Hang Lung's underlying net profit slipped 1% y/y to HK$2.5b

It's not bad, considering the circumstances.

Hang Lung Properties' reported in-line 1H2015 results recently, with underlying net profit of HK$2,448mn down 1% y/y while 1H DPS was flat at HK$0.17.

According to a research note from Barclays, at the operating level, net rental growth of 3% is not bad considering that China's retail operating environment remains very tough.

At the individual asset level, performance remains mixed with Shenyang Palace 66 showing signs of turnaround but more work to be done in other locations.

Overall, Barclays continues to like Hang Lung's organic growth.

Here's more from Barclays:

Operating environment remains tough: At today's analyst briefing, management was candid and said that China's retail operating environment remains tough. The top brands have frozen expansion plans for 2015 and this could extend into 2016.

Despite the challenging environment, positive rental reversion in Hong Kong and new mall openings in China helped to contribute to 9% y/y gross rental growth in 1H 2015 (10% in China and 7% in HK). However, due to higher operating costs of the new assets, net rental margin slipped 4pp to 77% with net rental growth up 3% y/y.

Individual assets at different parts of their cycles: At the individual asset level, the performance is mixed. On the positive side, Shenyang Palace 66 appears to have turned around with tenants sales up 10% y/y.

At Shanghai Plaza 66's office, occupancy has also rebounded to 96% and recent leasing discussions are encouraging. Conversely, Forum 66, Parc 66 and Center 66 are still undergoing their re-tenanting adjustments.

Hong Kong property sales remain key swing factor for earnings and BVPS: Reflecting today's results, we adjust down FY15E earnings by 1%. For the full year 2015, the sales timing of Long Beach and Blue Pool Road remain a key swing factor.
Furthermore, as the HK$3.9bn carrying cost for Hang Lung's trading properties remain significantly below our HK$12.4bn estimated value, their sales could also add to Hang Lung's current HK$29.6 BVPS.

Downside risks include: (1) Re-tenanting of China malls could lead to periodic occupancy declines, (2) property sales timing for could affect our earnings estimates.