Analyst slashes Sun Hung Kai's profit estimate by 10% to HK$19,286mn

No thanks to lower inventory sales.

Barclays has lowered its FY15 net profit estimate for SHKP by 10 percent to HK$19,286mn to reflect lower inventory sales and fewer non-core asset disposals.

According to a research note from Barclays, further factoring in a 1.8% dilution from the exercise of bonus warrants in 1H, Barclays lowers our FY15E EPS by 11%.

While cutting earnings estimates, Barclays still expects SHKP to maintain full-year DPS at HK$3.35, implying a payout ratio of 49%, at the high end of SHKP's historical guidance of 40-50%.

At the NAV level, Barclays fine-tunes its forward NAV down by 0.5% to HK$172.08.

Here's more from Barclays:

Lowering FY15E net profit by 10%: When SHKP reported 1H FY15 earnings of HK$8.5bn in February, we had highlighted that full-year earnings would depend on non-core asset disposals and leftover sales.

As SHKP only sold 16 Cullinan units for HK$1.3bn in the first six months of 2015, this combined with fewer non-core asset sales suggests that SHKP's full-year earnings are unlikely to meet the Bloomberg consensus estimate of HK$20.6bn.

Reflecting the slippage in profit booking, we lower our FY15E net profit estimate 10%, but raise our FY16E and FY17E estimates by 6% and 5% to HK$22.9bn and HK$23.6bn, respectively. Aggregating our changes for FY15-17E earnings, this results in a small net revision of HK$161mn as higher construction costs offset the higher home price ASPs.

DPS of HK$3.35 suggest a 49% payout ratio: Factoring in the 10% earnings cut for FY15E and a 1.8% increase in SHKP's shares in issue due to conversion of bonus warrants, we expect SHKP's FY15E EPS to decline 13% y/y to HK$6.89.

While we expect EPS to decline, we expect SHKP's to maintain its full-year DPS of HK$3.35. This would imply a dividend payout ratio of 49%, at the high end of SHKP's historical payout range of 40-50%.

Lowering NAV estimate and price target by 0.5%: Due to our higher construction cost assumption and share dilution, we lower our forward NAV estimate by 0.5% to HK$172.08. Keeping our target NAV discount the same at 40%, we also lower our price target by 0.5% to HK$103.20. SHKP is now trading at 34% and 28% discounts to our spot and end-2015 NAV estimates.

Key upside risks: 1) A prolonged up-cycle for Hong Kong home prices; and 2) non-core asset sales that could help unlock asset value.