Introduction to Sun Hung Kai & Co
Sun Hung Kai & Co (SHK&Co) is a Hong Kong-based alternative investment company with a strong focus on public markets, alternatives, and real assets. The company has a proven track record of generating long-term, risk-adjusted returns for its shareholders. In recent years, SHK&Co has expanded its strategy to incubate and support emerging asset managers in Asia, solidifying its position as a leader in alternative investments.
Stock Overview
Share Price: HK\$2.68
Target Price: HK\$5.24 (96.1% upside)
52-Week High/Low: HK\$3.16/HK\$2.15
Market Capitalization: HK\$5,267m (US\$675m)
Major Shareholders: Lee and Lee Trust (73.51%)
FY24 NAV/Share: HK\$12.42
FY24 Net Debt/Share: HK\$4.08
2024 Performance Recap
In 2024, SHK&Co adopted a cautious approach to its business operations in response to high interest rates, geopolitical risks, and weakening economies in Greater China. The company focused on capital efficiency and identified special opportunities arising from market dislocations to generate attractive returns while maintaining strong downside protection.
Investment Management Strategy
SHK&Co’s investment management business capitalized on market dislocations in 2024. The company observed stabilizing asset valuations in public market portfolios compared to 2022 and 2023. In private equity, SHK&Co exercised prudence in capital deployment and concentrated on managing existing portfolios. Hedge funds were rebalanced towards market-neutral strategies to mitigate volatility since 2022.
Notably, SHK&Co strategically emphasized its special situations segment, which delivered robust defensive characteristics and favorable returns from market dislocations or idiosyncratic events. Moving forward, the company plans to allocate more capital to this segment amid ongoing macroeconomic uncertainties.
Funds Management Business
SHK&Co’s funds management segment continued to attract external capital despite a challenging fundraising environment. The company is projected to achieve assets under management (AUM) growth, reaching US\$1.5 billion in 2024, US\$2 billion in 2025, and US\$2.5 billion in 2026, compared to US\$964 million in 2023. Fee income is expected to increase to HK\$37m, HK\$48m, and HK\$62m during the same period.
The strategic alliance with GAM Investments has bolstered SHK&Co’s distribution and client servicing capabilities across Greater China. Further collaboration with GAM on a global scale is anticipated to diversify the company’s revenue streams.
Consumer Finance and Credit Businesses
The credit business, managed by United Asia Finance (UAF), maintained a stable gross loan balance of HK\$11.2 billion by the end of 2024. UAF focused on secured loans in Mainland China, which accounted for over 50% of its gross loan book, and implemented tighter credit underwriting practices. The net impairment ratio is expected to remain stable at 7.1% in 2024, compared to 5.9% in 2023.
SHK Credit exhibited caution in mortgage lending due to high interest rates exerting pressure on property prices. The gross loan book is forecasted to decline by 15% year-on-year to HK\$2,184 million by the end of 2024. The company is exploring potential business opportunities to balance risk mitigation and long-term growth.
Financial Performance
SHK&Co’s financial highlights for the years 2023-2026 are as follows:
- Net Turnover: HK\$3,917m (2023), HK\$3,792m (2024F), HK\$3,688m (2025F), HK\$3,651m (2026F)
- Net Profit: HK\$(471)m (2023), HK\$272m (2024F), HK\$859m (2025F), HK\$876m (2026F)
- EPS: (24.0) cents (2023), 13.8 cents (2024F), 43.7 cents (2025F), 44.5 cents (2026F)
- Dividend Per Share: 26.0 cents (2023-2026F)
- Net Margin: (12.0%) (2023), 7.2% (2024F), 23.3% (2025F), 24.0% (2026F)
Key Financial Metrics
SHK&Co’s financial health is reflected in the following metrics:
- Debt to Total Capital: 36.5% (2023), 36.0% (2024F), 37.1% (2025F), 34.1% (2026F)
- ROE: (1.9%) (2023), 1.1% (2024F), 3.4% (2025F-2026F)
- Net Debt to Equity: 38.6% (2023), 38.2% (2024F), 36.7% (2025F), 35.6% (2026F)
Valuation and Recommendation
UOB Kay Hian maintains a BUY recommendation for SHK&Co, with a revised target price of HK\$5.24, reflecting a 96.1% upside potential. This valuation is based on a 0.48x 2025F P/B ratio, aligning with the company’s peers in the alternative investment sector.
