ESR Group Earnings: Trimming Fair Value Estimate by 13% on Lower Growth Assumptions

We trimmed our fair value estimate of ESR Group to HKD 15.80 per share from HKD 17.80 after lowering our growth assumptions and factoring in the divestment of its ARA private funds business in Australia, Singapore, South Korea, and the US. The group’s 2023 net profit was below our expectation, falling 59.8% year on year to USD 231 million due to higher finance costs and share of losses from its associate, Cromwell Property Group, that recorded fair value losses on its investment properties. We lowered our fair value gain and gain on disposal assumptions for the group’s capital recycling, as we expect pressure on real estate valuations to persist in the near to medium term. Consequently, our earnings per share, or EPS, estimate for fiscal 2024-26 was reduced by 14%-24%.