Shun Tak acquires Hengqin asset for CNY721m

Office and serviced apartments soon to be launched.

Maybank Kim Eng noted Shun Tak announced after the market close yesterday that it had acquired a 131,089sqm mixed-use project in Hengqin New Area, which neighbors Macau, through a listing-for-sale for CNY721.0m which translates to an AV of CNY5,500/sq m.

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The project includes office, hotel and commercial space (all with 40 years’ land use rights) as well as serviced apartments (with 70 years’ land use rights). Management expects each category to comprise about 25% of total GFA. COLI has a project in Hengqin but it is not yet launched, so we do not have a lot of comparable projects for pricing reference.

According to Sina, residential units of a private developer’s project 华融琴海湾 are expected to fetch an ASP of ~CNY25k/sq m. We estimate Shun Tak’s serviced apartments will fetch a GPM of low-30s percent if we assume a similar ASP.

Shun Tak’s acquisition cost looks reasonable to us, and the asset makes strategic sense given Hengqin is close to Macau where Shun Tak has a strong presence. Hengqin Island has been designated to be a tourism, cultural and business zone. 

Office and serviced apartment sales to recoup cash. Hotel and retail space is guided to be held for recurrent income.

Last night, management indicated that it intends to launch the office and serviced apartment portions of the Hengqin project but plans to retain the hotel and retail properties for recurrent income. Shun Tak plans to start construction at the end of this year and expects the project to take 4-5 years to develop.