Results in the first half of 2023 were slightly better than expected: revenue rose 8.1 per cent year-on-year to HK $10.28 billion, mainly driven by other income growth. Core net profit rose 18.2 per cent year-on-year to HK $6.07 billion, accounting for 55.4 per cent of our estimated profit for the year, higher than we expected. The increase in net profit was mainly due to an one-time gain of approximately HK $1.6 billion from the one-time accounting treatment of Sunshine Real Estate Trust. The semi-annual dividend per share remained at HK $0.5, while the core dividend ratio fell 7.2 percentage points from a year earlier to 40.0 per cent.

Property development revenues remain stable, but may be under pressure in the future: property development revenues rose 0.6 per cent year-on-year to HK $4.34 billion, but pre-tax profits fell sharply by about 20.9 per cent to HK $894 million. Outstanding sales amounted to HK $26.4 billion, of which more than 50 per cent will be carried forward in the second half of 2023. Contract sales rose 7 per cent year-on-year to HK $10.6 billion in the first half of 2023. The company plans to launch seven Hong Kong residential projects with a total of 1.45 million square feet in the second half of the year, but more than 60 per cent of them are in Kai Tak. Due to the abundant supply in the area and the impact of price reductions from counterparts in Kowloon East in the near future, we expect the removal rate and profit margins of these projects to be under pressure.

Rental income is relatively stable: total rental income rose 1 per cent year-on-year to HK $3.43 billion, while the occupancy rate remained stable at 93 per cent during the period. Future rent growth points include: 1) Grade An office building TheHenderson in Central will be completed in 2023, and 2) the large-scale new Central waterfront project will be completed in phases in 2026-32. However, we believe that in the short term, in the face of a downturn in the office market, the rent levels of two large-scale projects will be lower than expected and the recovery cycle will be further prolonged.

Remain neutral, lower target price: we believe that the company's core business growth prospects are still uncertain: 1) property development in Hong Kong: Kai Tak project in large supply under greater de-integration and price uncertainty, 2) property development in the mainland: further reduction of land reserves and further decline in profits 3) Investment property in Hong Kong: we expect that the oversupply and insufficient demand of office space in Central will lead to weak rents and high vacancy rates in the short term, and the payback period for the new Central waterfront project will be too long. We maintain a neutral rating on Henderson, lowering our target price from HK $27.80 to HK $23.84 at a 65% discount to net asset value (formerly 60%).