Bullish insiders betting on this Chinese property stock despite Evergrande fears

As the extent of China Evergrande’s crippling debt has been laid bare throughout 2021, most investors have distanced themselves, and their portfolios, from the Chinese property sector.

And who could blame them?

With more than $300 billion in liabilities on its balance sheet and estimates of another $100 billion worth of liabilities off the balance sheet, questions have been raised about the health of the entire property sector.

Analysis conducted by Asia Markets recently revealed the 7 most leveraged residential property developers in the world are all Chinese companies.

But, as the fear has caused a sell off in almost all parts of China’s diverse property sector, could there be value to be found?

Asia Markets can reveal one Chinese property play that both fund managers and even company insiders are bullish on.

Hang Lung Properties (HKG: 00101)

Hang Lung Properties specialises in the development and management of luxury shopping malls. It owns and operates properties in Hong Kong and nine Chinese Mainland cities including Shanghai, Shenyang, Jinan, Wuxi, Tianjin, Dalian, Kunming, Wuhan, and Hangzhou, 

Hang Lung’s landmark properties operate under the ’66’ brand and include:

  • Plaza 66 in Shaghai – Known as China’s “Home to Luxury”. The five-storey mall boast tenants including including Louis Vuitton, Hermès, Chanel, Dior and Cartier.
  • Grand Gateway 66, Shanghai – Located atop Shanghai’s largest metro station, Xujiahui, Grand Gateway 66 tenants are international luxury brands including Bottega Veneta, Burberry, Cartier, Fendi, Gucci, Louis Vuitton, Tiffany & Co., and Van Cleef & Arpels, along with an extensive portfolio of specialty retailers encompassing fashion apparel, cosmetics, watches and jewelry, sports and fitness, digital home appliances and children’s products. There’s also an adjoining office tower and high-end serviced apartments with private clubhouse facilities.
  • Forum 66, Shenyang – A luxury-led specialty mall and office tower home to labels including Chanel, Cartier, Christian Louboutin, Valentino, Lanvin and Piaget, as well as boutique supermarket, upscale cinema, global cuisine options and lifestyle services.
  • Center 66, Wuxi – A luxury mall featuring close to 200 quality retail stores with a line-up of global luxury labels including BVLGARI, CELINE, Saint Laurent, Louis Vuitton, Piaget, Cartier and more. There are also two office towers at centre that are home to a number of multinational corporations and leading domestic firms looking for impeccable design and premium facilities, while two adjoining luxury apartments towers and a hotel tower are currently being developed at the sight.

In total, Hang Lung owns 50 properties across Hong Kong and the Mainland.

While luxury shopping malls and office towers make up its core business, it also has a smaller number of residential tower developments and hotels in its portfolio.

Hang Lung’s mainland investment properties account for around two-thirds of total rental revenue. In the first half of 2021, Hang Lung recorded a net profit of HK$2.2 billion.

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A Chinese property stock that’s “Printing money”

Dr Joseph Lai, is a prominent Asia equities fund manager who recently established Ox Capital after almost two decades managing the US$3 billion Asia Fund at Sydney-based Platinum Asset Management.

In an interview, Dr Lai has revealed Hang Lung Properties has been one of the first inclusions to his new fund’s portfolio.

He says Hang Lung is benefitting from a surge in the sale in luxury goods in China as prices have fallen in line with international prices.

“Until recently… the price for luxury goods has been traditionally been literally 30% cheaper offshore compared to mainland China. That has changed for a few reasons. The price difference is much less now,” he says.

“We are starting to see queues of people lining up outside of Louis Vuitton, Gucci and Cartier in China. All these shops have been in China for a while and they used to be basically showrooms, where people look at the items. Some of them buy it but a majority would go outside and go overseas to buy them.

“But there’s a problem because the business is so good, these luxury companies want to open new stores, but there are not enough places where they can open.

“The two Shanghai malls (Plaza 66 & Grand Gateway 66) are just printing money and have been doing so for literally 10 years.”

Dr Lai says he expects that many of Hang Lang’s current premium tenants will continue to open new stores in the coming years within Hang Lung’s existing malls.

“If we look at the number of stores per capita for Louis Vuitton or for all the brands basically, Gucci, Hermès, Cartier, China has one-tenth or even less of stores per capita for those brands compared to the likes of more developed countries such as Japan, Taiwan or Korea.”

At 25 October 2021, Hang Lung stock trades on around 0.6 times book value and 13.5 times forward P/E, while growing at 15%. 

Insiders buying too

Dr Lai isn’t the only one bullish on the prospects on Hang Lung. Analysis by Asia Markets shows two key executives have recently been buying shares.

Wai Pak Lo, Hang Lung’s Chief Executive Officer purchased a total of HK$3.8 million worth of shares in September.

His share purchases include:

  • 14 September 2021 – 50,000 shares at HK$18.54 (HK$927,000)
  • 8 September 2021 – 150,000 shares at HK$18.83 (HK$2,823,990)

Hang Lung’s Chief Financial Officer has been a recent accumulator. He has purchased a total of HK$1.4 million shares in the following trades in August and September.

  • 20 September 2021 – 4000 at $17.50 (HK$70,000)
  • 15 September 2021 – 20,000 at $18.48 (HK$369,600)
  • 26 August 2021 – 29,000 at $19.37 (HK$561,620)
  • 6 August 2021 – 21,000 at $19.87 (HK$417,201)

Hang Lung Properties parent company, Hang Lung Group, has also bought back a significant number of shares over the past year.

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