SHKP outlook revised to negative

June Chen

Standard & Poor Global Ratings has downgraded the credit rating of Sun Hung Kai Properties from stable to negative though affirming 'A+' long-term issuer credit rating for the developer.

The negative rating outlook reflects the rating agency's expectation for SHKP's margins and leverage to remain strained over the next 12-24 months. However, it expects the company to temper land acquisitions and reduce debt such that the debt-to-EBITDA ratio falls to 3.5 or below over the period.

Meanwhile, the consolidated operating profit margin of the company's Hong Kong property development business dropped to 26.3 percent in fiscal 2024 from 35.5 percent in fiscal 2023.

The adjusted EBITDA margin also fell in tandem, to 45.7 percent in fiscal 2024 from 48.7 percent a year earlier. The lower margins were mainly due to falling home prices in Hong Kong.

Revenue from the company's property development in Hong Kong accounted for close to 35 percent of its total consolidated revenue in fiscal 2024.

Home prices in Hong Kong have fallen by about 7 percent between January and mid-September 2024, in line with the agency's expectation of a 5-10 percent decline during the year.

S&P estimates the developer's adjusted EBITDA margin will be 41 percent to 44 percent during fiscal years 2025-2027, saying Hong Kong's home prices are likely to remain soft amid elevated supply of primary residential properties.