The mid-term results for FY2024 remained stable: the decline in mainland project delivery in the first half of the fiscal year led to a decline in property sales accounts, but the rest of the business lines recovered. Total revenue increased 0.4% year over year to HK$27.5 billion. Core net profit declined 5.9% year over year to approximately HK$8.9 billion, which is roughly in line with expectations (Bloomberg's forecast of $9 billion). The interim dividend fell 24% year over year to HK$0.95 per share, and the dividend ratio decreased by 7.3 percentage points to 30.9%. However, in response to the relaxation measures just announced by the government, the company expects the annual distribution ratio to be closer to the upper limit of 40-50%. We expect the full year dividend to drop by about 12.3% year on year to about HK$4.3.

The decline in property development revenue was mainly affected by mainland delivery times: Hong Kong property development revenue (including joint ventures) rose 25% year-on-year to HK$3.61 billion in the first half of fiscal year 2024. The main deliverables included Grand YOHO 2, Park YOHO Bologna, Park YOHO Napoli, WetlandSeason Bay 2 and KENNEDY 38, but mainland property delivery fell 60% to HK$1.59 billion, which dragged down the overall development revenue decline 23.5% to HK$3.87 billion. Contract sales for the first half of the year were HK$12.9 billion, including Mainland sales of HK$3.3 billion. Due to delays in sales of major projects, the company lowered its annual sales target to HK$23 billion (previously HK$33 billion). Seven projects will be put on sale in the second half of the year, with a total construction area of about 2.97 million square feet.

Rental revenue rebounded, and all business lines stabilized: Rental revenue rose 1.7% year on year to HK$8.94 billion, of which the retail segment recorded a 3.5% year-on-year increase. The company expects the relaxation of free travel to help the retail industry recover further, and it is expected that retail rent will continue to grow in the second half of the year. In addition, benefiting from customs clearance and a rebound in the tourism industry, hotel revenue rose sharply by 48% year over year to HK$2.76 billion, while operating profit turned into a profit of HK$430 million (loss of HK$63 million last year). Furthermore, with the exception of the telecommunications business, all other line businesses recorded moderate growth.

Reiterating the purchase and lowering the target price to HK$110.1: We maintain our purchase rating for Sun Hung Kai Properties. Given that 1) the latest stamp duty and mortgage policy adjustments will drastically reduce the acquisition costs of small and medium-sized units, and the company has sufficient marketable sources to position the mid-tier market; and 2) rent recovery, a moderate recovery in the tourism industry will drive consumption and tenants' ability to rent in the company's high-end shopping malls. Based on our latest estimates, the net asset value per share was lowered to HK$200.21 (previously HK$212.4, mainly the net asset value of office buildings). Based on a 45% net asset value discount, the target price was lowered from HK$127.6 to HK$110.1.