Company Coverage
Hysan Development (14 HK): 1H26: Results In Line; Look For Further Deleveraging
BUY (Maintained)
Current price:
Target price:
Upside:
HK$17.51
HK$20.74
+18.5%
Analyst
Analyst
Highlights
1H26 adjusted UNP rose 8.8% yoy, while net gearing fell 1.5ppt hoh.
IP performance met expectations, with retail materially outperforming market. The office market remains overall challenging. Capital recycling supports deleveraging, despite a narrower accounting margin at Bamboo Grove.
Maintain BUY with an unchanged target price of HK$20.74.
Analysis
1H26 adjusted UNP up 8.8% yoy, net gearing down 1.5ppt hoh. Revenue edged down 0.1% yoy to HK$1,728m, 50.1% of our full-year estimate, as residential income fell 15.3% yoy on the sale of two Bamboo Grove blocks. Gross profit margin widened 0.1ppt yoy to 82.5%. While underlying net profit (UNP) increased 7.4% yoy to HK$1,107m, adjusted UNP (after distributions to perpetual capital securities holder) rose 8.8% yoy to HK$845m, 40.4% of our full-year estimate, supported by a HK$58m gain on the Bamboo Grove sales. Net gearing edged down 1.6ppt hoh to 31.1% and gearing including perpetual capital securities fell 2.0ppt hoh to 49.4% - the clear positive of the results; interim DPS held flat yoy at HK$0.27, in line with our expectation.
Investment property (IP) performance in line; retail continued to outperform the market. We see a few key highlights in Hysan Development’s (Hysan) Hong Kong retail portfolio: a) tenant sales grew 17% yoy, outperforming overall Hong Kong retail sales across all categories; b) turnover rent rose 8.2% yoy to HK$66m; and c) base rent reversion is expected to be in the low-to-mid single digits range, with occupancy cost healthy in the mid-to-high teens. The office portfolio also showed signs of improvement, with Causeway Bay spot rents stabilising and the negative rental reversion narrowing to the mid-teens. That said, management continues to view the office market as challenging, even as Causeway Bay spot rents stabilise.
Lee Garden Eight nearing completion, but leasing progress yet to be disclosed. Lee Garden Eight and the Lee Gardens connectivity project remain on schedule for completion in 2H26. Capital expenditure rose 58.7% yoy to HK$1,697m in 1H26, against HK$2,633m for 2025, and we expect capital expenditure to decline from 2027 onwards. Management said Lee Garden Eight continues to make good progress in securing strategic office and retail anchors, but has not disclosed its % of committed leasing. We look for the pace to pick up after completion in 4Q26.
Capital recycling supporting balance sheet, though accounting margin on Bamboo Grove has narrowed. As at Jun 26, Hysan had collected HK$4.5b from sales at Bamboo Grove and VILLA LUCCA - HK$4.0b and HK$0.5b respectively - or 56% of its HK$8b five-year target, with a further HK$0.6b contracted for completion by end-26. The carrying value of the Bamboo Grove units held has been revalued up 44% since 2025, which supports the fall in gearing. At the same time, while ASP rose to HK$25,000/psf in 2026 from HK$22,500/psf in 2025, the much higher book value cut the accounting margin by 90% in 1H26 from 2H25. On balance, we see the cash inflow and lower gearing as more meaningful, and we expect capital recycling to continue to support deleveraging in 2027.
Highlights
1H26 adjusted UNP rose 8.8% yoy, while net gearing fell 1.5ppt hoh.
IP performance met expectations, with retail materially outperforming market. The office market remains overall challenging. Capital recycling supports deleveraging, despite a narrower accounting margin at Bamboo Grove.
Maintain BUY with an unchanged target price of HK$20.74.
Analysis
1H26 adjusted UNP up 8.8% yoy, net gearing down 1.5ppt hoh. Revenue edged down 0.1% yoy to HK$1,728m, 50.1% of our full-year estimate, as residential income fell 15.3% yoy on the sale of two Bamboo Grove blocks. Gross profit margin widened 0.1ppt yoy to 82.5%. While underlying net profit (UNP) increased 7.4% yoy to HK$1,107m, adjusted UNP (after distributions to perpetual capital securities holder) rose 8.8% yoy to HK$845m, 40.4% of our full-year estimate, supported by a HK$58m gain on the Bamboo Grove sales. Net gearing edged down 1.6ppt hoh to 31.1% and gearing including perpetual capital securities fell 2.0ppt hoh to 49.4% - the clear positive of the results; interim DPS held flat yoy at HK$0.27, in line with our expectation.
Investment property (IP) performance in line; retail continued to outperform the market. We see a few key highlights in Hysan Development’s (Hysan) Hong Kong retail portfolio: a) tenant sales grew 17% yoy, outperforming overall Hong Kong retail sales across all categories; b) turnover rent rose 8.2% yoy to HK$66m; and c) base rent reversion is expected to be in the low-to-mid single digits range, with occupancy cost healthy in the mid-to-high teens. The office portfolio also showed signs of improvement, with Causeway Bay spot rents stabilising and the negative rental reversion narrowing to the mid-teens. That said, management continues to view the office market as challenging, even as Causeway Bay spot rents stabilise.
Lee Garden Eight nearing completion, but leasing progress yet to be disclosed. Lee Garden Eight and the Lee Gardens connectivity project remain on schedule for completion in 2H26. Capital expenditure rose 58.7% yoy to HK$1,697m in 1H26, against HK$2,633m for 2025, and we expect capital expenditure to decline from 2027 onwards. Management said Lee Garden Eight continues to make good progress in securing strategic office and retail anchors, but has not disclosed its % of committed leasing. We look for the pace to pick up after completion in 4Q26.
Capital recycling supporting balance sheet, though accounting margin on Bamboo Grove has narrowed. As at Jun 26, Hysan had collected HK$4.5b from sales at Bamboo Grove and VILLA LUCCA - HK$4.0b and HK$0.5b respectively - or 56% of its HK$8b five-year target, with a further HK$0.6b contracted for completion by end-26. The carrying value of the Bamboo Grove units held has been revalued up 44% since 2025, which supports the fall in gearing. At the same time, while ASP rose to HK$25,000/psf in 2026 from HK$22,500/psf in 2025, the much higher book value cut the accounting margin by 90% in 1H26 from 2H25. On balance, we see the cash inflow and lower gearing as more meaningful, and we expect capital recycling to continue to support deleveraging in 2027.
BUY (Maintained)
Current price:
Target price:
Upside:
HK$17.51
HK$20.74
+18.5%
Analyst
Analyst
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