Komo: Maintaining Changshi Group's (01113) “Increase” Rating Target Price of HK$52, the additional cost of rebuilding the Anderson Road project is expected to reach HK$1.2 billion to HK$1.4 billion

The Zhitong Finance App learned that J.P. Morgan Chase released a research report stating that it maintains Changshi Group's (01113) “increase in holdings” rating, with a target price of HK$52. The reasons include that the group is in a net cash position, the interest rate hike scenario has limited impact on it, and that the group has more potential capital recovery opportunities. Changshi Group announced on the evening of October 8 that it has decided to demolish and rebuild three of the six residential buildings in the “Hong Kong People's First Project” on Anderson Road. Previously, it was discovered that the steel bars had seriously deviated from the approved plans. The bank roughly estimates that the additional construction cost is HK$1.2 billion to HK$1.4 billion, equivalent to 0.8% to 0.9% of the market value, and may reduce the profit margin for project development from 19% to 8% to 10%, dragging down the annual profit margin by about 8%.

J.P. Morgan Chase pointed out that this incident is not new; it was first discovered as early as 2024, but Changshi Group has not officially announced follow-up actions until now. The above estimates do not take into account potential recoveries from insurance claims and lawsuits because the incident involved a potential bribery case at the contractor level, not Changshi Group. The bank expects a slight negative reaction from the company's stock price.

Furthermore, the Buildings Department has approved the relevant demolition plans, but the demolition work has not yet commenced and confirmed that the overall structure of the building is not in immediate danger. For the other three buildings that do not need to be rebuilt, the bank assumes that additional remediation works of approximately HK$500 per square foot of saleable area will still be required.