Henderson benefiting from solid mass consumption

This has unlocked more unrealized value.

It has been noted that Henderson Land has the strength to withstand housing market volatility due to a strong cushion from a solid income stream (65% of PBT) generated by its HK mass malls and contribution from HK & China Gas.

According to a research note from Jefferies, further, its value may be understated since more value (not in NAV est) should be unlocked by increased ownership in buildings that will be redeveloped.

The report said the company is benefiting from solid mass consumption. Despite an overall slowdown HK retail, the solid interim result (5% growth in retail rents with c.24% reversion rate and improved occupancy) for Link REIT suggests that local consumption in suburban areas could still sustain steady growth.

Here's more from Jefferies:

With most Henderson' malls (over 70% of attributable GFA) located in the mass-focus districts in New Territories, we believe HDL will be able to achieve its target of 7-8% growth in retail rent in the next few years.

Being the largest profit driver (40% of its profit before tax), rental income generated from its resilient investment portfolio in HK should continue to provide healthy cash flow in an uncertain residential market. In addition, HDL's earning visibility is backed by HK&China Gas, which made up 26% of its NAV.

Consolidating more old building ownership: In light of a change in home price perception, HDL has taken advantage of weak sentiment to acquire redevelopment projects in urban areas. HDL currently has c.36 projects with ownership over 20% but less than 80% (total estimated GFA 2.4mn sf), which are not included in our estimated NAV.

We believe continued weakness in the housing market will facilitate the process of negotiation in acquiring old buildings and potential redevelopment, and will unlock the unrealized value for profit and NAV accretion.

Sales momentum picked up in 4Q: Thanks to its flexible financing plan, HDL has sold c.250 units of Eltanin Square Mile (total 328 units launched) for HK$1.1bn in less than 1 month, equivalent to the total sales achieved from Jul to mid -Oct, bringing the attributable sales to around HK$7.5bn YTD. In the next two months, three more projects with 556 units in total are planned to launch, which will further boost sales.