Jefferies believes that the majority shareholder of Hang Lung Properties (00101) may choose to pay dividends again in FY2024, or even reduce dividends to preserve capital.
The Zhitong Finance App learned that Jefferies released a research report stating that it gave Hang Lung Properties (00101) a “holding” rating and is still cautious about the company. The company's profit forecast for the 2024-2026 fiscal year was reduced by 13-28%, mainly due to weak prospects for luxury goods consumption in the mainland and interest capitalization factors. The dividend forecast for FY2024 was also lowered to HK$0.6 per share, with a share profit ratio of about 7.5%, and the target price was reduced by 11.1% to HK$8 from HK$9.
Jefferies believes the 2024 fiscal year will be a difficult year for Hang Lung as investors re-evaluate the growth trajectory while retail sales are normalized, and the capital expenditure cycle continues to drag down cash flow. Hang Lung Properties' debt ratio puts dividends at risk. Due to capital expenditure of RMB 4 billion, the company's net debt ratio further rose to 31.9% in fiscal year 2023. Coupled with the company considering deleveraging, Jefferies believes that the majority shareholders may choose to pay dividends again in FY2024, or even reduce dividends to preserve capital.
The bank expects Hang Lung Properties' mainland capital expenditure to peak in the 2024 fiscal year and return to normal with the completion of the Hangzhou Shopping Center. In the absence of capitalization, interest costs are likely to soar, and rental income should lag behind (possibly making a substantial contribution in fiscal year 2026). As a result, Jefferies believes there is a risk that earnings in FY2025 will decline after remaining flat in FY2024.
Furthermore, about 70% of Hang Lung Properties' mainland shopping malls are mainly luxury goods, contributing more than 80% of rent. Despite the company's optimism about the Chinese market in the second quarter of this year, the stock price has declined 26% since the beginning of the year due to retail and potential dilution of interest in shares. Continued recovery in overseas travel, cheaper yen, and intense competition may cause rents to drop in FY2024.