Henderson Land sounding less optimistic on post-CNY retail

As well as on two other fronts.

Henderson Land recently reported full-year results for 2014 that were ahead of consensus but less than Barclays' estimates.

According to a research note from Barclays, underlying net profit and DPS both rose by 4% y/y but were 10% and 4% less than Barclays' estimates.

At the results briefing, Barclays found management sounding less optimistic on three fronts: retail softness post Chinese New Year; increasing land costs on old building redevelopment; and the timing of farmland conversions.

Barclays has cut its estimates by 5% for 2015 and by 10% for 2016 on account of completion slippages.

Here's more from Barclays:

Retail has softened: We believe one of the key takeaways from the results briefing was that HLD's more guarded outlook on the Hong Kong retail property performance.

It noted that tenant sales and leasing at its IFC Mall has softened post the Chinese New Year. Although tenant sales continue to rise at a low single-digit rate, this suggests that tenant sales excluding the Apple Store were likely in negative territory.

Mixed news on old building redevelopment plan: The good news on HLD's old building redevelopment plan is that it has managed to increase the projects where it has more than 80% interest from 31 to 40 (attributable gross floor area has risen from 3.07mn square feet to 3.4mn sf).

The bad news is that this has also increased its blended land cost from HK$5,600psf as of June 2014 to HK$6,300psf now. On farmland conversions, there was little to update.

Cutting 2015 and 2016 earnings estimates but raising NAV by 2%: Reflecting the slippages in both Hong Kong and China development completions, we cut our earnings by 5% for 2015 and by 10% for 2016.

On NAV, we raise our spot and forward NAV by 2%. Thus, as we keeping our target discount unchanged at 40%, we increase our price target by 2% to HK$53.60.

Key upside and downside risks: We believe these include 1) larger-scale farmland conversions; 2) an earlier interest rate hike than we expect; and 3) more regulation on old building redevelopment.