Investment Summary

SUNeVision is one of the leading carrier-neutral data center operators in Hong Kong, owned 74.04% by Sun Hung Kai Properties (16.HK). The 2018 annual result was satisfactory, and generally in line with our expectations except GPM. Besides, the group was applying for a judicial review on subletting restriction in industrial estates. Once successful, it could enhance the importance of Mega Plus in Hong Kong. Factoring in the severer deterioration in GPM, rising interest expense, and stronger estimated revenue growth, we derive our target price to be HK$ 5.72, downgrading to “Accumulate”, with 9.79% potential upside. (Closing price at 2 Oct 2018)

Corporate Update

2018 performance in line with expectations, except gross profit margin

The annual result for the group was generally in line with our forecasts, except the gross profit margin. The revenue reached HK$1.36 billion, up 19.5% YoY, slightly over our previous estimate, 16.2%. However, the deterioration in GPM was larger than we expected, dropping by 3.2ppt to 58.5%, 1.5ppt lower than our estimate. The plunge in GPM was mainly due to higher operating costs and depreciation charges due to the opening of MEGA Plus. For selling expenses and administrative expenses, the actual amount generally matched with our expectations. The actual EBIT excluding gain on fair value reached HK$738 million, generally in line of our estimate, HK$742 million.