Malls’ sales have picked up strongly recently
? Management believes luxury retail in China has not been severely impacted by the two-month lockdown. It expects positive rental reversions in FY22F.
? Management expects HK retail sales to rebound from Apr thanks to the consumption voucher scheme, but rental reversions likely under pressure.
? Management has guided for progressive growth in dividends and will keep focusing on the luxury retail market in China. Reiterate Hold.
HLP: lockdown has not severely impacted China luxury retail
? Management said the footfall for all malls in China, especially its four malls located in Shanghai and Shenyang, declined due to Covid-19 lockdowns.
? Despite the loss of turnover rent, Hang Lung Properties (HLP) was still able to collect base rent from tenants during the lockdown from Apr to May. Management said the occupancy rates have been stable due to tenants’ stronger financial positions vs. in FY20.
? Overall, tenants of sub-luxury malls, especially those in the food and beverage (F&B) or lifestyle products segments, saw a larger impact from the lockdown measures than luxury malls.
? Sales picked up on 20 May 2022 which is celebrated as “Chinese Valentine’s Day” in the country.
? Management believes the two-month lockdown has not severely impacted luxury tenants and China’s economy will recover once the lockdown measures are relaxed. It expects positive rental reversions in FY22F and will continue to focus on the luxury retail market in China.
? For the office segment, HLP expects positive rental revenue growth in FY22F and has guided for lower rental concessions vs. in FY20.
Rental reversions in HK IP still under pressure
? Management expects the retail sales of HLP’s portfolio to rebound, thanks to the consumption voucher scheme, especially for the F&B, fashion, and jewellery segments.
? Management said it is easier to achieve positive rental reversions for new tenants in residential districts than in tourist areas, where vacancy remains high currently.
? Overall, the company believes rental reversions are still under pressure in HK. Dividend and M&A guidance
? Management guided for progressive growth in dividends and believes investors are looking for income growth from HLP.
? It also said HLP is open to acquiring residential projects in HK, especially in the luxury segment.
? In China, HLP prefers commercial properties, especially high-end malls, rather than residential properties, because of strong local consumption demand.
? With the opening of more luxury malls in China, management believes mainland Chinese have less reason to visit HK for shopping purposes. Therefore, it now has a more conservative view on the HK retail market and will continue to focus on the luxury mall segment in China.
Reiterate Hold with an unchanged target price of HK$18.0
? We reiterate our Hold call on HLP with an unchanged TP of HK$18 (40% discount to NAV).
? Upside risks: stronger-than expected rental growth in China and HK.
? Downside risks: Further lockdowns due to Covid-19 outbreaks in China, especially in Shanghai.