On September 26, new world dev released its 2024 fiscal year performance. At the same time, the company's management team also underwent related adjustments, attracting significant market attention.

However, as the performance settled and management adjustments were made, the company wasted no time in announcing new business developments. On September 28, Ningbo THE PARK by K11 Select had its grand opening. It is reported that the trial opening day saw a large crowd, with foot traffic exceeding 150,000. With the arrival of the National Day Golden Week, this strong consumer enthusiasm has greatly boosted market confidence and showcased new world's strong capabilities in operating commercial projects.

Looking back at the company's previous financial reports, it is not hard to see that despite facing a series of adverse factors, the company's performance has been under certain pressure. However, new world dev's overall business fundamentals remain relatively robust. Now, with the successive bullish policies being introduced alongside the company's continuous efforts to reduce leverage and maintain stable operations, new world dev may be at a turning point.

The opening of Ningbo THE PARK by K11 Select can be seen as a landmark event of this turning point, signaling the horn for the company's future development.

1. The underlying business fundamentals are solid, short-term pressures do not change long-term growth potential.

Looking at the overall performance data, in the past fiscal year, new world dev's revenue from continuous business operations was 35.782 billion Hong Kong dollars; gross profit was 12.849 billion Hong Kong dollars; core operating profit from continuous business operations was 6.898 billion Hong Kong dollars; shareholder losses were 11.807 billion Hong Kong dollars.

Looking at it by region, property development revenue in Hong Kong was 2.41 billion Hong Kong dollars, with a division performance of 0.5 billion Hong Kong dollars. Investment property income in Hong Kong was 3.356 billion Hong Kong dollars, with a division performance of 2.536 billion Hong Kong dollars.

Mainland property development revenue was 13.713 billion Hong Kong dollars, with segment performance of 5.258 billion Hong Kong dollars. Mainland property investment revenue was 1.841 billion Hong Kong dollars, with segment performance of 0.955 billion Hong Kong dollars.

It's not hard to notice that, affected by weak economic recovery and deep adjustments in the real estate market, the company is facing significant pressure in property development business, and the performance is not too ideal.

At the same time, it can also be seen that most of the company's layout consists of core assets in core locations, showing a relatively resilient side.

Looking at the mainland property development situation, despite the sluggish real estate market in the past year, the company has still achieved hot sales in multiple projects.

In particular, the financial report mentioned that Shanghai New World·Green Lake located in Guangzhou Liwan Baigetan business district, after a successful hot sale of nearly 200 units in March 2024, continued the red-hot trend, with visitations and transactions ranking among the best in the Baigetan area in Guangzhou. Meanwhile, Shanghai New World·Jervois Residence located in the Changlong-Wanbo sector, has been among the top sellers with sales volume of 7-8 million RMB units in Guangzhou since opening in 2023.

Looking into the reasons behind this performance, it is attributed to several factors:

On one hand, the company has a reasonable project layout, focusing on core assets in core areas, thus having a strong risk resistance capacity. Especially with layouts around the Greater Bay Area and the Yangtze River Delta, these high-growth potential regions provide a solid foundation for the local real estate market due to the economic vitality and population inflow in the area.

Looking ahead, high-quality land reserves also lay the foundation for the company's long-term development. The financial report shows that as of June 30, 2024, New World Development holds approximately 7.74 million square feet of land reserves in Hong Kong, ready for immediate development, with property development occupying about 3.95 million square feet. At the same time, it holds a total of approximately 15.84 million square feet of agricultural land awaiting rezoning in the New Territories, with about 90% located in the "Northern Metropolis" area, which will continue to benefit from the Hong Kong government's development plans.

(Hong Kong land reserve, source: company announcement)

At the same time, looking at the mainland region, New World Dev holds a total gross floor area of ​​approximately 3.721 million square meters of land reserves excluding garages for immediate development. Among them, about 1.988 million square meters are for residential use. The main distribution of core property development projects is in cities such as Guangzhou, Shenzhen, Foshan, Ningbo, Hangzhou, Beijing, etc. The total gross floor area of land reserves excluding garages is about 3.123 million square meters, approximately 58% of which are located in the Greater Bay Area and the Yangtze River Delta region, with residential areas accounting for about 1.459 million square meters.

(China mainland land reserve, source: company announcement)

On the other hand, New World Dev, with its long-standing good reputation in the market and precise positioning of high-quality residential projects, has successfully met the market demand.

Looking at the industry development trends, it is undeniable that there has been a profound change in the supply and demand pattern of the Chinese real estate market. As of 2023, China's per capita housing area has exceeded 40 square meters, and the cumulative completed housing area has reached 50 billion square meters. This marks the transformation of the Chinese real estate industry from meeting basic residential needs to pursuing a higher quality living experience. New World Dev is responding to this market trend by focusing on providing higher-quality residential products to meet people's pursuit of better living conditions, which is also a key factor supporting the recognition of its projects in the market.

Furthermore, with a series of policies introduced this year, such as the relaxation of purchase restrictions and the reduction of down payment ratios, New World Dev has actively seized the window of opportunity brought by policy dividends, focusing on sales and promoting collection to provide strong support for achieving annual goals.

From the sales perspective, it also validates the good performance achieved by the company.

In the past fiscal year, the company's overall mainland property contract sales reached 12.48 billion RMB, with a contract sales area of approximately 0.313 million square meters. The average residential price of the overall contract sales exceeds 0.044 million RMB per square meter.

In addition, the southern region led by the Greater Bay Area and the eastern region led by the Yangtze River Delta region contributed the most, exceeding 85%.

(Source: Company financial report)

It is worth mentioning that as of June 30, 2024, the company's mainland China unbooked property contract sales total revenue is approximately 16.3 billion RMB, to be recognized in the fiscal years 2025 and 2026. This also provides a certain expectation for the subsequent performance growth.

In terms of finance, New World Dev has adopted a prudent financial management strategy to optimize its financial condition by deleveraging and reducing debt. As of June 30, 2024, the company's debt-to-asset ratio stood at 49.33%, still at a manageable level. The company has ample liquidity and good risk resilience. As of June 30, 2024, New World Dev has a total of about 46.3 billion HKD in available funds, including approximately 28 billion HKD in cash and bank balances, and around 18.3 billion HKD in available bank loans.

Overall, New World Dev has achieved stable performance growth when facing market challenges through rational project layout, proactive market strategies, and sound financial management. Currently, with the improvement of policy environment and gradual recovery of market demand, the company is expected to continue its steady development momentum in the future.

Policy-driven industry confirms the inflection point, highlighting the proactive 'alpha' initiative during the market recovery.

In the current macroeconomic and policy environment, Shanghai New World Development is standing at a new starting point for development.

In the phase of policy tailwinds, with support from both supply and demand, opportunities for growth are being unlocked.

Recently, the highest level has put forward new requirements for the real estate sector. The statement 'promoting the stabilization of the real estate market' first appeared in a meeting of the Central Political Bureau. At the same time, a series of policy packages are being intensified, including adjustments to housing purchase restrictions, lowering interest rates on existing home loans, promoting coordination mechanisms for urban real estate financing, increasing the provision of loans for 'whitelisted' projects, and supporting the revitalization of idle land.

It can be seen that policies are actively addressing both supply and demand sides, providing favorable conditions for market recovery.

Moreover, from the perspective of capital markets, the upward trend in the market has fully materialized. Recently, the Hong Kong and A-share real estate sectors have remained active. Notably, Shanghai New World Development soared by 22% the day after its financial report was released.

In the short term, the catalyst for the real estate sector lies in policy, while in the medium term, it is more dependent on the stability of both volume and price in the property market. With continuous validation of the fundamental recovery potential in the subsequent market, the anticipated scenario of property companies' valuation resonating with performance is worth looking forward to.

(Source: Futu Market)

b. With a solid fundamental base and sufficient performance elasticity, highlighting the alpha advantage.

Returning to the company level, in the industry's upwind phase, the market will also pay more attention to real estate companies with large expected differences and a combination of security.

In terms of New World Development's own operating conditions, the company has a solid operational foundation and will continue to benefit from the improving external environment, as well as its operational flexibility, with the expectation of releasing performance elasticity.

On one hand, the company's high-quality project positioning and rational market layout enable it to quickly seize opportunities when the market warms up.

It is worth mentioning that from the perspective of property purchase restrictions, as of now, only Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, and Hainan are still implementing purchase restrictions to varying degrees. Following the positive signals released by the top level, it is not ruled out that the above-mentioned cities will further optimize and adjust housing purchase restrictions based on their own situations.

Against this backdrop, it can be seen that New World Development has projects in Beijing, Shanghai, Guangzhou, and Shenzhen. With the positive signals released by policies, it is expected to bring more optimistic expectations for the company on the sales side.

On the other hand, although Hong Kong property companies generally maintain a lower leverage ratio, New World Development's leverage ratio is higher than traditional Hong Kong real estate companies. This relatively higher financial leverage has put pressure on the company's valuation during market downturns. However, as the industry enters an upwind period, this characteristic becomes an advantage for the company, bringing greater growth potential and elasticity.

Meanwhile, the company's property investment business foundation continues to strengthen, and its business model continues to demonstrate superiority.

From the financial report, it is not difficult to see that Shanghai new world dev's property investment business foundation is constantly being strengthened, and its competitive advantage in business models is increasingly evident.

Newly appointed CEO Ma Shaoxiang mentioned that K11, as an asset and brand under the group, has shown strong resilience in the retail market's fluctuations. Even in the challenging environment faced by the retail industry in the past five years, K11's profits still achieved a compound annual growth rate of 10%. This achievement highlights the superiority of its business model and the attractiveness of its brand.

Over the past fiscal year, whether in the Hong Kong or mainland markets, the company has shown remarkable performance in property investment business.

In the Hong Kong market, K11 MUSEA's sales and total footfall increased by 17% and 20% respectively year-on-year, with an overall rental rate of 97%. K11 Art Mall's sales and foot traffic increased by 16% and 10% year-on-year respectively, maintaining a rental rate of 99%.

In the mainland market, Shanghai K11 achieved an overall rental rate of 94% by the end of the year. Wuhan Optics Valley K11 Select's total sales increased by nearly 10% year-on-year, with double-digit growth in foot traffic throughout the year, further increasing the rental rate to 94%. Tianjin K11 Select achieved significant increases in sales and foot traffic by 22% and 41% respectively. In addition, Guangzhou Cloudgate NEW PARK, as of June 30, 2024, the project's overall rental rate has remained above 90%. Since its official launch in 2018, the project's average daily foot traffic has approached nearly 0.1 million.

In addition to property investments, the company has continued to deliver recovery momentum in the hotel business sector. As of June 30, 2024, Shanghai new world dev collectively owns 17 hotel properties in Hong Kong, mainland China, and Southeast Asia, offering approximately 6560 guest rooms. The financial report shows that over the past fiscal year, the company's operating gross profit from hotels in Hong Kong, mainland China, and Southeast Asia increased by 60%, 76%, and 25% year-on-year respectively (after deducting management fees).

It can be seen that by holding and operating high-quality properties in core areas, Shanghai new world dev has achieved stable income and good investment returns. Now, with the improvement in the macroeconomy, gradual recovery of market demand, and support at the policy level, the company is expected to continue delivering performance growth, bringing about more solid profitability and market competitiveness.

Finally, the financial stability of New World Development has been strengthened, benefiting from improved refinancing environment, continuously alleviating financial pressure.

Although the company has been under some financial pressure in the past period, it can be seen that the management has taken a series of measures to optimize the financial situation, including selling non-core assets, reducing debt, extending the average debt maturity, and effectively improving the financial condition. Especially the recent refinancing activities have not only relieved the company's financial pressure, but also provided a guarantee for stable future operations.

In this regard, analysis from UBS Group also pointed out that compared to December 2023, the recent refinancing pressure on New World has improved, and the current capital resources are sufficient to cope with short-term debt.

At the same time, Citigroup recently mentioned that New World Development is committed to refinancing, selling non-core assets, and discounting agricultural land through cooperation with state-owned enterprises. The bank estimated that for every 1 cent reduction in interest rates by the Federal Reserve, based on 60% of the company's debt as floating interest and an average interest cost of 5%, the company could save 90 million yuan in interest costs.

It can be seen that with the improvement of the macroeconomic environment and the gradual warming of market demand, the financial situation of New World Development is expected to be further strengthened, laying a solid foundation for the company's long-term development.

In conclusion, the results achieved in the first quarter demonstrate that AI capabilities have brought new opportunities to the company. With the continuous increase in the penetration rate of large models, continuous enhancement of product performance, diversification of landing scenarios, and further expansion of overseas business, Cheetah Mobile is expected to welcome a broader development space.

As mentioned at the beginning, an important market focus at the time of this performance announcement is the company's "change in leadership". At the same time, New World Development has also sold the K11 brand business to the former CEO, Zhang Zhigang.

From the perspective of the change in leadership, the market generally expects the new management to lead the company to achieve better performance and development.

It is noted that in the mainland market, Ms. Huang Shaomei, CEO of New World China Real Estate Limited, will continue to hold the current position, fully responsible for the group's business in mainland China and report directly to Dr. Adrian Cheng, Chairman of New World Group. It can be seen that the leadership change at New World does not affect the development of its mainland real estate business.

From this earnings conference, it is also evident that the company's management remains optimistic about the current development in the mainland market. In response, Huang Shaomei stated, "Our commitment to investing in the mainland is firm. It is difficult to find a market worldwide that can maintain growth for 40 years. Despite some short-term difficulties, there is still room for development in the future, making it worth our continued investment."

Furthermore, focusing on the sale of the K11 brand business, the new CEO, Ma Shaoxiang, mentioned that from a business perspective, it is a global trend for property developers or owners to outsource property management to professional companies. Many hotel groups also adopt this practice as it can lead to greater operational cost efficiency and management benefits. The goals of the management company and the owners are aligned, improving project ROI and achieving a win-win outcome.

In fact, considering that Adrian Cheng, as the founder of the K11 brand, through this sale, he will be able to leverage the brand influence of K11 and expand the business further using the light-asset model to explore more commercial potential. For New World Development, this sale is a strategic capital operation that brings immediate cash inflow to the company while retaining the relevant rights of the K11 brand and the potential for asset appreciation. Additionally, by focusing on the main business, it will help enhance the company's operational efficiency and asset ROI, enabling it to respond more quickly to market changes and seize new growth opportunities.

Overall, with the industry embracing new development opportunities and the management team in place, there is reason to believe that New World Development will continue on a favorable path, bringing more anticipation to the market.