We believe HLP’s resilient fundamentals and pathway to earningsgrowth are underappreciated by the market based on current troughvaluations due to concerns about the macro environment and theHangzhou project acquisition last May. We see the stock re-rating asthe market begins to factor in HLP’s strong positioning within theindustry. We upgrade the stock to Buy, from Neutral, with 27%upside to our revised 12-month target price of HK$20.00,highlighting three points that we believe create a compellinginvestment argument.
1. Internal growth drivers—HLP is about to embark on anotherperiod of active project completions with a substantial increase inrental floor space in the next two years vs. flat GFA since 2015. Inour view, this will help drive its rental revenue to a 12% CAGR in2018E-2020E （from 4% in 2013-2017）。
2. Positive tailwinds from government policies—A newe-commerce law in China should lower import tariffs and restrict theactivities of daigou, and therefore looks supportive for the types ofonshore shopping malls that HLP develops.
3. A near-trough-level valuation—56% discount to FY19E NAV,versus 5-year average of 44%; its discount has widened to 14 ppmore than that of the sector （PropCos ex-REIT）， which is the widestin recent years. The stock is also trading at just 0.5X P/B versus a5-year average of just under 0.8X and currently offers a 4.9%dividend yield （FY19E） versus a 5-year average of 4.0%.
4. Near-term catalyst—As we enter a year with a higher level ofrental growth, we expect the company to raise DPS, which hasstayed flat since the last cut in FY15.