On Thursday, New World Development (EXCHANGE:17:HK) (OTC: NDVLY) was downgraded by Jefferies from Hold to Underperform, with a new price target set at HK$8.00, lowered from the previous HK$9.00. This move comes as the company reported a first-half fiscal year 2024 attributable profit of HK$0.5 billion, a decrease of 13% year-over-year and significantly below Jefferies' expectations.
The Hong Kong industrial property sector has shown positive momentum, but the company's development project booking has been minimal. Additionally, New World Development's gearing—a measure of financial leverage—remains high at 49.9%, or 76.9% when including perpetual securities. The firm's interim dividend per share also saw a steep decline, falling 57% to HK$0.2, which was below both Jefferies' and consensus estimates of HK$0.3 and HK$0.46, respectively.
Jefferies anticipates a negative reaction from the market in response to the earnings and dividend shortfall. The company's financial results are challenging to compare with consensus due to the deconsolidation of NWS Holdings and related one-time factors. However, the reported HK$0.5 billion profit, which includes HK$0.9 billion in net fair value gains, did not meet Jefferies' forecast of HK$1 billion excluding NWS Holdings.
The downgrade to Underperform is attributed to the pressure on sustained earnings and a slower-than-expected deleveraging process. Jefferies has also adjusted its estimate for the full-year dividend per share to HK$0.5, which implies a yield of only 5%. This adjustment reflects concerns over the company's earnings outlook and its ability to provide shareholder returns.
InvestingPro Insights
Amidst the downgrade and concerns over New World Development's financial performance, InvestingPro offers additional insights that could provide investors with a broader perspective on the company's valuation and market position. According to InvestingPro data, New World Development has a market capitalization of $3.18 billion USD and is currently trading at a low Price / Book multiple of 0.1, which might indicate that the company's assets are potentially undervalued in the market.
Moreover, the company has shown robust revenue growth over the last twelve months as of Q4 2023, with an impressive 39.58% increase, suggesting that despite the recent earnings shortfall, the company's top-line is expanding significantly. This is further complemented by a substantial dividend yield of 4.4%, which, even after the recent dividend cut, remains a significant return to shareholders—especially in light of the company's history of maintaining dividend payments for 32 consecutive years.
Two InvestingPro Tips highlight that New World Development is expected to see net income growth this year and trades at a low EBITDA valuation multiple. These indicators could suggest an opportunity for investors who believe in the company's long-term profitability and market strategy. Notably, New World Development is a prominent player in the Real Estate Management & Development industry, which may position it well for future growth.
For those seeking further analysis and tips, InvestingPro offers additional insights on New World Development, with a total of 14 tips available, including an evaluation of the company's stock performance over the last six months and a fair value estimate of $0.85 USD. Investors looking to access these comprehensive insights can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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