Listed Real Estate Asia, KT Capital Group

Jacob Cheng

Listed Real Estate Asia

KT Capital Group

Principal investments and advisory firm that focuses on connecting the CIS countries with East Asia.

Principal investments and advisory firm

Equity Bottom-Up

<ul>
<li>We are turning bearish on Hang Lung Properties.   Given China’s economic slowdown, we think luxury spending in China will take longer than expected</li>
<li>In addition, the property slowdown and housing prices decline will lead to a negative wealth effect, which will further impact luxury consumption</li>
<li>If RMB is to strengthen, more Chinese will travel to spend overseas.  HLP P/B valuation is almost historical low, but can stay cheap as a “value trap”</li>
</ul>


We are turning bearish on Hang Lung Properties.   Given China’s economic slowdown, we think luxury spending in China will take longer than expected
In addition, the property slowdown and housing prices decline will lead to a negative wealth effect, which will further impact luxury consumption
If RMB is to strengthen, more Chinese will travel to spend overseas.  HLP P/B valuation is almost historical low, but can stay cheap as a “value trap”


Turning Bearish: Hang Lung Properties Going Through a Perfect Storm

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Although lower interest rates will benefit the technology sector more, many investors will still opt for high-yield stocks to protect their income stream.</li>
<li>
<a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a>, <a href="https://www.smartkarma.com/entities/hang-lung-properties-ltd" target="_blank" data-smartkarma-citation="entities:49:1" rel="noopener">Hang Lung Prop (101 HK)</a>, <a href="https://www.smartkarma.com/entities/china-hongqiao-group-ltd" target="_blank" data-smartkarma-citation="entities:1909:1" rel="noopener">China Hongqiao (1378 HK)</a>, <a href="https://www.smartkarma.com/entities/hengan-international-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a>, and <a href="https://www.smartkarma.com/entities/henderson-land-development-co" target="_blank" data-smartkarma-citation="entities:376:1" rel="noopener">Henderson Land (12 HK)</a> are the top 5 high-yield HSI constituents.</li>
<li>Mainland China banks no longer made the list, but <a href="https://www.smartkarma.com/entities/industrial-and-commercial-bank-of-china-limited" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">ICBC (H) (1398 HK)</a> and <a href="https://www.smartkarma.com/entities/bank-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:656:1" rel="noopener">Bank Of China Ltd (H) (3988 HK)</a> remain attractive at 5.7% and 5.6%, respectively.</li>
</ul>


Although lower interest rates will benefit the technology sector more, many investors will still opt for high-yield stocks to protect their income stream.

CNOOC Ltd (883 HK), Hang Lung Prop (101 HK), China Hongqiao (1378 HK), Hengan Intl Group (1044 HK), and Henderson Land (12 HK) are the top 5 high-yield HSI constituents.
Mainland China banks no longer made the list, but ICBC (H) (1398 HK) and Bank Of China Ltd (H) (3988 HK) remain attractive at 5.7% and 5.6%, respectively.


HK Strategy: Time to Revisit the Yield Story

<ul>
<li>Through operating luxury shopping malls in China, Hang Lung Properties is the only HK-listed stock that provides exposure to the China luxury consumption story.  It is trading at attractive valuation.</li>
<li>Major concerns are 1) leakage of retail sales after re-opening and 2) impact on luxury consumption from negative wealth effect.  Most of the risks are priced in at current valuation.</li>
<li>Short-Term, China consumption will recover post-COVID as consumer sentiment rebounds.  Long-term, the structural story of China consumption remains intact, supported by growing middle class and increasing disposable income and savings.</li>
</ul>


Through operating luxury shopping malls in China, Hang Lung Properties is the only HK-listed stock that provides exposure to the China luxury consumption story.  It is trading at attractive valuation.
Major concerns are 1) leakage of retail sales after re-opening and 2) impact on luxury consumption from negative wealth effect.  Most of the risks are priced in at current valuation.
Short-Term, China consumption will recover post-COVID as consumer sentiment rebounds.  Long-term, the structural story of China consumption remains intact, supported by growing middle class and increasing disposable income and savings.


Hang Lung Properties (101 HK): The Only Play on China Luxury Consumption and at a Macro Sweet Spot

<ul>
<li>HLP malls, which focus on China luxury retail consumption, is facing headwind from slowing China economy and weaker consumption</li>
<li>The retail sales in its malls slowed down and recorded -13% yoy growth for 1H 2024.  Dividend cut was a negative surprise</li>
<li>However, market is forward looking and stock valuation is too cheap to ignore, we recommend long-term investors can look at this name</li>
</ul>


HLP malls, which focus on China luxury retail consumption, is facing headwind from slowing China economy and weaker consumption
The retail sales in its malls slowed down and recorded -13% yoy growth for 1H 2024.  Dividend cut was a negative surprise
However, market is forward looking and stock valuation is too cheap to ignore, we recommend long-term investors can look at this name


Hang Lung Properties 101 HK: Dragged by China Slowing Luxury Retail, but Stock Too Cheap to Ignore

<ul>
<li>There is an increasing likelihood that the duty-free quota of mainland tourists visiting Hong Kong will rise to Rmb30,000 from Rmb5,000. This will benefit many retail-related sectors.</li>
<li>
<a href="https://www.smartkarma.com/entities/luk-fook-holdings-intl-ltd" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook Holdings (590 HK)</a> is the best play among jewellery retailers given it has 65% of revenue from Hong Kong. <a href="https://www.smartkarma.com/entities/sa-sa-international-hldgs" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa International (178 HK)</a> is the cosmetics play.</li>
<li>Property investors including <a href="https://www.smartkarma.com/entities/wharf-holdings-ltd" target="_blank" data-smartkarma-citation="entities:51:1" rel="noopener">Wharf Holdings (4 HK)</a> and <a href="https://www.smartkarma.com/entities/hysan-development-co" target="_blank" data-smartkarma-citation="entities:14169:1" rel="noopener">Hysan Development Co (14 HK)</a> will gain from the shopping malls in major tourist areas in Hong Kong.</li>
</ul>


There is an increasing likelihood that the duty-free quota of mainland tourists visiting Hong Kong will rise to Rmb30,000 from Rmb5,000. This will benefit many retail-related sectors.

Luk Fook Holdings (590 HK) is the best play among jewellery retailers given it has 65% of revenue from Hong Kong. Sa Sa International (178 HK) is the cosmetics play.
Property investors including Wharf Holdings (4 HK) and Hysan Development Co (14 HK) will gain from the shopping malls in major tourist areas in Hong Kong.


Increasing HK Duty Free Quota: The Beneficaries

Hong Kong

Hang Lung Properties Limited, through its subsidiaries, invests in, develops, and manages properties. The Company also manages parking lots. Hang Lung Properties serves customers in Hong Kong.

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Hang Lung Properties (101 HK)

Turning Bearish: Hang Lung Properties Going Through a Perfect Storm

We think HLP is facing a perfect storm with China's economic slowdown, weaker luxury spending, and negative wealth effect from home price decline. ...

Jacob Cheng

HK Strategy: Time to Revisit the Yield Story

High-yield stocks like CNOOC, Hang Lung Prop and Henderson can protect income stream despite lower interest rates favouring the tech sector. ICBC...

Osbert Tang, CFA