Shenwan Hongyuan Group Co., Ltd. released a research report initiating coverage on HANG LUNG PPT (00101), assigning a "Buy" rating with a target price of HK$11.7. The report highlights the company's focus on developing high-end commercial landmarks in core business districts, proactive mall adjustments, and sequential improvements in retail performance, with core mall rents turning positive year-over-year.
Financially, HANG LUNG PPT maintains robust health with an 80% dividend payout ratio and potential future shifts to pure cash dividends. The firm forecasts 2025-2027 net profits attributable to shareholders at HK$25.2 billion, HK$25.5 billion, and HK$26.4 billion, representing YoY growth of +17%, +1%, and +4%, respectively. Core profits are projected at HK$28.9 billion, HK$29.2 billion, and HK$30.0 billion, with YoY changes of -7%, +1%, and +3%. The P/E ratios stand at 18x, 18x, and 17x for the respective years.
Key insights from Shenwan Hongyuan include: 1. **Business Focus**: HANG LUNG PPT primarily operates investment property leasing, supplemented by property sales and hotels, with a presence in mainland China and Hong Kong. Its properties are concentrated in prime urban locations, exemplified by Shanghai’s two Hysan Place landmarks, which boast high efficiency per square foot and stable rental income. 2. **Performance**: 2024 revenue reached HK$11.2 billion (+9% YoY), with a 5% CAGR from 2011-2024. Rental income from mainland properties accounted for 58%, Hong Kong properties 27%, Hong Kong development 13%, and hotels 2%. Growth has been driven by mainland rental income, which posted a 7% CAGR over 2011-2024. In 1H25, revenue totaled HK$5.0 billion, with rental income making up 94%. 3. **Leasing & Retail Recovery**: - **Mainland Properties**: Active tenant mix adjustments have led to sequential retail improvements. By end-2024, the company operated 10 Hysan Place malls across 8 mainland cities (2.27 million sqm total, 61% retail, 33% office). Mainland rental income fell 5% YoY in 2024 (7% CAGR since 2011) but narrowed to -2% YoY in 1H25. Seven of ten malls saw positive YoY rent growth in 1H25, supported by retail recovery since 3Q24. The upcoming Hangzhou Hysan Place (390k sqm) is expected to contribute from 2025-2026. - **Hong Kong Properties**: Market sentiment recovery has eased revenue declines. Rental income dropped 9% YoY in 2024 (-4% in 1H25), with retail (59%), office (34%), and residential (8%) segments showing gradual improvement. - **Hotels**: Operations remain stable, with two hotels in Shenyang and Kunming generating HK$129 million revenue in 1H25 (+84% YoY). 4. **Luxury Retail Revival**: Since 3Q25, strong revenue rebounds from brands like Hermès, Prada, and LVMH signal a luxury consumption recovery, supporting future high-end mall performance. 5. **Financials & Dividends**: - Debt stood at HK$54.8 billion in 1H25 (+3% YoY), with net gearing at 33.5%. Capital commitments are expected to decline as Hangzhou Hysan Place opens, potentially lowering gearing. - 1H25 financing costs hit a multi-year low of 3.9%. - Dividends remained stable at HK$3.3-3.5 billion annually from 2012-2023 but dipped to HK$2.5 billion in 2024 (80% payout ratio). A return to pure cash dividends is anticipated.
**Risks**: Potential tighter-than-expected property regulations and weaker retail performance.
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