7 Key Things to Know about Hang Lung Properties Limited

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.

  1. Stock Information

Ticker symbol: 0101

Market Capitalisation: HK$70.07 Billion

Industry: Real Estate Development

  1. Business

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.

  1. 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.

  1. 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.

  1. Valuation

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.

  1. Peers Comparison

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
Henderson Land HK$181.3 0.61 3.77
CK Asset HK$205.2 0.65 3.06
China Vanke HK$280.9 1.75 4.17
Evergrande HK$376.7 2.73 4.49

Source: Shareinvestor.com

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CS Jacky

CS Jacky is a Remisier and Financial Adviser with Phillip Securities Pte Ltd. Graduated with a Bachelor in Business Administration (Finance), he has been investing in the stock market since 2010. He identifies companies with good prospect trading at a low valuation using a unique blend of fundamental, technical, and portfolio analysis. He also holds REITs and dividend paying shares. He holds regular seminar to share about market updates, investment insights of specific stocks in his watch list, and overall wealth management for retail investors. He is the owner-blogger of 'CS Jacky - 360 Wealth Management' and a guest writer for Value Invest Asia.

2 thoughts on “7 Key Things to Know about Hang Lung Properties Limited

  • September 25, 2018 at 10:02 am
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    Yup their PTB has been low for a while despite the high quality of their properties. One reason could be due to a lack of catalyst to realise the value of these assets via sale, spin-off or IPO, unlike what we see in Wharf Holdings: https://valueinvestasia.com/7-key-things-know-wharf-holdings-ltd/

    Hang Lung probably treat its investment properties as source of good recurring income and perhaps intend to milk the cash flow for extended period.

    Reply
  • September 25, 2018 at 8:42 am
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    HangLung PTB for last 5 years is ranging from 0.49 to 0.54

    Why the PTB is so low? It could be low for a reason.

    Reply

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