Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com.au/disclosures. HONG KONG 12 HK Neutral Price (at 05:19, 25 Mar 2014 GMT) HK$42.50 Valuation HK$ 54.42 - DCF 12-month target HK$ 45.38 Upside/Downside % +6.8 12-month TSR % +8.9 Volatility Index Low GICS sector Real Estate Market cap HK$m 114,708 Market cap US$m 15,064 Free float % 17 30-day avg turnover US$m 13.5 Number shares on issue m 2,699 Investment fundamentals Year end 31 Dec 2013A 2014E 2015E 2016E Revenue m 23,289 25,008 25,283 34,289 EBIT m 5,760 5,386 5,534 8,081 EBIT growth % 19.9 -6.5 2.8 46.0 Reported profit m 15,948 9,261 9,481 10,724 Adjusted profit m 8,938 9,152 9,143 10,724 EPS rep HK$ 5.99 3.30 3.21 3.61 EPS rep growth % -18.6 -44.9 -2.8 12.5 EPS adj HK$ 3.35 3.24 3.09 3.61 EPS adj growth % 29.3 -3.2 -4.6 16.7 PER rep x 7.1 12.9 13.2 11.8 PER adj x 12.7 13.1 13.7 11.8 Total DPS HK$ 1.06 1.07 1.06 1.06 Total DPS growth % 9.9 0.9 -1.4 0.0 Total div yield % 2.5 2.5 2.5 2.5 ROA % 2.0 1.7 1.7 2.4 ROE % 4.2 4.0 3.9 4.5 EV/EBITDA x 12.2 14.1 14.6 11.6 Net debt/equity % 15.4 8.5 1.5 -2.2 P/BV x 0.5 0.5 0.5 0.5 12 HK rel HSI performance, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 2014 (all figures in HKD unless noted) Analyst(s) Raymond Liu, CFA +852 3922 3629 raymond.liu@macquarie.com David Ng, CFA +852 3922 1291 david.ng@macquarie.com 26 March 2014 Macquarie Capital Securities Limited Henderson Land Where is the spotlight? Event  Management commented that the company does not have a specific sales target given the current abnormal physical market, which is affected by policy. We expect Henderson Land (HEND) to be less keen on price cutting to compete with peers that are more motivated to adopt flexible pricing to increase asset turnover, resulting in a lower sales performance. Henderson Land’s 2013 contracted sales in Hong Kong was HK$10.5bn, down 22% YoY. We expect its sales to stay at ~HK$10bn in 2014-16. With ~75% of 14E profit coming from rental income of investment properties and its 40.76% owned Hong Kong & China Gas (3 HK, HK$16.40, OP), we see limited downside on the stock but a lack of near-term share price catalysts. Willingness to churn its assets by accepting lower margin would be key to reviving sales, in our view. We lower our TP by 6.2% to HK$45.38 to reflect 1-for-10 bonus shares and maintain our Neutral rating. Impact  Sufficient pipeline in Hong Kong, but pricing is the key. HEND has sufficient saleable resources of 3.8k units (1.2k inventories and 2.6k new units) available for sale in 2014. We believe a price cut is needed in order to digest inventory, as many of its projects are now under direct competition against peers who are willing to cut prices by as high as 20%. Quick sales of Double Cove Phase 3 (1,092 units) would be a key positive surprise if they can launch on schedule.  Good effort but limited return in China sales. We have seen an improvement in its China sales over the last 3 years with sales growing from HK$1.9bn in 2011 to HK$7.3bn in 2013. However, profitability seems to be dragged down by cost control, as reflected in low operating profit margin of 8%, in our view. We expect its sales in China to grow another 32% to HK$9.7bn in 2014 with similar margin.  FY13 results highlights. HEND reported better-than-expected underlying profit of HK$8.9bn, up 26.0% YoY, and revenue of HK$23.3bn, up 49.3% YoY. Net gearing stayed healthy at 16%. Rental income grew by 10% to HK$7.3bn, while the share of profit from HKCG (ex-property business) increased by 6% to HK$2.5bn.  Bonus shares on 1-for-10 basis. Management commented they will maintain the same DPS, implying a dividend increase of 10% in the coming fiscal year. Total dividend for FY13 remained unchanged at HK$1.06/sh. Earnings and target price revision  TP and NAV lowered by 6.2%/3.0% to reflect 1-for-10 bonus shares and lower sales assumptions. 14/15E net profit revised by +2.7%/-6.5%. Price catalyst  12-month price target: HK$45.38 based on a Sum of Parts methodology.  Catalyst: Farmland conversion at a low land premium price Action and recommendation  While the earnings visibility of HEND is strong due to resilient growth from HK & China Gas business and rental portfolio, we see a lack of share price catalysts in the near term. Stock is trading at a 13.1x 2014E PE and 0.5x PB. Macquarie Research Henderson Land 26 March 2014 2 What has changed? We lower our price target and NAV assessment by -6.2% and -3.0%, respectively, due to the following changes in assumptions:  Adjustment of the one-for-ten bonus shares  Higher rental growth assumptions Fig 1 Estimate changes and versus consensus (HK$ m) Price target NAV Revenue Underlying profits* HK$ HK$ 2014F 2015F 2014F 20