Citi expects New World Development's profit rebound to drive earnings per share and dividend growth, raising the target price from HKD 105 to HKD 168
Citi's research report pointed out that New World Development (00016.HK) announced its interim results for the period ending December last year yesterday, expecting the group's profit margin rebound to drive the compound annual growth rate of earnings per share and dividends to reach 7% by the fiscal year 2028. Citi raised its group forecast, based on the expectation that the company's sales in Hong Kong for the fiscal year 2026 will exceed expectations, reaching HKD 35 billion, with profit margins from new sales and new projects reaching a substantial double-digit figure. It is expected that the group's operating profit margin will recover to 15% in the second half of the fiscal year 2026 and exceed 20% in the fiscal year 2027/28.
The bank stated that New World Development has a large amount of unconfirmed sales, with Hong Kong projects amounting to HKD 22 billion, expected operating profit margins of 15% to 20%; mainland projects amounting to HKD 4 billion, with profit margins of about 30%; and the growth in interim rental income comes from the expansion of total floor area and increased office occupancy rates. It is expected that the group's retail tenant renewal rents will return to stability before the end of 2026.
Citi also indicated that the group's debt-to-asset ratio has further decreased to 13%, believing there is sufficient debt capacity for new investments. Following a 3% increase in the dividend payout ratio in the first half of the fiscal year 2026, considering the upward revision of earnings per share forecasts, the group’s dividend per share forecasts for the fiscal years 2026 to 2028 have been raised to HKD 3.88, 4.15, and 4.50 (assuming a payout ratio of 50%). In light of the profit margin rebound leading to better performance in earnings per share and dividends, the stock is maintained with a "Buy" rating and is an industry preferred stock; the target price has been raised from HKD 105 to HKD 168
