Hong Kong Property
Need to Pay Due Respect to
Liquidity
Upgrade Investors from In-Line to Attractive; PT
based on bull case scenario for HK assets: We
believe that the liquidity rush will continue to drive up HK
asset prices and performance of property stocks. As
such, we are setting our PTs based on the bull case
scenario for HK assets, which accounts for a further
20%/15% /10% rise in residential/office/retail capital
values. Luxury residential will test a new record high, in
our view. We upgrade our industry view on HK Property
Investors from In-Line to Attractive and maintain our
Attractive rating on HK Property Developers.
Stocks trade beyond normalized valuation metrics:
Our base case scenario reflects our fundamental
outlook on the market, derived from regression analysis,
which points to a 5% fall in office prices and a 5%
increase in residential prices for the coming 12 months.
The continued influx of China liquidity and excess capital
in the market has been one of the key forces driving up
asset expansion in the sector, which leads us to believe
that share prices will more likely track our bull case
scenario. We expect to see further cap rate compression
in the office segment.
Further unwinding sector discount to target NAV:
We are moving up our target discount to NAV by 0.5 SD
across the board in view of the improving investment
activities and a stabilization of office rentals and
residential capital values. The key risk to our call is the
end of hot money flow, which would likely derail the
asset price uptrend. The base case scenario provides us
with a reference of where fundamentals lie.
Upgrading Henderson, HK Land and Hysan from EW
to OW: We upgrade Henderson, HKL and Hysan to OW
and maintain OW calls on SHKP and Sino. We remain
UW on HLP on demanding valuation. Our top pick is
SHKP for its high quality HK portfolio that in our view will
benefit most from the asset reflation.