EQUITY RESEARCH: THE HONGKONG AND SHANGHAI HOTELS, LIMITED

As one of the leading luxury hotel groups worldwide by market capitalization around HKD 9.3 Bn, THE HONGKONG AND SHANGHAI HOTELS, LIMITED (HSH) primarily engages in 3 divisions: Hotels, Commercial Properties, Clubs & Services. This report issues a SELL recommendation for HSH, with a 2026YE PT of HKD 4.71/Sh., using a WACC model, representing a downside potential of 16% in 18 months (IRR:-11%), against the closing price of HKD 5.61/Sh., as of June 27th, 2025, with a high risk. The SELL recommendation is explained by: 1) its strong brand recognition, unparalleled located assets and high-end customized services grant it differentiated pricing power; and 2) diversified asset portfolio provide diversified revenue streams. However, 1) its core business revenue is vulnerable to external shocks, high fixed cost base and asset depreciation exacerbate profit squeeze in downturn; 2) major capital expenditure projects push up debt level, rising interest rate trigger liquidity and solvency risks. HSH's valuation was performed using WACC, FCFE, P/B, EV/EBITDA methods. To assess the investment risks, sensitivity analysis, Monte Carlo Simulation and scenario analysis were performed. This research is issued considering only publicly available information on June 27th, 2025. Any event or information available after the date has not been reflected.