Wharf Demerger Proceeds with Opportunity of Privatization

Investment Properties in China Will Power Growth for Wharf, but Other Initiatives Unclear

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Equity Bottom-Up

Wharf has released some operating data for third-quarter 2016. During the quarter, Harbour City and Time Square saw retail sales dropping by 6.4% and 6.3% year on year, respectively. Relative to the performance in the previous two quarters as well as the citywide trend, the retail sales decline at the company’s Hong Kong core retail assets seems to have moderated.As Wharf’s share price has rebounded strongly in the year to date, and as earnings growth will likely be subdued in the near future, with rental reversion narrowing further in 2017, we believe the shares are fairly valued. We retain our fair value estimate of HKD 51, and our narrow moat and stable trend ratings for the firm are unchanged.Analyst: Phillip Zhong

Wharf has released some operating data for third-quarter 2016. During the quarter, Harbour City and Time Square saw retail sales dropping by 6.4% and 6.3% year on year, respectively. Relative to the performance in the previous two quarters as well as the citywide trend, the retail sales decline at the company’s Hong Kong core retail assets seems to have moderated.As Wharf’s share price has rebounded strongly in the year to date, and as earnings growth will likely be subdued in the near future, with rental reversion narrowing further in 2017, we believe the shares are fairly valued. We retain our fair value estimate of HKD 51, and our narrow moat and stable trend ratings for the firm are unchanged.Analyst: Phillip Zhong

Wharf Holdings

Retail Sales Decline Moderates Further