BofA Securities has released a research report reiterating its "Buy" rating on Hang Lung Properties (00101) with a target price of HK$10.4. The bank anticipates a slight 1% decline in core profit for the 2026 fiscal year, primarily due to mainland retail rental growth and improved profit from development properties—which recorded a loss in FY2025—being offset by a decrease in office revenue and a significant reduction in capitalized interest. With the recovery in Hong Kong's residential market supporting sales of development properties this year, the bank believes Hang Lung has an opportunity to discontinue its scrip dividend scheme in the first half of 2026, although management has not committed to a specific timeline. Hang Lung's current trading implies a dividend yield of 5.5% and trades at an approximate 60% discount to its net asset value, which the bank views as an attractive valuation. Based on downward revisions to office rents, the bank has slightly lowered its earnings per share forecasts for FY2026 and FY2027 by 1%. Management noted that, despite an unfavorable comparison due to the different timing of the Lunar New Year in 2026 versus 2025, sales from mainland Chinese tenants in January were largely flat. Luxury retail sales are expected to recover from an estimated 1% decline in FY2025 to low-to-mid single-digit growth in FY2026, while non-luxury categories are projected to perform even better. The forecast indicates that Shanghai Grand Gateway 66 (GG66), which relies more on base rents, will achieve stable rental growth of 3%, while retail growth at Shanghai Plaza 66 is expected to improve from a 1% year-on-year increase in the second half of 2025 to a 4% year-on-year growth in FY2026. The operating cost ratio is expected to remain within a reasonable range, hovering around the teens. Management emphasized new initiatives to strengthen the performance of non-luxury tenants in Wuhan and the introduction of new sportswear and lifestyle facilities in Shenyang to boost foot traffic. The pre-leasing rate for Hangzhou Westlake 66 has reached an encouraging 91%, with occupancy rates projected to be 80% and 90% upon its opening in the second and third quarters of 2026, respectively.
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