Hong Kong Stock Market Review: Another stock scandal

This time, Hang Lung Properties exploded, with reduced dividends and stock prices falling back to 2009. As of the end of the first half of this year, the company's attributable net profit to shareholders dropped by 55.7% year-on-year to HKD 1.061 billion, and the attributable basic net profit was HKD 1.735 billion, a 22% year-on-year decrease, mainly due to the decline in rental operating surplus and increased financial expenses. Interim dividends decreased by 33% to HKD 0.12. Hang Lung faces slightly different challenges. Based on the fact that mainland rental income accounts for about 65% of operating surplus, and all are high-end shopping centers, some investors consider it a more stable high-dividend asset. However, with consumer weakness pervasive and luxury consumption in the mainland clearly declining, malls primarily focused on this will naturally be impacted. Specifically, the revenue of the company's high-end malls fell by 4% to HKD 2.09 billion, while the revenue of the second-tier malls actually increased by 5% to HKD 320 million, reflecting a trend of consumption downgrading. Among them, the two flagship malls, Shanghai Hang Lung Plaza and Shanghai Grand Gateway Hang Lung Plaza, saw revenue declines of 8% and 4% respectively, but tenant sales fell by 23% and 14% respectively, reflecting the collapse of high-end consumption. On the other hand, revenue from mainland office buildings decreased by 4% to HKD 560 million, with Shanghai Hang Lung Plaza, which contributes more than half of the revenue, seeing a 10 percentage point decrease in occupancy rate to 88% compared to the same period last year, and a 7% revenue decline. The situation of weak demand and oversupply of office space in first-tier cities is similar to that in Hong Kong. While facing declining revenue, Hang Lung also has to bear the impact of rising interest rates, with the average borrowing rate increasing from 3.9% to 4.3% during the period, leading to a 21% increase in financial expenses to HKD 1.06 billion. Although financial expenses should be at their peak, 41% of the company's borrowings are fixed-rate, and the future benefit from interest rate cuts may not be significant enough. Optimistically, the company's stock price has fallen by 45% this year, with many negative factors already priced in, and the collapse of high-end consumption in the mainland to some extent is due to the wealthy shifting their consumption to Japan, with the possibility of a return in the future. However, the biggest uncertainty at the moment is the dividend policy. Hang Lung Properties has been paying out HKD 3.5 billion in dividends annually for the past three years. A 33% reduction would mean HKD 2.3 billion, resulting in a dividend yield of approximately 9.2%. However, the company's debt ratio has been increasing year by year, with operating cash flow of only HKD 3.7 billion in 23 years. It can be said that dividends are all paid out through borrowing, and whether they can sustain this is a question mark. Chairman Ronnie Chan announced his retirement in March this year, and the company's ownership structure is not ideal. Hang Lung Group holds about 61% of Hang Lung Properties, while the major shareholders hold about 40% of Hang Lung Group, with a significant portion of dividends being diverted, which is not conducive to maintaining the dividend policy. New World is in a similar situation. Although it had already reduced dividends by 57% in the first half of the previous fiscal year, its debt remains very high, with significant short-term refinancing pressure, insufficient contribution from operating businesses, and uncertainty about how much further dividends will be reduced in the second half of the year