Intelligence Hong Kong Stock Analysis | Expectation of Interest Rate Cut, Capital Inflow, Hong Kong Local Real Estate Stocks Rally Together

[Market Analysis]

The Hong Kong stock market continues to follow the pace of the US stock market. Today's rally was a bit strong, with steady gains throughout the day, closing up 1.37%. After the trend became relatively clear, trading volume also increased.

US retail sales in August increased by 0.1% month-on-month, beating expectations of a 0.2% decline. July's data was revised up by 0.1 percentage points to 1.1%, indicating that US consumer demand remains strong and a soft landing for the US economy is expected. Following the data release, the US dollar index rose by about 10 points in the short term. However, market expectations for a significant rate cut this week remain strong. The CME FedWatch Tool shows that the probability of a 50 basis point rate cut is still at 67%, which is virtually unchanged from before the retail data was released.

Once market expectations become clear, funds are willing to enter at low levels. For large funds, internet giants such as Tencent (00700), Meituan (03690), Alibaba (09988), and Xiaomi (01810) are indispensable. Meanwhile, those with a low risk appetite have opted for well-adjusted bank stocks such as Postal Savings Bank of China (01658), China Merchants Bank (03968), and China Construction Bank (00939).

In addition, home appliance giant Midea Group (00300) has officially listed on the Hong Kong Stock Exchange, completing an A+H dual listing. At the final issue price of HKD 54.8 per share and an issuance size of 566 million shares, Midea Group's IPO in Hong Kong raised a total of HKD 30.668 billion, making it the largest IPO in the Hong Kong market this year. With a subscription multiple of only 5.31 times in the public offering, investors in the Hong Kong market have shown a cautious attitude towards traditional industrial companies like Midea. Considering the substantial financing scale of Midea Group, a conservative issuance strategy is indeed necessary. The IPO price of Midea Group in Hong Kong is more than 20% lower than its latest closing price on the A-share market on September 13. Today, Midea Group's Hong Kong stock closed at HKD 59.10 per share, a decent premium over the issue price of HKD 54.8. The market values Midea for its stable dividend policy. The funds raised from this IPO will mainly be used to bind strategic resources for overseas expansion, increase investment in research and development, supply chain, overseas channels, and brand building. Large-cap stocks themselves have much stronger risk resistance.

Regarding market expectations of a 50 basis point rate cut by the Fed this week, it has been mentioned many times before that the most clear beneficiaries will be local property stocks in Hong Kong. Due to Hong Kong's linked exchange rate system, a rate cut by the Fed will lead to a corresponding cut in Hong Kong, reducing local financing costs and positively impacting local property and other sectors in the Hong Kong stock market. Some institutions predict that a 1% drop in interest rates will increase average profits by 5%, benefiting highly leveraged companies such as New World Development (00017), Henderson Land (00012), Hang Lung Properties (00014), and Kerry Properties (00683). Additionally, market expectations are that the Fed's rate cut expectations will boost sentiment in the Hong Kong property market. The latest data from Centaline Property shows that 15 transactions were recorded in the top ten housing estates in Hong Kong over the weekend, a significant increase of 87.5% from the 8 transactions recorded the previous weekend, reaching a new high in transaction volume for about half a year since late March. Companies like Wharf Real Estate Investment Company (1997), Cheung Kong Group (01113), and Sun Hung Kai Properties (00016) have performed well Sunac China (01638) disclosed significant progress in debt restructuring. The company announced that approximately 75.11% of the holders of unpaid principal within Sunac China and approximately 81.07% of the holders of unpaid principal within Ruijing have joined the restructuring support agreement. Sunac China Group surged by over 40%. However, not many other property stocks followed suit. It is estimated that they are all waiting to see if the LPR will be lowered later.

Spot gold continues to rise, hitting a historical high of $2589.07 per ounce at one point, up nearly 0.4% intraday. Leading gold stocks such as Shandong Gold (01787), Zhaojin Mining (01818), and China Gold International (02099) continue to be sought after.

During the Mid-Autumn Festival, tourist attractions across the country were overcrowded, which is a significant positive for the A-share market's tourism sector. It is worth paying attention to the gambling sector, see sector focus for details.

In August, the express delivery business volume increased by 19.5%, with a single ticket income of 7.93 yuan, a year-on-year decrease of 10.8%, and an overall revenue growth of 12.9%. Driven by promotions, the highest daily business volume exceeded 460 million items, and the back-to-school season boosted the daily average business volume to 480 million items. The government has called for preventing vicious price competition, and an industry conference has clarified the need to improve the price competition mechanism. Starting from September 1st, express delivery prices in Yiwu have slightly increased, with companies like ZTO Express, YTO Express, Yunda Express, and STO Express raising their prices by two to three cents higher than the low point in August, and then raising them by another cent on September 10th. With headquarters' comprehensive costs rising and reflecting on financial statements, the trend of price increases is expected to continue in the short term. Related stocks such as Kerry Logistics (00636), SF Local (09699), and ZTO Express (02057) are worth paying attention to.

Today, there were some movements in the restructuring sector, mainly focusing on securities, such as Hongye Futures (03678), and Dongfang Securities (03958), which are likely waiting for a similar rebound after the resumption of trading for Haitong Securities (06837).

On September 16th, HKEX announced that the exchange has obtained regulatory approval to implement adverse weather trading. Adverse weather trading will take effect from September 23, 2024. Securities trading conducted on the exchange or through the exchange (including northbound and southbound trading under Shanghai-Hong Kong Stock Connect) will continue to operate in adverse weather conditions. Similar to regular trading days, all exchange participants are required to continue providing trading-related services during adverse weather. Charles Li, CEO of HKEX, stated, "This measure not only helps maintain market continuity but also ensures that investors can manage risks under various weather conditions." The key is to maintain trading continuity, so as not to miss buying or selling opportunities due to weather conditions, avoiding unnecessary losses.

In recent days, southbound funds have not participated in the market, so funds with the upper hand will be the first to see upward movements. Generally speaking, only when it is a true mainstream direction will funds go long.

[Sector Focus]

Data shows that on the first day of the Mid-Autumn Festival holiday on September 15th, Macau recorded 125,000 inbound visitors. On the second day of the holiday, there were 124,000 visitors to Macau. A Morgan Stanley research report pointed out that the average daily hotel room rates and occupancy rates in Macau during the Golden Week in October are expected to be similar to the same period last year In the meantime, the bank expects daily gaming revenue to be MOP 900 million, with total gaming revenue in October reaching MOP 20 billion, implying a 1% year-on-year increase. Compared to the Golden Week in May, daily room rates seem to be stronger. The bank pointed out that the Macau Government Tourist Office roughly and conservatively estimates that the daily number of visitors to Macau during the Golden Week will exceed 100,000. The bank expects Macau's mid-term gaming revenue to recover to 114% to 115% of the same period in 2019.

Main stocks: Sands China Ltd. (00880), Galaxy Entertainment Group Limited (00027), MGM China Holdings Limited (02282).

[Stock Analysis]

Henderson Land Development Company Limited (00012): Mid-term revenue of HKD 11.762 billion, a year-on-year increase of 14.44%, Citigroup raises profit forecast

Announcing the interim results for the six months ended June 30, 2024, the group achieved revenue of HKD 11.762 billion, a year-on-year increase of 14.44%; attributable profit to shareholders was HKD 3.174 billion, a year-on-year decrease of 46.72%; basic earnings per share were HKD 0.66; proposed interim dividend of HKD 0.5 per share. The announcement stated that during the period, the group timely launched several residential projects during the market recovery period, including "Belgravia Place" Phase 1 in Cheung Sha Wan, "Leo Square" in Mong Kok, and "The Haddon" in Hung Hom. Among them, "Belgravia Place" Phase 1 in Cheung Sha Wan had an ideal sales performance, with the first batch of 138 residential units sold out on the first day of sale. Existing projects that had been launched also achieved satisfactory sales results. "The Holborn" in Quarry Bay is almost sold out, and as for "One Innovale" in the New Territories, over 96% of residential units have been sold as of the settlement date. Together with the sale of other properties (including parking spaces), the group's contracted sales in Hong Kong for the six months ended June 30, 2024, amounted to approximately HKD 8.953 billion, an increase of 33% compared to the same period last year.

Commentary: The group's attributable profit to shareholders was HKD 3.174 billion, a year-on-year decrease of 46.72%, mainly due to delayed recognition of income and lower-than-expected property development profit margins. However, the core business development itself is not bad. During the six months ended June 30, 2024, the group's attributable rental income in Hong Kong (including contributions from subsidiaries, associates, and joint ventures) increased by 3% to HKD 3.403 billion compared to the same period last year, while attributable pre-tax rental net income (including contributions from subsidiaries, associates, and joint ventures) also increased by 2% to HKD 2.512 billion compared to the same period last year. The group holds a 40.77% equity interest in the International Financial Centre project, which contributed a total rental income of HKD 822 million, a 4% decrease compared to the same period last year. The average occupancy rate of the group's main rental properties as of June 30, 2024, was 93%. During the period, the group's retail property portfolio maintained a stable occupancy rate, with rents steadily increasing. In some regions, both foot traffic and overall tenant business turnover have exceeded pre-pandemic levels in 2018. Citigroup's report states that as the US interest rate cut cycle approaches, gross interest expenses are expected to decrease, and asset sales and government land resumption can bring in "impromptu" cash inflows, prompting an upward revision of Henderson's profit forecasts for the fiscal years 2024 and 2025 by 9.8% and 13.4% to reflect the latest property sales forecasts and gross margin assumptions And updates on the forecast for rental income and dividend contributions from The Hong Kong and China Gas Company Limited (00003).

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