Hang Lung Properties’ (00101 HK, “HLP”) revenue contributions fromproperty leasing edged down 0.5% yoy to HK$4,184 million. Leasingrevenue from mainland China grew 8.9% yoy to RMB2,062 million, whileHLP’s Hong Kong leasing portfolio was hit particularly hard with revenuecontracted 5.3% yoy to HK$1,907 million. Operating margin of propertyleasing business declined in both mainland China and Hong Kong.
　　Underlying net profit fell 10.6% yoy to HK$1,993 million, which was slightlybelow our expectations. HLP maintained interim DPS at HK 17 cents.
　　Covid-19 and economic downturn continue to cast a shadow on Hong Kong'seconomy. While mainland China retail sales were boosted by the postCovid-19 recovery, growth momentum differs within and outside Shanghai.
　　HLP reported a revaluation loss of HK$4,526 million in 1H2020, withHK$2,307 million from the mainland China portfolio and HK$2,335 millionfrom the Hong Kong portfolio. We revise our revenue forecast downwardto reflect the delay in construction and lower rental growthexpectations.
　　We reduce our TP to HK$19.50 and downgrade our investment rating to"Neutral". Our TP represents a 45% discount to the revised 2020 NAVestimate of HK$35.6. Given HLP’s current stock price, we believe that upsidepotential is limited. Downgrade to "Neutral". Our TP implies 21.1x/ 18.7x/14.4x for 2020/ 2021/ 2022 underlying PER and 0.6x/ 0.6x/ 0.6x for 2020/2021/ 2022 PBR.