Sun Hung Kai Properties Ltd.

The stable outlook on SHKP reflects our expectation that the company's debt leverage will increase over the next 12-24 months, reducing the rating buffer. Meanwhile, SHKP is likely to continue its strong execution and achieve steady contracted sales over the period. We expect SHKP's recurring income base to continue to grow, particularly from its portfolio in China, and provide stability to the company's credit profile. SHKP's strong financial flexibility and conservative financial management should support satisfactory sales performance and keep leverage under control. We may lower the rating if: (1) Hong Kong's real estate sector worsens sharply and SHKP adopts a more aggressive land replenishment strategy, such that its ratio of debt to EBITDA exceeds 3x on a sustained basis

...Sun Hung Kai Properties Ltd. (SHKP) is likely to continue to gain market share due to its ample salable pipeline. We expect the company's contracted sales to remain stable at around Hong Kong dollar (HK$) 45 billion over the next 12 months amid softening prices and market uncertainty. SHKP's active land banking and variety of product offerings should support sales. The company will have ample salable resources in Hong Kong in fiscal 2019 (year ending June 30, 2019). SHKP has been replenishing its land bank with farmland conversions and land auctions. This is unlike its peer, which has gradually scaled back presence in Hong Kong and diversified into other sectors or outside Hong Kong. Margin to be under pressure due to softening home prices and rising land costs. We expect SHKP's EBITDA margin to decrease to 45% in fiscal 2019 and to 42% in fiscal 20, from 48.2% in fiscal 2018. This is mainly because of rising land costs feeding through its development pipeline and a likely softening of...

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