Hang Lung Properties: Transferring Coverage; Currency Headwinds Offset Recovery

We transfer coverage of Hang Lung Properties, or HLP, with a no-moat rating and lower our fair value estimate to HKD 19 from HKD 22 to factor in the impact of currency headwinds. However, we think the shares are undervalued currently with the firm trading at around 0.4 times price/book ratio and 6.4% dividend yield for 2023. We continue to like the firm for its focus on high-quality luxury malls in China, as we believe it helps the company to ride on the increasing middle- and high-income mainland Chinese population, which has driven up strong demand for luxury goods. Although China’s overall consumer spending is showing signs of weakness, we believe that luxury demand will remain resilient, as evidenced by strong sales performance in some of the recent luxury brand results, for example, LVMH and Hermes.