Hang Lung Properties: Cutting Fair Value by 20% on Weaker Home Prices and Luxury Spending in China

We lower our fair value estimate for no-moat Hang Lung Properties to HKD 13.50 from HKD 16.80 as we revisit our key assumptions. We cut our 2024-26 revenue forecasts as we now expect milder growth in mainland China's luxury consumption, slower property sales, lower average selling prices for Hong Kong and mainland China residential properties and serviced apartments, and a weaker development properties gross margin given the challenging market conditions. Consequently, we cut our 2024-26 earnings forecasts by 11%-21%. Despite the lower earnings forecasts, we maintain our 2024-26 dividend per share forecast of HKD 0.78, flat from 2023, as we believe the company would mitigate cash flow pressure through the scrip dividend arrangement instead of a dividend cut.