The results for the full year of 2023 fell short of market expectations: revenue increased 7.9% year over year to HK$27.57 billion, mainly driven by moderate revenue growth in various business lines. Core net profit remained roughly flat, rising 0.8% year over year to HK$9.71 billion, but 12% lower than Bloomberg's unanimous forecast. Net profit margin fell 2.5 percentage points to 35.2%, mainly due to a 3.8 percentage point decline in development margin to 16.2% and an increase in net interest expenses. The annual dividend payout remained at HK$1.80 per share, and the core dividend ratio remained roughly ~ 90%.

Property development profits declined, but sales were ideal after the withdrawal: property development revenue increased 3.9% year over year to HK$15.2 billion, of which about 96.5% came from Hong Kong. Outstanding sales reached HK$17.74 billion, of which approximately 77% will be carried forward to 2024. However, due to falling housing prices, property development profit before interest and tax fell 16% year over year to HK$2.46 billion in 2023. In 2024, the company plans to launch 13 residential projects in Hong Kong, totaling 1.81 million square feet. In addition, the company said it had sold 946 units within three weeks of being removed (2023:1,583 units), with a total price of about HK$5.9 billion.

Rental income is relatively stable: Although office rents have declined recently, IFC office rents fell by about 5% year on year in 2023, but this was offset by an increase of about 8% year over year in the retail sector. Total rental income increased 2.2% year over year to HK$6.9 billion. Future rent growth points include: 1) The Henderson, a Class A office building in Central, was completed in January 2024, and 2) a large-scale new Central waterfront project will be completed in phases from 2027-2032.

Remains neutral, with a target price of HK$23.84: We believe the growth prospects for its core business are still uncertain:

1) Hong Kong property development: The development cycle for large-scale urban renewal and farmland conversion projects is long; 2) Hong Kong property development profit margins are falling; and 3) Hong Kong investment property: We expect that oversupply and insufficient demand for central office buildings will lead to weak rents and high vacancy rates in the short term, while the new Central Waterfront project will only start contributing revenue as early as 2027, and the payback period is long. The company's performance fell short of market expectations. We maintained a neutral rating for Henderson and maintained a target price of HK$23.84.