Harvesting time is getting closer. We believe HLD’s dual-pronged developmentstrategy of acquiring old buildings for redevelopment and converting farmland intoresidential use is about to harvest. The breakthrough begins with farmlandconversion, which should help HLD to replenish land bank at a reasonable cost, inour view. Company’s 1H17 results reveals its farmland conversion in NewDevelopment Area (NDA) with a floor area of 4.4m sqft is under the final stage. HLDstated that “Premium offers for land exchanges have been received from thegovernment and in the process of an appeal on the assessed amount”. We anticipateHLD to re-rate once it successfully converts a sizable farm land into residential use.
　　>120% y-o-y increase in underlying profit boosted by asset disposals. Anotherhighlight of the interim results is its 124% growth in underlying profit to HKD10.7bn. Ifwe strip out its disposal gains of HKD3.9bn, growth would be 42% to HKD6.8bn, asexpected. We expect 2H17e underlying profit growth to slow down given fewerproject completions. On dividend front, company declared an interim DPS uplift of14% y-o-y to HKD0.48/sh, similar to previous two years with over 10% growth.
　　Property development business stands out from its three business pillars.
　　Operation profit growth of property development business was the highest at 166% yo-y in 1H17, compared to 1.3% growth in its property leasing business and 1.1%growth in its utility & energy business. More project completions in HK and animprovement in asset turnover are keys, in our view. Its recognized revenue was up92% y-o-y to HKD7.9bn with a high operating profit margin of 36%. In this first 6months of 2017, its HK contracted sales went up 113% y-o-y to HKD13.3bn.
　　Maintain Buy rating with a revised target price of HKD55.4. We revise up ourFY17-19e earnings by 6-9%, reflecting revised sales assumptions, updated ChinaASP assumptions and gains on asset disposals. Our valuation is based on a targetdiscount of 37% (0.25SD above the mean) applied to our revised NAV estimate ofHKD88/share (from HKD82.0/share). Key downside risks include macro uncertaintiesand property regulations in Hong Kong and China.