Core Viewpoint - UBS downgraded the rating of Henderson Land Development (00012) from "Buy" to "Neutral," citing that the risk and return have become balanced after the stock price increase driven by the recovery of the Hong Kong residential and office market [1] Group 1: Rating and Target Price - UBS raised the target price for Henderson Land from HKD 29 to HKD 30.5 [1] Group 2: Dividend Sustainability Concerns - Recent market focus has been on the sustainability of Henderson Land's dividends, with a projected negative free cash flow of HKD 4.8 billion after dividends in 2025 due to a lack of whole property transactions and the 2025 agricultural land conversion project [1] - A scenario analysis indicates that a potential 55% reduction in dividends (to HKD 0.81 per share) could achieve free cash flow balance, allowing the controlling family to receive more cash due to reduced shareholder loan contributions [1] - The probability-weighted dividend per share, assuming a 50% chance of a reduction to HKD 0.81, is calculated at HKD 1.3, resulting in a current dividend yield of 4.3%, comparable to Cheung Kong Holdings (01113), suggesting that the market has partially reflected the risk of dividend reduction [1] - UBS maintains its forecast for Henderson Land's 2025 dividend per share at HKD 1.8 [1]

Core Viewpoint - UBS downgraded the rating of Henderson Land Development (00012) from "Buy" to "Neutral," citing that the risk and return have become balanced after the stock price increase driven by the recovery of the Hong Kong residential and office market [1] Group 1: Rating and Target Price - UBS raised the target price from HKD 29 to HKD 30.5 [1] Group 2: Dividend Sustainability Concerns - Recent market focus has been on the sustainability of the company's dividends [1] - The lack of whole property transactions and the 2025 agricultural land conversion project may lead to a projected negative free cash flow of HKD 4.8 billion after dividends in 2025 [1] Group 3: Dividend Reduction Scenarios - UBS's scenario analysis indicates that a potential 55% reduction in dividends (to HKD 0.81 per share) could achieve free cash flow balance, allowing the controlling family to receive more cash due to reduced shareholder loan contributions [1] - The probability-weighted dividend per share, assuming a 50% chance of a reduction to HKD 0.81, is calculated at HKD 1.3, with the current dividend yield at 4.3%, comparable to Cheung Kong Group (01113) [1] - This suggests that the market has partially reflected the risk of dividend reduction, further supporting UBS's view of balanced risk and return [1] - UBS maintains its forecast for Henderson Land's 2025 dividend per share at HKD 1.8 [1]

Group 1 - UBS downgraded the rating of Henderson Land Development from "Buy" to "Neutral" [1] - The downgrade is attributed to the balance of risk and reward after the stock price increase driven by the recovery of the Hong Kong residential and office market [1] - The target price was raised from HKD 29 to HKD 30.5 [1]

Investment Rating - The report maintains a "Positive" investment rating for the Hong Kong real estate sector [1]. Core Insights - The Hong Kong residential market is stabilizing and showing signs of recovery, with new home sales volume approaching the peak levels of 2019, and second-hand home transactions reaching a new high since 2022. The inventory de-stocking cycle has significantly reduced from 125 months to 61 months [1][8]. - The retail property market is still under pressure, but rental declines are narrowing, and vacancy rates in core areas are decreasing. Office rents and occupancy rates are under pressure, with significant regional market differentiation [1][19][25]. - The residential market is expected to continue its upward trend in 2026, driven by lower mortgage rates and an increase in rental yields. Over 80% of residential properties are projected to achieve a balance between supply and rental demand [1][34][40]. Summary by Sections 1. Hong Kong Real Estate Market Review - Residential transaction volumes are increasing, with new home sales reaching 21,000 units in 2025, a 99.1% increase from the cycle's bottom [8][12]. - The inventory pressure has eased, with the de-stocking cycle for new homes dropping significantly [16]. - Retail property rents are still adjusting, but the rate of decline is slowing, and some core areas are showing signs of recovery [19][21]. - Office rents have decreased by 21.1% since their peak in June 2019, with rising vacancy rates [25][26]. 2. Outlook for the Hong Kong Real Estate Market - The residential market is expected to continue its recovery, with structural differentiation being a key feature [34]. - The ongoing Federal Reserve rate cuts are likely to support the Hong Kong real estate market's recovery [34][37]. - The proportion of properties achieving a balance between supply and rental demand is expected to increase, enhancing home buying demand [39][40]. - Talent attraction policies are anticipated to boost potential home buying demand as more skilled individuals move to Hong Kong [44][50]. 3. Valuation Elasticity of Hong Kong Property Companies - Current valuations of major Hong Kong property companies are at historically low levels, indicating potential for recovery [1][3]. - Companies with a higher proportion of development business and land reserves are expected to exhibit greater valuation elasticity [1][3]. - The top three property companies in terms of sales in 2025 are Sun Hung Kai Properties, Henderson Land Development, and Sino Land, with significant year-on-year sales growth for Henderson and Sino [1][3].

Market Overview - The Hang Seng Index fell by 76.39 points, a decrease of 0.29%, closing at 26,487.51 points [1] - The total turnover on the main board was HKD 2,377.66 million [1] - The National Enterprises Index dropped by 39.69 points, closing at 9,094.76 points, a decline of 0.43% [1] - The Hang Seng Tech Index decreased by 66.54 points, closing at 5,683.44 points, a drop of 1.16% [1] Blue-Chip Stocks - Tencent Holdings decreased by 1.48%, closing at HKD 601 [1] - Hong Kong Exchanges and Clearing fell by 1.11%, closing at HKD 427 [1] - China Mobile remained unchanged, closing at HKD 79.3 [1] - HSBC Holdings increased by 1.1%, closing at HKD 128.4 [1] Local Hong Kong Stocks - Cheung Kong Holdings rose by 0.74%, closing at HKD 43.34 [1] - Sun Hung Kai Properties decreased by 0.99%, closing at HKD 110.2 [1] - Henderson Land Development increased by 0.52%, closing at HKD 31.12 [1] Chinese Financial Stocks - Bank of China fell by 0.45%, closing at HKD 4.47 [1] - China Construction Bank decreased by 0.51%, closing at HKD 7.76 [1] - Industrial and Commercial Bank of China dropped by 0.47%, closing at HKD 6.31 [1] - Ping An Insurance rose by 0.88%, closing at HKD 69 [1] - China Life Insurance increased by 4.31%, closing at HKD 33.4 [1] Oil and Petrochemical Stocks - China Petroleum & Chemical Corporation fell by 0.61%, closing at HKD 4.92 [1] - China National Petroleum Corporation decreased by 0.12%, closing at HKD 8.21 [1] - CNOOC Limited dropped by 1.74%, closing at HKD 21.52 [1]

Group 1 - The core viewpoint of the report is that multiple brokerages have raised their forecasts for Hong Kong's property price growth to between 5% and 10%, which has contributed to an 11% rise in Hong Kong real estate stocks this year, outperforming the Hang Seng Index by 6% [1] - Morgan Stanley believes that the market has already priced in a solid recovery in Hong Kong's property market over the next two years, as many companies' stock prices have reached or are close to historical highs [1] - The firm suggests that rental stocks have greater potential for upside, as improvements in their commercial real estate businesses have not yet been fully reflected in stock prices, with most still trading over 30% below their peaks [1] Group 2 - Morgan Stanley's top picks for rental stocks are Hang Lung Properties (00101) and Swire Properties (01972), due to their ongoing improvements in retail operations in mainland China [1] - Kowloon Development (01997) could become a dark horse if its management expresses a more positive outlook on tenant sales during the earnings release in March [1] - Among developers, Morgan Stanley prefers Sino Land (00083) and Henderson Land (00012), but generally advises waiting for a better entry point [1]

Group 1 - The core view of the report is that the Hong Kong residential market is expected to bottom out by mid-2025, with a recovery anticipated to strengthen in 2026, extending to the CBD office and high-end retail sectors [1] - The report forecasts a 5% to 10% increase in Hong Kong residential prices in 2026, followed by a further 5% increase in 2027 [1] - The valuation of the sector is believed to have normalized, leading to a more moderate price increase outlook [1] Group 2 - The company has raised target prices for several stocks by an average of 8% to reflect a stronger outlook for residential prices and a 50 basis point reduction in capitalization rates to 4.5% to 5.25% [1] - The report highlights a positive outlook for "buy" ratings on Cheung Kong Holdings (01113), Swire Properties (01972), and Hang Lung Properties (00101), while reiterating a "underperform" rating for MTR Corporation (00066) due to its large capital expenditure plans [1] - The report identifies potential catalysts for Hang Lung Properties, Henderson Land (00012), and Wharf Real Estate Investment (01997) in the first quarter [1] Group 3 - The report suggests that developers have already factored in a 5% to 10% increase in residential prices when comparing current residential prices and stock prices to 2021 [1] - Hang Lung Properties is expected to announce a new Singapore property fund and increase share buybacks by at least $200 million [1] - There is a divergence of opinions among investors regarding whether Henderson Land will cut dividends for the fiscal year 2025, which may lead to stock price volatility after earnings announcements [1] Group 4 - The report indicates that the rebound in earnings will be key for further revaluation of the sector, with Henderson Land expected to be the only Hong Kong developer to record a significant earnings rebound for the fiscal year 2026 [2] - Cheung Kong Holdings and Kerry Properties (00683) are projected to lead the earnings rebound for developers from 2025 to 2028, with an average annual rebound exceeding 10% [2] - Swire Properties and Hang Lung Properties are expected to lead earnings growth for owners during the same period [2]

Core Viewpoint - Bank of America forecasts that the Hong Kong residential market will bottom out in mid-2025, with a recovery expected to strengthen in 2026, extending to CBD office and high-end retail sectors [1] Group 1: Market Outlook - Residential prices in Hong Kong are expected to rise by 5% to 10% in 2026 and by 5% in 2027 [1] - The bank believes that sector valuations have normalized, anticipating a moderate increase in prices [1] Group 2: Target Price Adjustments - The bank has raised target prices for several companies by an average of 8% to reflect stronger residential price outlook and a 50 basis point reduction in capitalization rates to 4.5% to 5.25% [1] Group 3: Investment Recommendations - The bank maintains a "buy" rating for Cheung Kong Holdings (01113), Swire Properties (01972), and Hang Lung Properties (00101) [1] - MTR Corporation (00066) is reiterated with an "underperform" rating due to low likelihood of significant dividend increases amid large capital expenditure plans [1] Group 4: Potential Catalysts - Hang Lung Properties is expected to announce a new Singapore property fund and plans to increase share buybacks by at least $200 million [1] - There is a divergence of opinions among investors regarding whether Henderson Land Development (00012) will cut dividends for the fiscal year 2025, which may lead to stock price volatility post-earnings announcement [1] - Wharf Holdings (01997) is projected to see a 7% increase in dividends for the fiscal year 2025, supported by a decline in HIBOR and rising excess rents [1] Group 5: Earnings Recovery - The bank believes that earnings recovery will be key for further revaluation of the sector, with Henderson Land Development expected to be the only Hong Kong developer to record significant earnings rebound in fiscal year 2026 [2] - Cheung Kong Holdings and Kerry Properties (00683) are anticipated to lead the earnings rebound for developers from fiscal years 2025 to 2028, with an average annual rebound exceeding 10% [2] - Swire Properties and Hang Lung Properties are expected to lead earnings growth for owners during the same period [2]

Group 1 - The core view is that the Hong Kong residential market is expected to bottom out in mid-2025, with a recovery anticipated to strengthen in 2026, extending to CBD offices and high-end retail sectors [1] - Residential prices in Hong Kong are projected to rise by 5% to 10% in 2026 and by an additional 5% in 2027 [1] - The valuation of the sector has normalized, leading to a moderate expected increase in prices, with an average target price increase of 8% reflecting stronger residential price outlook and a 50 basis points reduction in capitalization rates to 4.5% to 5.25% [1] Group 2 - The company is optimistic about the potential for profit rebound driven by market recovery over the next three years, particularly favoring "buy" ratings for Cheung Kong Property (01113), Swire Properties (01972), and Hang Lung Properties (00101) [1] - The company maintains a "underperform" rating for MTR Corporation (00066) due to low likelihood of significant dividend increases amid substantial capital expenditure plans [1] - Key stocks with potential catalysts in Q1 include Hang Lung Properties, which is expected to announce a new Singapore property fund and increase share buybacks by at least $200 million, and Kowloon Development (01997), which is projected to see a 7% dividend growth in FY2025 supported by declining HIBOR and rising excess rents [1][2] Group 3 - The company believes that profit rebound will be crucial for further revaluation of the sector, with Hang Chi Properties expected to be the only Hong Kong developer to record significant profit rebound in FY2026 [2] - Overall, Cheung Kong and Kerry Properties (00683) are expected to lead the profit rebound for developers from FY2025 to FY2028, with an average annual rebound exceeding 10% [2] - Swire Properties and Hang Lung Properties are anticipated to lead profit growth for owners during the same period [2]

Market Performance - The Shanghai Composite Index rose by 3.8%, the Shenzhen Component Index increased by 4.4%, and the ChiNext Index went up by 3.9% this week [1] - The real estate sector (Shenwan) saw a rise of 5.1% [1] - The top five stocks by percentage increase were Chengjian Development (+34.5%), Yingxin Development (+22.0%), Shangshi Development (+20.8%), *ST Rongkong (+19.7%), and *ST Yangguang (+16.0%) [1] - The bottom five stocks by percentage decrease included Hainan Airport (-7.9%), Guangming Real Estate (-7.2%), Hezhan Energy (-5.5%), Shoukai Shares (-5.0%), and China Wuyi (-2.0%) [1] Real Estate Data Tracking - New homes: In the week of January 3-9, 42 key cities recorded a total transaction of 1.37 million square meters, a month-on-month decrease of 46.7% [1] - For January up to the week of January 9, new home transactions totaled 1.55 million square meters, down 30.1% month-on-month and 46.6% year-on-year [1] - Second-hand homes: In the week of January 3-9, 21 key cities saw a total transaction of 2.06 million square meters, a month-on-month increase of 25.4% [1] - For January up to the week of January 9, second-hand home transactions totaled 2.14 million square meters, down 16.1% month-on-month and 23.9% year-on-year [1] Industry News - The State Council, led by Premier Li Qiang, held a meeting to implement a package of fiscal and financial policies to boost domestic demand, including expanding the scope of public rental housing [2] - The central bank emphasized the continuation of a moderately loose monetary policy and the integration of incremental and stock policy effects [2] - Local policies include Shanghai's efforts to improve fair competition review mechanisms and Henan's support for local governments to issue special bonds for purchasing existing homes for affordable housing [2] - In Shenyang, the down payment for housing has been reduced to 15% until the end of 2026, while Chengdu extended its housing mutual assistance policy until the end of 2026 [2] Company Announcements - In December 2025, the sales figures for major real estate companies were as follows: Poly Development at 12.16 billion yuan (-18.9%), China Merchants Shekou at 25.84 billion yuan (-14.5%), and New Town Holdings at 1.35 billion yuan (-57.8%) [2] - China Overseas Development issued bonds with a 3-year term at an interest rate of 1.60%-2.60% and a 5-year term at 1.80%-2.80% [2] Personnel Changes - Vanke A's Yu Liang retired due to age, resigning from his positions as director and executive vice president [3] Investment Analysis - The real estate sector remains a crucial asset allocation and investment direction for Chinese households, with stable housing prices being significant for economic circulation [3] - The 20th Central Committee's emphasis on promoting high-quality development in real estate suggests potential policy support [3] - High-quality residential properties may see a development wave due to policy guidance and changes in supply-demand structure [3] - The Hong Kong private residential market sentiment is gradually recovering, indicating a potential revaluation for Hong Kong developers [3] - The sector is rated "positive," with recommended companies including China Resources Land, China Merchants Shekou, New Town Holdings, and others [3]