RealEstate/Property-HongKongPriceObjectiveChangeEquity|HongKong|RealEstate/Property27February2012ExpectmoreupsidewithastabilizingmarketRaymondNgai,CFA>>+85225363987ResearchAnalystMerrillLynch(HongKong)PreferhigherbetaHongKongdevelopersoverlandlordsraymond.ngai@baml.com„WecontinuetopreferhigherbetaHongKongdevelopersoverlandlordsduetoKarlChoi,CFA>>+85225363108moreattractivevaluationsandexpectationofasoftlanding.AswehighlightedinResearchAnalystMerrillLynch(HongKong)ourYearAhead2012report(Divergencesettonarrow;turnaggressive),wekarl.choi@baml.comexpectthedivergencetoreversethisyearwithpropertypricestocorrectandMatthewChow,CFA>>+85221617877stockpricestorebound.ResearchAnalystMerrillLynch(HongKong)ReiterateBuyratingsonNWD,HendersonLandandSHKPmatthew.chow@baml.comDespitetherecentstrongrallyfromarelativelowbase,ourtoppicks–NWDandKarenFan>>+85225363728ResearchAnalystHendersonLand–arestilltradingatundemandingvaluationsof50%discountstoMerrillLynch(HongKong)NAVand0.5-0.6xP/BV.Weexpectbothstockstocontinuetore-rateonstrongkaren.fan@baml.comsalespipelinesandalargelandbanksandweexpectfurther16-21%upsidepotential.AmanagementreshuffleforNWDcoulddrivere-ratinginthemediumterm.Turningmorepositive&raisingpropertypriceassumptionsChart1:HKdevelopers’sharepricevspropertyWeturnmorepositiveonpropertymarketduetocontinuingabundantliquidityandpriceslessconcernsoverEuropedebtcrisis.Thiswasunderpinnedbyarecentcutin120160140mortgagerateto2.15%from2.3-2.5%,positivewealtheffectfromthestock100Shrpriceandphysicalpropertypricesmovedin120marketwithHSIupover3,000pointsYTDandnonegativesurprisefromthe80100Budgetspeech.WenowexpectHKresidentialpricestofallby10%,atthemild6080endofourearlierassumptionofa10-20%decline,withbetterdemandoutlookon6040continuinglowinterestratesandasoftlandingonChineseeconomy.However,HKPropertydevelopers'shrpriceindex(LHS)4020thegovernment’spledgetosupply20kunitsayearoverthenext10yearsshouldCentalinesecondaryhomepriceindex(RHS)2000keep