Should Investors Rethink Hang Lung After 80% Rally and Weak Free Cash Flow Outlook?

If you are deciding what to do with Hang Lung Properties stock, you are not alone. After all, the last year has been a wild ride for shareholders, swinging from deep red to impressive green territory. In the past twelve months, Hang Lung’s share price has soared 80.1%, and it is up a hefty 46.3% since the beginning of the year. Even in just the last week and month, gains of 5.7% and 9.4% respectively hint that investors are responding to changing market sentiment and perhaps shifting perceptions of risk tied to Hong Kong’s real estate sector. Yet, the bigger picture is more nuanced. Over the last three and five years, the stock remains underwater, down 17.0% and a stark 39.2% respectively. For some, the recent rally feels less like a new high than a climb back up the hill.

Valuation is front of mind for many right now. Is the stock still a bargain after these gains, or might it be getting ahead of itself? To get a clearer sense, we can look at a value score based on six different checks that flag a company as undervalued. On this measure, Hang Lung Properties currently scores 0 out of 6, suggesting it is not undervalued by any of these traditional yardsticks.

But numbers rarely tell the whole story. Next, we will walk through each of the main valuation approaches to see what they reveal about the current investment case. In addition, we will dig into a smarter, forward-looking way of understanding value that may offer even deeper insight for investors at the end of this article.

Hang Lung Properties scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Hang Lung Properties Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to today’s value. This provides a forward-looking sense of what the business is really worth, based on how much cash it can generate for shareholders over time.

According to the latest data, Hang Lung Properties generated HK$4,956 Million in Free Cash Flow (FCF) over the last twelve months. Analyst estimates and projections suggest this figure is expected to decrease to HK$1,945 Million by 2027. Looking a full decade out, Simply Wall St’s extrapolations forecast FCF of just over HK$2,028 Million by 2035, indicating muted growth in the years ahead. It is notable that after initial analyst forecasts for the first five years, longer-term estimates are based on automated projections rather than explicit analyst guidance.

Using these cash flows, the DCF model values Hang Lung Properties at HK$3.48 per share. Compared to the current market price, this implies the stock is around 157.6% overvalued based on expected future cash generation. In short, despite recent gains, the DCF approach suggests there is significant downside risk at the current valuation.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Hang Lung Properties.

Our Discounted Cash Flow (DCF) analysis suggests Hang Lung Properties may be overvalued by 157.6%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Hang Lung Properties Price vs Earnings (PE)

The price-to-earnings (PE) ratio is a widely used and effective valuation tool for profitable companies like Hang Lung Properties. It allows investors to quickly gauge how much the market is willing to pay today for a dollar of current earnings. Generally, higher PE ratios reflect expectations of stronger future growth or lower perceived risk, while lower PEs may indicate market doubts about sustainability or outlook.

Currently, Hang Lung Properties trades at a PE of 22.4x. This is well above the industry average of 13.2x and also higher than its peer average of 16.3x. On the surface, this premium suggests that the market may be betting on Hang Lung's resilience or improvement in fundamentals compared to its sector rivals. However, context is important, as valuation multiples are influenced by growth prospects, profitability, and company-specific risks, making simple comparisons less definitive.

This is where Simply Wall St’s proprietary Fair Ratio comes in. For Hang Lung, the Fair PE Ratio is estimated at 15.3x, reflecting a more nuanced assessment that incorporates factors like earnings growth forecasts, profit margins, industry dynamics, and the company’s size and risk profile. Unlike basic peer or sector multiples, the Fair Ratio aims to distill what the company’s PE “should” be, given its unique fundamentals.

With the current PE of 22.4x compared to a Fair Ratio of 15.3x, a gap of more than 7 points, the shares appear to be trading well above what would typically be warranted by the company’s prospects and risks. That suggests that Hang Lung Properties is likely overvalued based on this approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Hang Lung Properties Narrative

Earlier, we mentioned there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative connects your view of a company’s story, such as its urbanization focus or financial headwinds, to your personal forecasts of revenue, earnings, and fair value. This creates a full investment thesis that goes beyond numbers alone. On Simply Wall St’s Community page, millions of investors use Narratives as an easy, interactive tool to craft and share their outlook for Hang Lung Properties, directly linking each story to a projected fair value so you can instantly see if the current price offers opportunity or risk.

Narratives are dynamic and update automatically when results or news are released, making it simple for you to track if your thesis is holding up or needs revisiting. For example, one investor might set a bullish Narrative, expecting ongoing rental growth from new mixed-use projects and a fair value of HK$10.0. Another, focused on persistent market risks and soft tenant sales, might set a more cautious Narrative with a fair value closer to HK$6.5. By comparing your own view to others and to the market price, Narratives help you decide when to buy, sell, or hold. This brings clarity and conviction to your investment decisions.

Do you think there's more to the story for Hang Lung Properties? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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