20181219-高盛-恒隆地产-00101.HK-A_postcard_from_Hangzhou_12页_806kb

Hang Lung Properties (0101.HK) Summary

Core Content

Hang Lung Properties (0101.HK) is a Hong Kong-based property developer with a focus on commercial real estate, particularly in mainland China. The report highlights the company's strategic land acquisition in Hangzhou, China, in May 2018, which is a significant move after a five-year hiatus. The site, located in the Wulin Square area of the Xiacheng District, has a gross floor area (GFA) of 194,101 square meters and a land premium of Rmb10.7 billion (HK$13.1 billion), with an expected total capex of Rmb16 billion.

The report outlines the company's financial performance and valuation metrics, including a current share price of HK$15.50 and a 12-month price target of HK$19.71, implying a 27.2% upside. It also discusses the company's financial ratios, earnings projections, and dividend yield, indicating a discount to its net asset value (NAV) and potential for future growth.

Key Points

Strategic Merit of Hangzhou Site Acquisition

• Location: Wulin Square area, Xiacheng District, Hangzhou.
• Land Split: 45% retail and 55% office.
• Land Premium: Rmb10.7 billion (HK$13.1 billion), with a per/sqm value of roughly Rmb55,000.
• Total Capex: Expected to be around Rmb16 billion.
• Significance: The first land acquisition in mainland China since 2013, highlighting the company's renewed focus on expanding its footprint.

Financial Performance

• Revenue: Expected to decline from 2017 to 2018, with forecasts for continued growth in 2019.
• EBITDA: Projected to decline in 2018 but remain relatively stable in subsequent years.
• EPS: Expected to decrease in 2018 but show a slight improvement in 2019.
• Dividend Yield: Projected to increase from 3.9% in 2017 to 5.4% in 2020.
• FCF Yield: Expected to fluctuate, with a positive forecast for 2020 at 6.6%.

Valuation Metrics

• Market Cap: HK$69.6 billion.
• Enterprise Value: HK$86.6 billion.
• P/E Ratio: Increased from 10.6 in 2017 to 16.8 in 2020.
• P/B Ratio: Slightly decreased from 0.6 to 0.5.
• NAV Discount: HLP trades at a 59% discount to forward NAV as of 2018.

Key Challenges

• Rental Yield: Management's initial yield guidance of 4-5% may be difficult to meet unless there is a substantial rental premium over peers.
• Competition: The Hangzhou site will face competition from established department stores such as Hangzhou Tower and Wulin Intime.
• Accessibility: The site does not have direct frontage with the main Yan'an Road, which may require management to focus on improving access.
• FX Impact: The company is likely to face negative FX impact from its China rentals in the second half of 2018.

Opportunities

• Core City Land Supply: Limited supply in core city areas is favorable for HLP's project.
• Office Market: The Qianjiang New Town area has a more mature office market, which may support ongoing improvements in fundamentals.
• Retail Market: The retail market in Hangzhou is still developing, and the Hangzhou site could benefit from this trend.

Investment Outlook

• Rating: Neutral.
• Reasoning: The company is trading at a discount to NAV, but macroeconomic uncertainties and slower growth in the second half of 2018 may temper expectations.
• Dividend Potential: There is potential for a resumption of DPS hikes in 2019, supported by new project completions.

M&A Considerations

• M&A Rank: 3, indicating a low probability of being acquired.
• Impact on Target Price: The M&A rank does not affect the price target, as it is considered immaterial.

Factor Profile

• Growth: Moderate, with stable forward-looking sales and EBITDA growth.
• Financial Returns: Moderate, with a low ROE and ROCE.
• Multiple: Low, as the stock trades at a discount to its NAV and other valuation metrics.
• Integrated: Moderate, reflecting the company's balance between growth, financial returns, and valuation.

Conclusion

Hang Lung Properties is a company with a strategic land acquisition in Hangzhou, which has potential for long-term growth. However, the company faces challenges in meeting its initial yield guidance and managing macroeconomic and FX risks. The report suggests a neutral outlook, given the current valuation and market conditions. The company's financial performance and valuation metrics indicate a discount to NAV, which could be an opportunity for investors.