EUR 850.00 For Business Accounts Only

Morningstar | Retail Assets in China Should Be Resilient Despite Trade Tensions and Slowing Economy

Over the past two months, Hang Lung Properties' shares have been weighed down by continuing trade tensions and a slowing Chinese economy. However, we believe that despite the company’s large exposure to China, it should be resilient to any uncertainties. The central government has implemented a series of fiscal measures to stimulate domestic demand. We also expect liquidity conditions to improve. After dropping 10% since early April, the company’s shares are now trading at 17 times 2019 projected earnings, along with a dividend yield of 4.4% supported by recurrent income. At the current valuation level, we believe this is a good entry point. We maintain our fair value estimate of HKD 22, and the company’s no-moat rating.

Our thesis; based on the long-term trend of accelerated consumption growth, powered by urbanization and rising income; hasn't changed. The continued rise in consumption and increasing e-commerce are creating a pool of more discerning consumers. We expect a bifurcation of retail assets in China, with top-performing assets increasingly commanding a larger share of retail sales owing to their competitive advantages in asset quality, tenant mix, and marketing and promotion. We expect the company to outperform as the purveyor of quality retail assets in China.

Separately, the company announced the redevelopment of a block of older commercial buildings in North Point. The project is jointly held by the company and its parent Hang Lung Group. The redevelopment project is opportunistic. The company has a negative view of the residential market and has not participated in the government land auction market for quite some time.