CICC: Keeping Hang Lung Properties (00101) outperforming the industry rating target price of HK$9.5

The Zhitong Finance App learned that based on the lower interest capitalization rate assumption and 1H26's prudent impairment on property sales, the basic net profit that should be shared by shareholders of Hang Lung Properties (00101) 2026-2027 was reduced by 6% and 6% to HK$3.02 billion and HK$3.10 billion (-6% and +3% year-on-year), respectively, but this reduction had a non-cash impact and did not change the trend of a slight improvement in the company's dividend payment capacity. Maintaining an outperforming industry rating and target price of HK$9.5, target dividend rate of HK$9.5, 15 times the 2026 core price-earnings ratio and 30% upward margin), the company is currently trading at 7.1% of the expected dividend yield in 2026 and 12.6 times the 2026 core price-earnings ratio, which is close to the +1 times standard deviation since 2010, and has dividend value.

CICC's main views are as follows:

1H26's results are slightly lower than expected

The company announced 1H26 results: property rental revenue increased 5% year over year to HK$4.92 billion, and operating profit increased 4% year over year to HK$3.47 billion, which is in line with the forecast; however, due to the property sales business accruing of HK$120 million impairment provisions, overall shareholders' basic net profit fell 10% year over year to HK$1.44 billion, slightly lower than the forecast. The company announced that its interim dividend was flat at HK12 cents year over year, in line with the bank's expectations.

Mainland shopping malls are expected to continue their positive performance

Benefiting from its continued positive brand portfolio adjustments and improvements in project operation quality, as well as the concentration of market share and strong gold trends at the beginning of the year, retail sales of the company's mainland shopping malls increased 17% year on year and RMB rent increased 6% in the first half of the year; the management will guide the retail sales index in the second half of the year. The bank believes that this guide has some visibility under the current market environment and corporate reform trends, and the rent growth rate will continue to slow down from retail sales. In terms of other rental properties, the bank expects that mainland office buildings will continue to be under pressure in recent years, while the Hong Kong project portfolio is showing relatively stable performance.

Marginal improvement in dividend payment capacity, continuous optimization of financial statements

The dividend payout ratios for 2024 and 2025 based on net property rental and hotel profits after deducting capitalized interest were 100% and 102%, respectively. The bank estimates that 1H26 profit of the same caliber increased 6.4% year-on-year and is expected to continue a slight upward trend throughout 2026, implying an improvement in dividend capacity under a fixed dividend per share. The company actively promoted the return of cash from residential property sales. In 2025 and 1H26, property sales repayments of HK$1.5 billion or more were achieved. Combined with stock exchange policies, the net debt ratio continued to decline to 31.6% of 1H26.

Risk warning: Retail sales in shopping malls fell short of expectations, and the pressure on the office business exceeded expectations.