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BUY with US$6.55 TP. Following the recent share price appreciation led by share buyback, the stock is now trading at a 50% discount to our appraised current NAV. Further share repurchase lends support to the share price. Improving Central office market should also be positive for Hongkong Land. Maintain BUY with revised TP of US$6.55
 
Share buyback gave a boost to share price.
 In early Sep, Hongkong Land announced its intention to invest up to US$500m in a share repurchase program extending till end-2022. This should improve its capital structure and enhance shareholders’ value. Since then, the company has repurchased 20m units from the market, which triggered strong share price rally. 
 
Central office market exhibits early signs of recovery. 
The office market downturn in Central is bottoming. Rental shows signs of early recovery and vacancy is stabilizing. The retail scene is improving with a revival of local consumption now that the pandemic situation is under control. This should lend support to the valuation of Hongkong Land’s Central portfolio which makes up c.54% of its GAV.

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NAV We use NAV as valuation benchmark for Hongkong Land. Our NAV estimate is based on sum-of-the parts (SOTP) valuation. We applied the income capitalisation method for investment properties and discount cash flow model to value development properties. Our target price (TP) for Hongkong Land is premised on 45% discount to our Jun-2022 NAV estimates. 

Where we differ
We believe that Central office market is bottoming with limited further rental downside this year. This should point to steady rental income for Hongkong Land.

Key Risks to Our View:
Any further deterioration in leasing demand for office in Central and Singapore could drag earnings. Slow demand and property market cooling measures could adversely affect residential sales earnings from China. Cap rate expansion could lead to lower property valuations.