Shares of Sun Hung Kai Properties (SHK PPT) plummeted by 5.56% on Monday, following a rating outlook downgrade from S&P Global Ratings. The rating agency revised its outlook on the Hong Kong-based developer to negative from stable, citing concerns over weakening margins and increasing leverage amid a steep decline in housing prices.

According to S&P, SHK PPT's adjusted EBITDA margin dropped to 45.75% in fiscal 2024 from 48.7% in fiscal 2023, as home prices in Hong Kong fell by a staggering 75% between January and mid-September. The agency expects the company's debt-to-EBITDA ratio to temporarily increase to 3.5x, which is S&P's downside trigger.

While S&P expects SHK PPT to be conservative in purchasing land and channel its cash proceeds towards relieving debt, the agency warned that a lower rating is possible if the real estate market erodes significantly and the company's sales and margins are markedly below expectations. Conversely, an outlook revision to stable would hinge on the company's sales and margins falling close to expectations, as well as controlled debt.