J.P. Morgan has published a research report stating it believes the continued recovery in mainland China tenant sales will drive a valuation re-rating for Hang Lung PPT (00101). The firm has raised its target price from HK$11.5 to HK$12, naming Hang Lung PPT as one of its preferred picks.

The FY2025 results confirmed the recovery in Hang Lung PPT's mainland China tenant sales, with a year-on-year growth of 18% in the fourth quarter of 2025, reaching a record high and surpassing the 10% YoY growth seen in Q3 2025. Management anticipates mid-single-digit percentage growth in tenant sales for FY2026, with the positive momentum sustained through January 2026.

Based on the current 66% discount to net asset value, a price-to-book ratio of 0.3 times, and a dividend yield of 5.5% (with potential upside risks starting from FY2027), the bank considers Hang Lung PPT to remain undervalued. Hang Lung PPT serves as a "proxy for Chinese luxury retail"; although the low single-digit growth of international luxury brands in China may not seem particularly attractive, investors might be overlooking the company's robust growth in non-luxury segments, which account for half of its tenant sales.

Furthermore, while some investors may question why rental income growth appears to lag behind tenant sales growth, J.P. Morgan argues they are underestimating Hang Lung PPT's efforts to convert more variable rents into fixed rents. This strategy helps protect the stability of rental income during economic downturns.