We believe that the downside risk of further RMB depreciation is limitedas the market generally expects that the USD/ RMB exchange rate will notbreach the threshold of RMB7 per USD1 （or 2% further decrease of RMBagainst HKD）。 2018 Interim results update: Hang Lung Properties’underlying net profit decreased 23.7% yoy in 1H18 due to a contraction inproperty sales. Property leasing revenue in 1H18 increased 7.4% yoy toHKD4,118 million while property sales revenue declined by 59.1% yoy toHKD1,032 million.
We revise our revenue forecast slightly downwards for 2018-2020 toreflect RMB depreciation. Solid performance of the leasing portfolio inmainland China makes us believe that the retail market downturn in tier-2cities has ended. However, recent RMB depreciation has basically erased theincrease in 1H18. We revise our average selling price assumptionsdownward in the 23-39 Blue Pool Road project by 2% and at Long Beach by13% to reflect the lower-than-expected gross margin in property sales.
We slightly reduce our TP at HKD19.60 but raise our investment ratingto "Buy". Little surprise from HLP’s 2018 interim result. Although we reiterateour view that HLP is unlikely to raise dividend during 2018-2020, the current5.0% dividend yield is very attractive to long-term investors. Investors mayalso expect to see dividend hikes from 2021. Our target price represents a45% discount to the revised 2018 NAV estimate of HKD35.6. Our TP implies22.6x/ 24.2x/ 24.6x for 2018/ 2019/ 2020 underlying PER and 0.63x/ 0.62x/0.62x for 2018 /2019/ 2020 PBR.