StockHouse LogoWhilst it is generally accepted that in the foreseeable future local property developers will not see the frenzied development gains that they did in the 1980s and 1990s, one indisputable fact is that the ability to employ clever land acquisition techniques is still crucial in determining a developer’s eventual success or failure.

Stockhouse: AmoyUnder the leadership of Chairman Ronnie Chan, a property old-timer, landlord-cum-developer Amoy Properties [101] is poised to show its true colours over the next few years, having braved market depressions over the past 18 months and accumulated land at cheap cost relative to current market prices. As a result, analysts predict that the Company will experience high earnings growth over the coming three years and that this has yet to be reflected in the share price.

In the property market nadir of 1Q 1999, Amoy seized the opportunity to make a bid for the MTRC’s [66] Kowloon Station Package Four development project comprising a total residential gross floor area of 1.4 million sq ft. This prime-upon-prime project was awarded at an accommodation value (ie land cost per sq ft of buildable floor area) of HK$1,300 ($166.68) per sq ft. At an all-in development cost of approximately HK$3,000 per sq ft, this project is expected to bring very handsome profits to the Company commencing in FY2002 and FY2003.

For comparison, 10 months after Amoy secured the project, Sun Hung Kai Properties [16] was awarded the neighbouring Package Three project by the MTRC. Sun Hung Kai had to pay an accommodation value of HK$2,230 per sq ft.

In the first half of this year, Amoy also acquired the following sites at attractive prices through Government land auctions or tenders:

1. A 1.3 million sq ft mixed development site in West Kowloon was secured for HK$850 million. Approximately 44% or 570,000 sq ft must be handed back to the Government. The accommodation value, excluding the Government’s portion, works out at HK$1,200 per sq ft.
2. A 137,618 sq ft residential site in Ho Man Tin was secured for HK$251 million or an accommodation value of $1,824 per sq ft.

In a recent land auction on 5 October 2000, a comparable urban Kowloon site at Farm Road, To Kwa Wan was sold at an accommodation value of HK$2,016 per sq ft to Sun Hung Kai. The current land price is 56% higher than the weighted average price paid by Amoy for the two listed sites.

The two development projects are expected to be profit contributors for Amoy in FY2003 and FY2004.

In the nearer term, contributions from its Garden Terrace development will be the major prop to the Company’s bottom line in FY2001. Subsequent to 30 June 2000, a HK$300 million profit had already been locked in from the sale of 33 units, less than half of the total number for sale.

In respect to the Company’s investment portfolio, a mild improvement in rental rates is anticipated over the coming 12 months according to Mr Chan. Amoy has 2.4 million sq ft of retail space and 2.56 million sq ft of office or industrial/office space for rental purposes.

The Company’s FY2000 final results were largely within market expectations, with a 35.7% YoY drop in net profit to HK$1,218 million. However, analysts are generally upbeat in their profit forecasts for the coming few years.

Merrill Lynch forecasts net profit growth of 30%, 23% and 24%, respectively for the coming three years. These estimates equate to a three-year CAGR of 26%. Based on Thursday’s closing price of HK$7.45, the stock is trading on a PEG ratio of 0.68 times.

Warburg Dillon Read is even more bullish and expects a 45% net profit CAGR to FY2003, which translates into a PEG ratio of 0.39 times.

Credit Suisse First Boston estimates the NAV of Amoy at HK$12.67. The current price represents a 41.2% discount to this level. It has a 12-month price target of HK$11 for Amoy, representing an upside of 48% from Thursday’s close.

Despite the current weakness in the residential market, Amoy is one of the few property counters worth a look given management’s past adroitness in accurately timing its land purchases.

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