Underlying net profit in 2019 increased 9.3% yoy with solid revenue growth from mainland China leasing business. Hang Lung Properties’ (00101 HK, “HLP”) revenue contributions from property leasing rose 4.6% yoy to HK$8,556 million, with leasing revenue going up by 7.1% yoy to HK$4,544 million in mainland China and by 1.9% yoy to HK$4,012 million in Hong Kong. Property sales revenue shrank as HLP only sold 1 unit from the Blue Pool Road project in 2019. HLP’s net gearing ratio rose 7.4 ppts yoy to 17.8%.
Growth in leasing revenue is expected to continue, but will be dragged by the outbreak of the coronavirus. Revenue from shopping malls in mainland China delivered promising results within and outside Shanghai. The outbreak of the coronavirus is expected to weigh heavily on shopping mall footfall in both Hong Kong and mainland China as shoppers are advised to avoid crowds and public gatherings. Hence, we expect that HLP’s shopping mall performance in 1H2020 will be heavily hurt by the wide-spreading disease.
We slightly reduce our TP to HK$20.00 but maintain our investment rating at "Accumulate". Our TP represents a 45% discount to the revised 2020 NAV estimate of HK$36.7 and implies 19.5x/ 18.5x/ 12.3x for 2020/ 2021/ 2022 underlying PER and 0.64x/ 0.63x/ 0.60x for 2020/ 2021/ 2022 PBR.