Initiating Coverage on ESR Group With Narrow Moat Rating, HKD 28.50 FVE; Shares Undervalued

We are initiating coverage on ESR Group, or ESR, with a fair value estimate of HKD 28.50 per share, narrow moat, stable moat trend and Standard capital allocation ratings. Our fair value estimate translates to a 2022 price/earnings multiple of 20.3 times. We think the group is undervalued at the current price and we like its highly scalable fund management business and fully integrated real estate investment platform. Together, these allow the group to retain long-term operational control of its assets while capturing fee income—such as base management fees, asset management fees, development fees, leasing fees, acquisition fees and performance fees—across the entire life cycle of an asset.