HK Land

HK Land: UBS upgraded from Neutral to Buy, lifting 12m TP from US$7.18 to US$7.35 due to marginally higher NAV estimate and stabilizing Central rents. Central office rentals are expected to increase 5% y/y, but retail rental growth in high-end shopping malls in HK will be weaker. Earnings estimates were lowered by 2%/3%/10% for FY14-16. However, NAV is marginally higher after accounting for assumed booking of its China and Singapore residential. NAV is derived with cap rates of 5.0-5.5%, after factoring in a spread of 100-150bps against current market yield to account for the potential of higher US 10yr Treasury yield. Valuation is undemanding after recent share price correction. HK Land now trades at 1SD below historical PBV and 32% discount to NAV. UBS pegs TP to 25% discount of NAV.