Highlights

• Underlying net profit back in profit, beating expectations, supported by lower finance costs as well as growth in core operations’ results. Higher provisions and impairment led to expanded attributable losses.
   
• Early termination of the 11 SKIES contract, as announced on 30 Sep 26, is positive on NWD’s long-term cash flow, but weaker debt metrics need caution.
   
• Maintain HOLD with a lower target price of HK$6.44 to reflect a wider NAV discount of 80% (previously 70%), taking into account the company’s debt metrics and the market’s interest-rate outlook.

Analysis

• Underlying net profit beat expectations; high provisions deepened net loss. In FY26, New World Development (NWD) reported HK$2.2b of underlying net profit from recurring and core operations (before minority interest and perps distribution), representing a turnaround from a loss of HK1.2b in FY25, beating market expectation of a loss of HK$2,125m. This is mainly thanks to: a) increase in profits from development and investment properties, and b) a 14.9% yoy decrease in finance costs. However, attributable net loss expanded 72.7% yoy to HK$28.2b in FY26, due to: a) HK$18.3b net impairment losses and provisions relating to the 11 SKIES project, and b) HK$8.0b impairment loss on property inventories. Net gearing ratio edged up 10.2ppt to 68.3% as cash declined 34.4% yoy to HK$17b as of Jun 26. The company continued to halt dividends and perps distribution.