CICC has released a research report stating that, relative to the current operational situation of Hang Lung Properties Ltd (SEHK: 00101), the present dividend yield is attractive. The firm maintains its earnings forecasts and Outperform rating but has lowered the target price by 18% to HK$9.5. This new target corresponds to a 5.5% target dividend yield for 2026, a 15x core P/E ratio for 2026, and implies 38% upside potential. The adjustment primarily reflects shifts in market risk appetite.

Key Points from the Report

The report highlights a continued operational improvement in the company's mainland China shopping malls. In recent years, the company has actively adjusted its brand mix to enhance project operational quality, attract foot traffic, and boost retail sales. Its two Shanghai projects are also set to introduce the brand Lao Pu Gold in 2025. Excluding the contribution from Lao Pu Gold, CICC expects the company's tenant retail sales for the first half of 2026 could achieve double-digit year-on-year growth, with potentially higher growth if Lao Pu Gold is included.

Considering factors such as the proportion of fixed rents, overall trends in the rent-to-sales ratio, and the impact of newly introduced tenants' rent-to-sales ratios, the report suggests that rental growth on the mainland will likely be slower than retail sales growth. For other leasing properties, CICC anticipates continued pressure in mainland office spaces, though the rate of decline is expected to narrow, while the performance of the Hong Kong portfolio is projected to remain stable.

Financial Position Remains Steady

The company continues to advance residential property sales to generate cash. Although the property sales segment is expected to only achieve breakeven, the combination of capital expenditure peaking, the dividend reinvestment plan, and sales proceeds is anticipated to keep the scale of interest-bearing debt and the net gearing ratio largely stable year-on-year and sequentially in the first half of 2026. Furthermore, benefiting from a year-on-year downward trend in HIBOR, interest expenses are forecast to see a slight year-on-year decrease, though the proportion of interest capitalized is expected to decline.

Core Attributable Profit Forecast

CICC forecasts that for the first half of 2026, the company's property leasing revenue and operating profit will increase by approximately 6% and 5% year-on-year respectively, while property sales will roughly break even. Net debt levels are expected to remain broadly stable year-on-year and sequentially, with the average financing cost declining slightly year-on-year and the interest capitalization rate rising somewhat. Consequently, basic attributable profit to shareholders is projected to be flat year-on-year.

CICC believes the company will maintain a dividend policy consistent with the past two years in 2026, implying an interim dividend of 12 HK cents and a final dividend of 40 HK cents. This policy suggests a current dividend yield of 7.5%. However, the actual capacity to pay dividends is strengthening alongside operational improvements. The company has announced dividend payout ratios based on property leasing and hotel profit after deducting capitalized interest of 100% and 102% for 2024 and 2025, respectively. CICC expects profits under the same calculation method for the first half of 2026 to potentially see slight year-on-year growth.

Potential Risks

The report concludes by noting potential risks, including shopping mall retail sales falling short of expectations and office business pressures exceeding forecasts.