HK Land

HK Land: Couple of positive upgrades on stock, notably by CLSA and CS. CLSA upgrades to Buy with US$9.00 and adds stock to Conviction Buy List. House believe the upside is far from being exhausted with expectations staying low against stabilizing rents and financial industry, narrowing gap with competing office hubs and improving financial market outlook. Add that valuation is undemanding at 29% discount to NAV vs office upcycle average of 15%. Current P/B of 0.68x looks undemanding too against 0.84x of upcycle average. Separately, CS believe office rental recovery in the near future is further reinforced by the improvement of various economic indicators (China PMI, HK retail sales etc) and the rebound in the latest export statistics (BDI). The recovery of economic fundamentals would help to revive the capital market, which in turn leads to demand for the Central office space. An upside to our office rental assumption (flat YoY in 2013) would result if the strong momentum of recovery continues. House TP is revised up to US$8.08 (from US$7.60), based on a narrower target discount of 15% (from 20%) on the NAV of US$9.5/share.