Earnings forecast for Hang Lung Properties drop by 10%

But HLP's strong China Malls pipeline will help beat peers this year.

According to Nomura, following on HLP’s recent land acquisition in Wuhan and the better-than-expected FY12 results,  it is raising its forward NAV by 5% to HKD39.76. For its price target, it has narrowed our target discount from 15% to 10% and raised our fair value by 11% to HKD35.80. 

At the headline level, Nomura has lowered its FY13-14 earnings by 10% and 7% as it spreads out HLP’s HK development sales. But more importantly, given the higher-than-expected contributions from Parc 66 and Forum 66, it raises its FY13-14 rental forecasts by 2.2% to 2.7%.

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Given our general cautious view on HK’s local property market, we continue to prefer property stocks with overseas growth. Thematically, we reiterate our belief that HLP’s strong pipeline of new China malls and its net cash balance sheet should help it outperform its peers in 2013.

At HKD30.70, HLP currently trade at an 18% discount to spot NAV and 1.17x trailing PB. However, adjusting for deferred tax and embedded development profit, we estimate HLP’s adjusted PB would drop to 0.96x, back in line with its long-run average of 0.98x.  

At HKD30.70, HLP currently trade at an 18% discount to spot NAV and 1.17x trailing PB. However, adjusting for deferred tax and embedded development profit, we estimate HLP’s adjusted PB would drop to 0.96x, back in line with its long-run average of 0.98x.