK
34、 AssetCSI PropertiesEmperorInternationalFar EastConsortiumNew WorldDevelopmentRegal HotelsSun Hung KaiPropertiesEBITDA margin(%)adjusted for 50%drop in HK hotel revenueEBITDA margin(%)5 Fixed Income Credit 9 December 2019 7.Stress test:impact of 50%drop in HK hotel revenue on EBITDA/interest coverag
35、e Source:HSBC Estimates,HSBC,Company data,S&P Issuance forecast for 2020e 11M2019 issuance reached USD5.5bn USD4.4bn came from investment-grade/blue-chip issuers and USD1.1bn was issued by non-rated or high-yield names(see Table 9).The largest issuer in terms of amount raised during the year so far
36、is New World Development,which raised a total of USD2.25bn from the USD bond market via the issuance of NWDEVL 6.25%Perp-24c,NWDEVL 4.125%29,along with two re-taps of the perpetual bond.8.Breakdown of USD bond issuance by Hong Kong property developers Source:Bloomberg,HSBC (2.00)0.002.004.006.008.00
37、10.0012.0014.0016.00CK AssetCSI PropertiesEmperorInternationalFar EastConsortiumNew WorldDevelopmentRegal HotelsSun Hung KaiPropertiesEBITDA/total interest(x)EBITDA/total interest(x)adjusted for 50%drop in HK hotel revenue02,0004,0006,0008,00010,0002009201020112012201320142015201620172018 11M2019Inv
38、estment-grade(USDm)High-yield (USDm)Fixed Income Credit 9 December 2019 6 9.11M2019 issuance by Hong Kong property developers Name Date Security Description Amount Issued(USDm)Ratings(Moodys/S&P)Sun Hung Kai Properties 2/19/2019 SUNHUN 3.75 02/25/2029 500 A1/A+Henderson Land 2/21/2019 HENLND 3.875 0
39、3/01/2029 300 NR/NR New World Development 3/4/2019 NWDEVL 6.25 Perp-24c 500 NR/NR ESR Cayman 3/28/2019 ESRCAY 7.875 04/04/2022 250 NR/NR IFC Development 4/10/2019 IFCDCN 3.625 04/17/2029 500 A2/A C C Land 5/30/2019 CCLAND 6.35 06/06/2022 250 NR/NR ESR Cayman 6/27/2019 ESRCAY 7.875 04/04/2022 175 NR/
40、NR New World Development 7/11/2019 NWDEVL 4.125 07/18/2029 950 NR/NR New World Development 7/17/2019 NWDEVL 6.25 09/07/2067-24c 400 NR/NR Hysan Development 8/28/2019 HYSAN 2.82 09/04/2029 500 A3/NR Far East Consortium 9/5/2019 FAEACO 7.375 Perp-24c 250 NR/NR Wharf REIC 9/5/2019 WREICL 2.5 09/16/2024
41、 300 A2/NR Far East Consortium 9/11/2019 FAEACO 7.375 04/18/2068-24c 50 NR/NR Pacific Century Premium Developments(PCPD)9/26/2019 PCPDC 4.75 03/09/2022 130 NR/NR New World Development 10/25/2019 NWDEVL 6.25 Perp-24c 400 NR/NR Source:Bloomberg,HSBC Going into 2020,the space faces a maturity requireme
42、nt of USD4.9bn,taking into account perpetual securities callable within the year(see Table 10).Aside from refinancing requirements,we also take into account recent asset investments that might require extra funding.For instance,CK Assets GBP2.7bn(USD3.27bn)expansion into the United Kingdom pub and b
43、rewing market via the acquisition of Greene King(SCMP,20 August),along with Sun Hung Kai Properties acquisition of the Austin Road commercial site above the West Kowloon High Speed Rail Station for a record HKD42.23bn(SCMP,28 November).However,we do not rule out the possibility of developers reachin
44、g out to funding channels outside of the USD bond market to finance their investments.With that,we forecast USD5.0-6.5bn of investment-grade supply and USD1.5-2.0bn for high-yield from Hong Kong property developers in 2020e.10.USD bond maturity in 2020 for Hong Kong property developers Name Security
45、 description Maturity/callable date Maturity type Outstanding size(USDm)Rating(Moodys/S&P)SEA Holdings NEROSE 4.5 01/19/2020 1/19/2020 Normal 200 NR/NR New World Development NWDEVL 7 02/10/2020 2/10/2020 Normal 750 NR/NR Shun Tak Holdings SHTGF 5.7 03/07/2020 3/7/2020 Normal 400 NR/NR Swire Properti
46、es SWIPRO 2.75 03/07/2020 3/7/2020 Normal 500 A2/NR SOCAM Development SOCAM 6.25 05/08/2020 5/8/2020 Normal 195 NR/NR CK Asset Holdings CKPH 4.6 Perp-20c 5/18/2020 Callable 1500 A2/NR Sun Hung Kai Properties SUNHUN 4.45 Perp-20c 5/23/2020 Callable 488 A1/NR Nan Fung International NANFUN 5.5 Perp-20c
47、 5/29/2020 Callable 500 Baa3/BBB-ESR Cayman ESRCAY 7.25 Perp-20c 6/7/2020 Callable 100 NR/NR Sun Hung Kai Properties SUNHUN 4 11/02/2020 11/2/2020 Normal 300 A1/A+Source:Bloomberg,HSBC 7 Fixed Income Credit 9 December 2019 Investment recommendations Given the rally in the mainland China property hig
48、h-yield space over the past two years or so,we consider select Hong Kong un-rated property bonds as a good way to diversify portfolios away from mainland Chinese HY peers.In addition,we believe the Hong Kong property space in general faces less supply risks.11.Mainland China HY property vs Hong Kong
49、 un-rated property USD bond yields Note:Hong Kong property un-rated yield includes:Emperor International(EMPINT).Far East Consortium(FAEACO),ITC Properties(ITCPRO),PCPD(PCPDC).Regal Hotels(REGH),SEA Holdings(NEROSE),Shun Tak(SHTGF)Source:Bloomberg,HSBC With that,we reiterate our buy trading calls on
50、 CSIPTY21&Perp-22c,EMPINT21&22,FAEACO21,and initiate buy calls on FAEACO Perp-24c and NWDEVL Perp-24c,which we see as attractive amongst the Hong Kong property space and also against mainland Chinese peers such as AGILE21-20c&22-20c,COGARD 24-21c&22-20c,PWRLNG21 and SHIMAO21-20c.Key downside risks t
