Hang Lung Properties - Result Analysis: Tenant sales showed sequential improvement
- FY25 underlying earnings rose 3.5% y/y to HKD3.2bn, beating our estimate by c.6% thanks to lower-than-expected net finance costs
- Final DPS unchanged at HKD0.4/sh; scrip dividend remains an option
- Tenant sales momentum further strengthened in 4Q25, with sales recovery expected to continue into 2026
- Opening of Westlake 66 and V.3 strategy to drive rental growth in the longer run; Maintain BUY with TP of HKD11.00.
Results slightly beat expectations. Hang Lung Properties’ FY25 underlying profit rose 3.5% y/y to HKD3.2bn, primarily supported by the absence of large property provisions recorded in FY24 (HKD384m for The Aperture in Hong Kong and Heartland Residences in Wuhan). The result was c.6% above our estimate mainly due to lower-than-expected net finance cost. Final DPS was maintained at HKD0.40, bringing the full-year DPS to HKD0.52, unchanged from FY24. The company continues to offer shareholders a scrip dividend option, helping to reduce cash outflow.
Mild rental growth from China retail portfolio. Gross rental receipts fell 1% y/y to HKD9.4bn, mainly reflecting RMB depreciation and lower contribution from Hong Kong investment property portfolio. Rental income from China portfolio was flattish y/y at RMB5.9bn, or declined 1% y/y in HKD terms, as lower contribution from office portfolio was offset by higher retail income. In RMB terms, total China retail rental income rose 1% y/y to RMB4.9bn, mainly boosted by solid growth from Center 66 in Wuxi (+10%) and Olympia 66 in Dalian (+12%). This was despite lower rents at Heartland 66 in Wuhan and Forum 66 in Shenyang which dragged their respective rental income by 31% and 36% y/y. Excluding Forum 66 and Heartland 66, reversionary growth at other retail malls remained positive backed by a healthy occupancy cost ratio of 15-16%. Occupancies across malls were broadly stable at 89-100%.
Tenant sales on the road to recovery. In 2025, tenants’ sales at China retail malls grew 4%, reversing the 4% decline recorded in 1H25. Sequential improvement was evident, with positive growth of 10% in 3Q25 and 18% in 4Q25. The recovery was across the board. Supported by signature events and new store openings, Plaza 66 delivered 4% retail sales growth in 2025 following 8% sales decline in 1H25. Grand Gateway 66 performed even better, with sales rising 20% in 2025 (1H25: +10%). These translated into respective income growth of 1% and 2%. Outside Shanghai, Olympia 66 remained the bright spot, with tenants’ sales and rental income increasing 14% and 12% respectively. Forum 66 and Heartland 66 continued to face challenges, though signs of improvement emerged in 4Q25. The positive momentum sustained in early 2026, with overall tenant sales broadly flattish y/y despite the timing difference of Chinese New Year. This should support a mid-single digit sales growth in 2026.
Lingering challenges on China office portfolio. Office income from China declined 8% to RMB1bn, mainly dragged by Plaza 66 in Shanghai, which saw income drop 11% y/y due to higher vacancy and negative reversionary growth. Occupancy at Plaza 66 declined to 82% in Dec-25 from Dec-24’s 87%. Other office properties recorded 4-7% decline in rental income in FY25.
Hong Kong rental income declined 2% y/y to HKD3bn. Retail income weakness was partly offset by growth in residential and serviced apartment income. Retail portfolio recorded a 4% decline in rental receipts, reflecting the full-year impact of negative rental reversion concluded for a major tenant in 2024. Excluding that, retail rental income would have been broadly stable. Tenants’ sales remained relatively stable, broadly in line with the overall Hong Kong retail market. On the other hand, income from residential and serviced apartments rose 6% y/y, driven by increasing demand from incoming talents.
Westlake 66 on the horizon. Office Tower E at Westlake 66 in Hangzhou has been handed over in late Nov-25. Towers A,B,C and D are scheduled for handover starting from 2026. Offering a total GFA of 95,600sqm, commitment rate of these five office towers has reached c.17%. Meanwhile, the retail portion, with scheduled completion in 2Q26, is currently 91% pre-committed. The 194-room Mandarin Oriental Hangzhou is expected to commence operations in 2027.
Unlocking value through property sales. In Sep-25, Hang Lung Properties launched Wuxi Center Residences for sale. As of Dec-25, 53 units were sold, generating proceeds of RMB443m with average selling price >RMB40,000 psm. A small profit is expected to be recognized in FY26. The project comprises 573 apartments with a total GFA of c.100,000 sm. In Hong Kong, Hang Lung Properties sold one house (9,186sf) at 23-39 Blue Pool Road in Happy Valley for HKD447m or HKD48,682psf in Jan-26, following the sale of a semi-detached house for HKD230m or HKD49,853psf in Dec-25. Profit is expected to be recognized in FY26.
Steady financials. In Dec-25, total borrowings amounted to HKD53.6bn, down 7% from Dec-24’s HKD54.8bn. About 47% of total debts (Jun-25: 43%) are denominated in RMB which acts as natural hedge to its investments in China. Interest costs for 42% of total borrowings are on fixed rate basis. (Jun-25: 43%). Despite ongoing capex requirement, net debt was stable at HKD47.3bn (Jun-25: HKD47.9bn) primarily aided by cash savings from the scrip dividend. This represented 35% of its shareholders’ funds (Jun-25: 36%). With capital expenditure to taper off starting from FY26 and proceeds from property sales, the company’s gearing should gradually improve.
Maintain BUY with TP of HKD11.00. Despite the recent rally, the stock, trading at 67% discount to our current assessed NAV (c.1SD below its 10-year average of 57%), remains attractively valued. Improving tenant sales outlook should continue to support its near-term turnover rents, with positive rental reversions pointing to higher rental earnings ahead. In the longer term, opening of Westlake 66 and its V.3 strategy should further enhance its rental earnings stream, thereby justifying a higher stock valuation. We maintain BUY with TP of HKD11.00, premised on a target discount of 63% to our Dec-26 NAV estimate.
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