A major Hong Kong property developer, New World Development stock plunged 14%. The drop in share price of New World Development was after it estimated a net loss of as much as HK$20 billion ($2.6B) for the financial year that ended in June. New World stock fell to HK$6.74 in early trading, marking a fresh 21-year low.
New World Development forecast
In a Friday filing New World Development forecast for the company was a drop of as much as 23% in core operating profit from continuing operations. This is due to a lack of revenue, and it would have fair value and impairment losses of as much as $2.6B.
“Together with the continuous interest rate hikes experienced during the year as well as the depreciation of Renminbi, the group expects to record a (net) loss,” it said.
The company also said the provisions were one-off non-cash and unrealized items and do not affect the group’s cash flow.
New World has one of the highest debt-to-equity ratios among Hong Kong’s property developers and its de-leveraging plan has been closely watched over the past year.
Hong Kong real estate crisis
While Hong Kong has not seen major defaults on debt by property developers like in mainland China, investors worry about weakening liquidity for the sector due to sluggish residential and commercial property markets.
New World’s full-year loss estimate follows a first-half net loss of HK$5.8 billion.
Analysts on New World’s losses
JPMorgan analysts said in a note to clients that New World’s loss “is not as drastic as the headline suggests”, because its pro-forma core net loss may only be HK$2-3 billion if non-cash items like the impairment loss and losses on asset sales are excluded.
“The net loss situation is more a status quo. For New World Development, the more important consideration is not earnings, but the balance sheet and refinancing ability,” JPMorgan said. Adding, New World has secured HK$16 billion in loan arrangements in July and August.
New World is expected to report earnings later this month.
New World stock update
Its stock has slid some 80% since a peak in mid-2021 just before the debt crisis in China’s property sector began to emerge. It currently has a market cap of around $2.2 billion. New World share price was down to HK$6.74 in early trading.
