3rd October 2023 – (Hong Kong) New World Development Co. experienced a significant drop in its shares, declining by as much as 7.9 per cent to the lowest level since November 2003. The decline set a negative trend for other developers in Hong Kong as well, with Henderson Land Development Co. falling by 6.4 per cent and Sun Hung Kai Properties Ltd. experiencing a 4.5 per cent decrease.
The company’s downward spiral follows the release of its weak full-year results last Friday. In light of the disappointing performance, New World Development Co. announced a reduction in its final dividend from HK$1.5 to 30 Hong Kong cents compared to the previous year. This substantial cut in dividends raised concerns among investors, who now worry that other developers may follow suit and also reduce their dividends.
One of the main factors contributing to the decline in shares is the company’s significant dividend cut. Analyst Patrick Wong from Bloomberg Intelligence stated that this sizable reduction in dividends has had a negative impact on shares, sparking concerns among investors about the potential for dividend cuts among other developers.
Moreover, UOB-Kay Hian Holdings Ltd. downgraded New World Development Co. from a buy to a hold rating, citing slower-than-expected sales progress and lower profit margins in the Hong Kong property business. CLSA Ltd. also downgraded the company to a sell rating due to the dividend cut.
Hong Kong developers are currently operating in a challenging market as rising interest rates have dampened buyer demand. Bloomberg’s Centa-City Leading Index, which tracks secondary private residential property prices in Hong Kong, fell for the seventh consecutive week between September 18 and September 24, reaching its lowest level since January.
Analysts from Bloomberg estimate that home prices in the city could potentially decline by 10 per cent over the next 12 months. This further exacerbates concerns surrounding New World Development Co.’s financial situation, as it is already considered the most heavily indebted major builder in the city.
The company’s weak full-year results, combined with the dividend cut and the challenging market conditions, have created a gloomy outlook for New World Development Co. and the wider Hong Kong property sector. Investors will closely monitor the company’s future actions and the potential impact on other developers in the market.