Hang Lung Properties Limited (Hang Lung) is a major property developer with major operations both in China and Hong Kong. It owns a diversified property portfolio including commercial, retail, office, serviced apartment and car park properties. It also develops residential units for sales.
Hang Lung was founded in 1949 and is the property arm of Hang Lung Group limited, a real estate focused investment holding company. It is also a constituent of the Hang Seng Index.
Here are 7 Key Points to Know about Hang Lung.
Ticker symbol: 0101
Market Capitalisation: HK$70.07 Billion
Industry: Real Estate Development
Hang Lung’s business operations are divided into three main segments: China Property Leasing, Hong Kong Property Leasing and Hong Kong Property Sales and Development.
The group owns 8 integrated properties in key China cities such as Shanghai, Tianjin and Shenyang. These assets comprise office, commercial assets and high-end shopping malls with a total gross floor area of about 2,256,000 square metre. Interestingly, all the buildings’ name bears the ‘66’ title that has come to be a unique branding of Hang Lung’s China assets. For example, two of its prime assets are Plaza 66 and Grand Gateway 66 located in the upscale area of Jing’an District and Xujiahui Metro Station in Shanghai. These are integrated assets consisting of office space and luxurious shopping malls featuring international brands such as Gucci, Cartier and Prada catering to the affluent shoppers.
Source: Hang Lung Properties Limited 2017 Annual Report
Hong Kong Property Leasing comprises commercial space, office and industrial assets, and residences and service apartments with a total gross floor area of about 642,000 square metre. Some of the more well-knows assets include Fashion Walk in Causeway Bay and Standard Chartered Bank Building in Central.
Collectively, total investment properties including those under development were worth about HK$156 billion as at 31 Dec 2017.
Source: Hang Lung Properties Limited 2017 Annual Report
In 2017, Hang Lung recorded a sales of HK$11.19 billion. Majority comes from Property Leasing segment that takes up about 69.4% of total revenue. China investment properties contributed HK$3.95 billion, or 35.3% of total sales, while Hong Kong assets contributed HK$3.82 billion, 34.1% of total. Lastly, Property Sales raked in HK$3.42 billion, or 30.53% of total revenue.
Strength and Opportunities
Assets Quality and Continuous Refurbishment
Hang Lung’s assets are not your run-off-the-mill buildings that one barely notices among the numerous structures in urban spaces. The group specialises in constructing marque buildings that occupy prime areas in major cities, with a penchant for aesthetically-pleasing exterior architecture. A look at its portfolio of investment properties would reveal that most of these assets are of high quality capable of hosting luxurious brands for a top-end retail experience. Besides the two Shanghai properties shared earlier, other examples include Palace 66 Shenyang and centre 66 Wuxi that are located in the prosperous shopping belt within the city.
The group also regularly refurbish and upgrades its properties to maintain its ability to command a good rental. For example, Plaza 66 Shanghai shopping mall recorded double-digit increase in tenant sales, footfall and rental revenue after an asset enhancement initiative.
Increasing Private Consumption in China Economy
China is in the midst of transforming from an export-driven economy to one that is led by private consumption. Its citizens are slowly, but surely, getting more affluent with large appetite for luxurious branded goods. According to the group’s 2017 Annual Report, the average retail space in square metre per capita for China stood at 0.3 per person, significantly trailing that of Canada (1.5), Australia (1.1) and France (0.4). There is still room for more retail spaces in China, going by this measure.
Weaknesses and Threats
Capital Intensive Business
Property development is after all a capital-intensive business. It cost a large sum to see through the completion of a real estate project, right from the start at land-bidding stage, and subsequently designing, building and maintaining the properties. This is especially true for Hang Lung as many of its projects are located in centre of Tier-1 and Tier-2 cities in China with large land acquisition cost, and long gestation period to design and complete these prime assets. As a foreign developer, Hang Lung is competing against many of China’s much bigger players that may have deeper pockets (example Wanda, Vanke etc.), forcing it to bid aggressively for land pieces.
Unfavourable Regulatory Environment in China
It is widely known that containing rising real estate prices to prevent formation of bubble is one of the key work areas of China central government. With China’s property prices in major urban areas still rising relentlessly despite numerous rounds of cooling measures, the central government may one day implement much harsher measures. This would undoubtedly have a negative spill-over impact on Hang Lung with its large exposure to China. Such regulatory risk is one area beyond the company’s control.
According to its 2018 Interim Results, Hang Lung’s Net Asset Value is HK$ 31.9 per share. With a current share price of HK$ 15.58, it is being valued at a Price to Book ratio of just 0.48 times.
Hang Lung’s peers include China and Hong Kong property developers listed on the Hong Kong Stock Exchange, such as Henderson Land, CK Assets, China Vanke and Evergrande.
I extracted key metrics from Shareinvestor.com for comparison with its key peers, as shown in table below
|Company||Market Cap (Billion)||Price to Book Value||Dividend Yield (%)|
|Hang Lung Properties||HK$70.07||0.48||4.81|