UBS has issued a research report assigning a target price of HK$27 and a "Buy" rating to Kerry Properties (00683).

The Lands Department announced that Kerry Properties won the residential site on Fat Kwong Street in Ho Man Tin for over HK$4.308 billion, a price far exceeding the upper limit of market expectations. The accommodation value per square foot is approximately HK$20,738, with the winning bid coming in 38% above the upper bound of market forecasts.

Based on the following assumptions: given that the project is a luxury development, sales are expected to generate a six-year capital recovery cycle after completion; annual funding costs stand at 4%; and construction costs are HK$6,000 per square foot, UBS estimates the total development cost calculated on a gross floor area basis at HK$33,155 per square foot. If a further assumption of an 85% efficiency ratio is applied, the bank estimates that Kerry Properties would need to achieve an average selling price of approximately HK$39,000 per square foot of saleable area to break even.

This price is significantly higher than the selling prices at the nearby luxury project "Ultima," where recent secondary market transactions have been around HK$30,000 per square foot. The bank believes the acquisition reflects management's confidence in the outlook for Hong Kong's luxury property market. UBS estimates that following the acquisition, Kerry Properties' net gearing ratio will rise from 31.3% as of June 2026 to 34.9%.

However, the company's deleveraging trend should be maintained, as approximately RMB 8 billion in net sales proceeds from a Shanghai project are expected to be received by the fourth quarter of 2026, which is anticipated to bring the net debt-to-equity ratio down to 27.1%. Given the relatively high land price of the site, the bank expects the market's stock price reaction to the acquisition to lean negative.