Henderson Land’s （00012 HK or “HLD”） underlying net profit in 2017increased 38.0% YoY to HKD19,557 million, beating marketexpectations. Property sales revenue dropped 6.5% yoy in 2017, whichdragged down revenue by 4.4% yoy to HKD24,453 million. Givenhigher-than-expected gains from disposal of properties, underlying profitincreased 38.0% yoy to HKD19,557 million. Operating margin of propertydevelopment business reached 35.3% in Hong Kong and 20.7% in China.Overall operating margin in property leasing business decreased 0.6 ppts to75.5%. The Company's net gearing was 19.0% by the end of 2017, up 6.3ppts yoy.
HLD's average land cost of redevelopment projects increased by about19% yoy due to expansion of higher land bank value on Hong KongIsland. Asset recycling process is expected to continue in 2018, but theconversion of farmland in the New Territories will slow down. HLD is expectedto maintain moderate dividend growth in the next few years.
We raise our TP to HKD54.73 and maintain our “Neutral” investmentrating. We believe that the dividend will increase moderately by 10% in 2018.Our TP represents a 32% discount to the FY18 NAV estimate of HKD80.5 pershare. Our TP implies 7.1% upside from the current stock price. Our TP alsoimplies 12.6x/ 15.8x/ 24.3x FY18/ FY19/ FY20 underlying PER and 0.70x/0.68x/ 0.66x FY18/ FY19/ FY20 PBR.