We view New World Development (NWD) as “Medium Risk” on the LARA scale. The company is one of the leading Hong Kong-based property developers and the flagship real estate arm of the Chow Tai Fook (CTF) group. NWD has an established property-development track record in Hong Kong and Mainland China, as well as a sizeable and growing portfolio of investment properties (under the premium K11 brand) in both regions. In addition, it has a large land bank (particularly in Hong Kong), which would support its development pipeline.
Overall, we believe NWD’s credit profile is underpinned by expectation of support from the CTF group, as well as its high quality and mostly unencumbered investment property portfolio. That said, the company has high leverage and weak financial metrics.
Our fundamental Credit Bias on NWD is “Negative”. This is mainly on account of the challenging industry environment, which has pressured the company’s property development contracted sales and margins. Going forward, NWD is likely to gradually grow its rental income from investment properties, supported by contributions from newly completed assets. Positively, management has communicated a deleveraging plan, albeit this may hinge on the company’s ability to carry out further non-core asset disposals.
Controversies are “Immaterial”. In 2021, NWD had to demolish and rebuild two out of seven blocks at The Pavilia Farm Phase 3 project, after the building contractor found construction defects during concrete strength tests. That said, the company adequately compensated affected homebuyers and commissioned an independent third party to carry out tests on the project’s Phase 1 and 2 sections. In 2008, NWD became the subject of a minor controversy after it appointed a former top civil servant (Leung Chin-man, who was Hong Kong’s Permanent Secretary for Housing, Planning and Lands from 2002 to 2005) as deputy MD and ED of NWCL. The appointment was subsequently rescinded after a public outcry. Overall, the ESG Impact on Credit is “Neutral”.
We initiate coverage on NWD with a “Hold” recommendation on the NWDEVL notes. We believe investors with a higher risk appetite can consider investing in the three NWDEVL perpetual securities that contain coupon step-ups (in the event of non-call at their respective first call dates), considering the attractive YTC.
