Bank of Communications International released a research report raising Henderson Land's (00012) target price by 26.2% from HK$25.9 to HK$32.68 and upgrading the rating to "Buy". The Federal Reserve announced a 25 basis point cut to the benchmark interest rate on September 17. According to institutional consensus forecasts, the Fed is expected to cut rates twice more in Q4 2025, and three additional times from 2026 to Q1 2027, totaling a further 125 basis points in cuts.
The firm believes the rate-cutting cycle will continue through the remainder of 2025 and into 2026, which will benefit Hong Kong property companies through: 1) reduced interest expenses; 2) further activation of the property market, promoting sales and margin recovery in the property development segment; 3) potential asset appreciation in investment property portfolios.
Additionally, the Policy Address will accelerate the development of the Northern Metropolis. New policies announce more flexible land resumption and exchange models. The firm believes accelerated development of the Northern Metropolis will help Henderson Land monetize its substantial agricultural land reserves in the region. The company holds approximately 41.9 million square feet of agricultural land reserves with an estimated historical average cost of HK$277 per square foot. The acceleration of the Northern Metropolis may bring considerable potential returns, earnings, and cash flow to the company in the coming years.
Based on these factors, the firm believes the short-term risks to the company's core business have decreased following further interest rate declines. Given the impact of rate cuts on market liquidity, asset value appreciation expectations, and potential accelerated monetization of agricultural land in the Northern Metropolis, the firm has raised its net asset value forecast for the company to HK$65.4 per share, calculating the target price at a 50% discount. The firm has also slightly raised its 2025-2027 profit forecasts to reflect the impact of reduced interest expenses.