Hongkong Land Earnings: Weakness Across Segments; Cut Valuation by 37% on Mainland China Exposure

While the negative trends within Hongkong Land’s first-half results were in line with our expectations, the performance of the mainland China business is weaker than expected. Rental income declined 3% year on year as the Hong Kong office portfolio continues to see pressure from market oversupply, while the Hong Kong Landmark retail portfolio suffers from outbound tourism in Hong Kong. For the mainland China business, the development properties segment suffers from low margins as buyers’ sentiment remains lackluster. According to management, first-half 2024 gross margin of its completed and sold mainland China development properties fell to a low of 14%. For reference, the highest gross margin for this segment in the last five years was 44% in 2019.