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Emperor Research Report

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  • 1

    Company Update

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    WWW.EMPERORCAPITAL.COM

    Steady Project Pipeline

    Steady project pipeline: As a niche property investor and developer, EIH is now more pro-active to expand. A steady project pipeline lays solid foundation for her growth path including the launch of The Pulse, pre-sales of Upton, pre-lease of 22-24 Russell Street, upgrading of premium retail complex in Macau as well as the development of premi-um houses in Shouson Hill and Tuen Mun. Riding on the completion of those projects, we expect to see solid rental growth and strong cash inflow from property sales from FY16 onwards.

    FY15 interim results review: Excluding revaluation, EIHs total seg-ment profit dropped 9% yoy to HK$687mn as there was no property sales and a small drop in gaming revenue during the period. Rental growth remained solid with 10% jump yoy. Dragged by industry slow-down in Macau, EIHs gaming arm, EEH (296.HK), saw revenue and profit down by 4%and 5% respectively amid strong growth in hotel rev-enue after consolidating the results of Best Western. Interim dividend was HK$0.05 each while the book value per share was up by 3% to HK$7.01.

    Well-positioned to do more M&As : As at Sep 2014, the gearing ratio (total debt/total assets) of EIH was 32.2% which is relatively conserva-tive. Her book value of property portfolio per share amounts to HK$10.94, a solid asset base on hand that makes banking finance flexible. Considering HK$700m rental and expected sales proceeds from Upton, EIH is well-positioned to do more M&As. Thus, EIH an-nounced recently the acquisitions of an industrial building in Kwai Chung, a commercial centre in Wanchai and a retail and office complex in London with a total consideration of about HK$1.66bn, further boosting her property portfolio and rental income.

    Stay Overweight: Amid favorable monetary policies in China and the eurozone, we expect HKs property market, both investment and devel-opment, will remain firm. Meanwhile, the pre-sales of Upton is well received by the market with 60%+ of total units sold. On the back of the steady project pipeline, we expect a 25% increase in EIHs FY16 rental income, and are upbeat to the companys long term growth as well. Trading at 80% discount to our NAV of HK$8.61 and 6% yield, EIH remains undervalued. We reiterate Overweight on the stock with target at HK$3.38.

    Date Industry

    26 Jan 2015 Property

    Closing Price Target Price

    HK$1.75 HK$3.38

    Share Information

    Outstanding Shares (bn) 3.67

    Market Cap. (HK$bn) 6.43

    3-mth Average Daily Volume (mn) 1.85

    12-mth High (HK$ per share) 2.29

    12-mth Low (HK$ per share) 1.61

    Reported NAV (HK$ per share) 7.01

    FY15 P/E (x) 2.78

    P/B - as at Sep 2014 (x) 0.25

    FY14 ROA (%) 4.29

    Total Debt/ Total Assets (%) 32.2

    Dividend Yield (%) 6.28

    Source : Company data, Emperor Securities Research

    1-mth 3-mth 6-mth 12-mth

    Change of EIH

    (%) 2.9 4.2 -10.3 -15.9

    Change of Hang Seng

    Index (%) 6.3 6.5 2.5 10.5

    Source : Bloomberg, Emperor Securities Research

    Share Price of EIH

    Financial Information

    Year Ended 31 March FY12 FY13 FY14 FY15E FY16E

    Revenue (HK$mn) 2,960 5,703 3,014 3,142 7,410

    Growth 66% 93% -47% 4% 136%

    Core Profit (HK$mn) 483 1,557 473 507 1,996

    Growth 146% 222% -70% 7% 294%

    Core EPS (HK$) 0.13 0.42 0.13 0.14 0.54

    Growth 134% 222% -70% 7% 294%

    P/E (x) 1.4 1.0 3.4 2.8 1.7

    Dividend Yield 5.7% 6.2% 6.3% 6.9% 7.4%

    Source : Company data, Emperor Securities Research

    Emperor Securities Research

    Tel : (852) 2836 2763

    Fax : (852) 2831 8089

    Email : esl.research@emperorgroup.com

    Emperor International Holdings (163.HK, EIH)

    Overweight

    HK$

    1

    2

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    Jan 2014 May 2014 Sep 2014 Jan 2015

  • 2

    1HFY15 Results Review

    Investment property remained strong with rental income rising 9.9%

    yoy

    Core earnings slid 8.8% yoy amid absence of property sales and

    revenue drop for the gaming operation

    Interim DPS amounted to 5 HK cents, down from 5.5 HK cents a year

    ago

    Solid financial position with a D/A ratio of 0.32

    WWW.EMPERORCAPITAL.COM

    Emperor International Holdings Emperor Securities Limited

    Source: Company data

    Figure 1: 1HFY15 Results Highlights

    1HFY15 1HFY14 Change

    (HK$mn) (HK$mn) (%)

    Segment revenue

    Property investment 337 307 10%- Positive rental reversion.

    - A high occupancy rate of 99%.

    Property development 0 60 N/A Absence of property sales.

    Hotel and gaming operations 1,075 1,118 -4%Mass market gaming revenue down

    14%.

    Total 1,412 1,485 -5%

    Segment profit

    Property investment 309 284 9% Solid rental reversion.

    Property development (4) 28 N/A No recognition of property sales.

    Hotel and gaming operations 383 442 -13%The gross win in the gaming

    concourse dipped 14%.

    Total 687 754 -9%

    Revaluation gain on properties 618 800 -23%

    Net Profit 775 1,049 -26%

    EPS, basic and diluted, HK$ 0.21 0.29 -26%

    Remarks

  • 3

    Latest Update on The Premium Projects

    The Pulse

    The Pulse, a 4-storey shopping complex with a GFA of 167k sq. ft. located in Repulse Bay was soft-launched in 1HFY15, and currently sees an encouraging occupancy rate of 85%. 50% of the tenants have already commenced operations in this new development and we expect 70%+/ 90%+ of the lessees to be operational by Dec 14/ Feb 15 respectively given the completions of their installations in the months ahead.

    Leveraging on the 800 feet Repulse Bay Beach (see figure 2), The Pulse offers a unique blend of bayside shopping, gourmet dining and a 180 degree panorama sea view to both tourists and residents. The property targets for an image of fresh, fun and family-friendly, and it correspondingly holds a diversified tenant mix which comprises fine-diners, lifestyle merchandisers, playground runners, a gymnasium and a premier superstore (see figure 3). It will soon undergo a series of marketing campaigns to boost public recognition and be further promoted at both online and offline channels (see figure 4). Given the know-how as proven by the successful promotional activities launched in 1HFY15 (see figure 5), we are optimistic on the results of the upcoming marketing campaigns which will lay a foundation for the rise of occupancy rate in the years ahead.

    WWW.EMPERORCAPITAL.COM

    Emperor International Holdings Emperor Securities Limited

    Source: Company data, Letsdochina

    Figure 2: The Pulse (Top) and Repulse Bay Beach (Bottom)

  • 4

    WWW.EMPERORCAPITAL.COM

    Emperor International Holdings Emperor Securities Limited

    Source: Company data

    Figure 3: The Tenants of The Pulse

    Source: Company data

    Figure 4: The Online And Offline Promotional Channels of The Pulse

    iBeacon, a cost efficient positioning system that interacts with smart phones' applications is incorporated in The Pulse's marketing activities. This allows EIH to efficiently gather information on customer behaviors that would enhance its tenant management and would in turn boost The Pulse's rental growth potential.

    Source: U HK

    Figure 5: Hot Tub Cinema (Top) And Bubble Soccer (Bottom)

    Marketing activities launched in 1HFY15

    including Hot Tub Cinema and Bubble

    Soccer were well received by target custom-

    er groups.

  • 5

    22-24 Russell Street

    EIH pre-leased its whole block development on 22-24 Russell Street to Italian luxury lingerie maker La Perla in 1HFY15. La Perla, operating 200 boutiques globally will open its global flagship store in this 4-storey building which covers a GFA of 8k sq.ft. in Sep 2015. The building which would be installed with a large LED display would become a new landmark in the area, according to leading real estate service provider Savills.

    WWW.EMPERORCAPITAL.COM

    Emperor International Holdings

    Emperor Securities Limited

    Source: Emperor Securities Research

    Figure 6: The Construction Site on 22-24 Russell Street

  • 6

    181-183 Oxford Street, London

    EIH has just acquired a freehold 7-storey retail and office complex in London, UK with 35mn (equivalent to HK$425mn) cash. This development which covers a GFA of 12.7k sq. ft. is located on Oxford Street, one of most popular shopping destinations in the metropolis. Given the promising pedestrian traffic in the area, we expect solid rental income from the newly acquired property and see its potential for capital appreciation in the years ahead.

    71-75 Avenida do Infante D. Henrique & 514-540 Avenida da Praia

    Grande, Macau

    In Macau, the construction work at Nos. 71-75 Avenida do Infante D. Henrique & Nos. 514-540 Avenida da Praia Grande is currently underway. A multi-storey premium retail complex with a GFA of 30k sq. ft. is expected to be completed in 2015.

    WWW.EMPERORCAPITAL.COM

    Emperor International Holdings

    Emperor Securities Limited

    Source: Company data

    Figure 7: The Location of The Newly Acquired Property on Oxford Street

    Source: Company data

    Figure 8: The Construction Site on 71-75 Avenida do Infante D. Henrique & 514-540 Avenida da Praia Grande

  • 7

    Upton; Tuen Mun Town Lot No. 436 in Siu Lam; Lot No.1198, Junction of Shouson Hill Road West and Wong Chuk Hang

    Path

    Upton, a 42-storey l