EUR 850.00 For Business Accounts Only

Morningstar | Share Price Attractive due to Quality Retail Assets in China and Potential Corporate Action

After rebounding strongly at the beginning of year, shares of Wharf Holdings peaked at our fair value estimate in early March. Since then, it has declined 20%, underperforming the market by more than 15%. The poor performance was attributed to the ongoing trade tension along with a weak residential market and slowing retail sales growth in China. While these concerns are valid, we believe the degree of underperformance relative to its peer is unwarranted. We maintain our fair value estimate of HKD 25, along with the company’s no-moat rating.

In China, the company’s retail assets are centrally located and well managed with excellent long-term growth opportunities. Despite the recent slowdown in China’s retail sales, we remain positive on the long-term trend of accelerated consumption growth, powered by urbanization and income growth. Similar to that seen in the U.S., we also expect a bifurcation of retail assets in China with top performing assets increasing commanding a larger share of retail sales owing to their competitive advantages in asset quality, tenant mix and marketing and promotion. With Wharf being one of the few credible retail asset managers in China, we believe its portfolio should outperform the market. Further, recent government fiscal measures reflect the government’s desire to boost domestic consumption. The new policy of limiting overseas purchases should provide additional tailwind, especially in the luxury goods segment.

We believe the company’s shares are attractively priced at this point. A privatization effort from the parent company Wheelock is possible if share price remains weak. The parent company recently privatized its Singapore subsidiary.