What surprised us
　　Henderson Land （0012.HK） posted a 12.1% yoy decline in 1H16 underlyingprofit to HK$4,782mn （in line with GSe’s HK$4,777mn） largely on lowerdevelopment sales. Property sales profit （attr.） declined 23.2% toHK$1,191mn, of which 92%/8% was from HK/China. While gross margin inHK DP was largely stable yoy at 30%, that for China compressed by 7.3ppyoy to only 3.9%, which management cited due to their decision to clearinventories in lower-tier-cities. Rental profit （attr.） grew 4.1% yoy toHK$3,262mn, with contributions from HK and China up 3.2% and 7.3%respectively. 1H DPS was raised to HK￠42 （vs. HK￠38 in 1H15）。
　　What to do with the stock
　　On land banking, they applied for in-situ land exchange in north-east NewTerritories for 0.9mn sq ft of site area, though exact timing would stilldepend on government and management is hopeful to see phase 1 ofaforesaid （0.2mn sq ft） be carried out by end-2016E. In addition, thecompany has another 2.0mn sq ft of site in the same region pendinggovernment land resumption （cash settlement） later on.
　　Looking ahead, management has already secured HK$3.5bn of contractedsales for booking in 2H2016E, and sees their China DP margin improvinghoh. Management guided while interim underlying profit saw a decline,they have instead raised the interim DPS by 10.5% yoy, and believeaforesaid as a vote of confidence to its medium-term earnings outlook,given c.3.9mn sq ft GFA of unsold urban HK land bank （incl.redevelopment projects with >80% ownership acquired）。 Shares stand at28% disc. to FY16E NAV vs. 5-year avg. of 35%. Our 12-m TP is HK$45.20（unchanged）， set at 30% disc. to 2016E NAV. Risks: Faster-than-expectedpace of farmland conversion; lower-than-expected China DP margin.