THE Hong Kong stock market may be reaching record highs, but property developer Asia Standard is currently 43 per cent below its peak share price for 1993, as it absorbs the impact of a highly geared rights issue. The decline appears to be a massive over-reaction, and the share price offers an estimated 61 per cent discount to asset value. The upside potential should be substantial, but clearly this is not an investment for the faint-at-heart. Minor league property developers do not have a reputation for being particularly kindly towards minority shareholders, and a discount to the market average would be expected for a company such as Asia Standard. The present discount, however, is unjustifiable. According to brokerage Asia Equity, the net asset value per share of the company, following the receipt of $583 million in rights money, is $2.38 - primarily from the value of the group's portfolio of commercial investment properties. In the near future, the bulk of Asia Standard's earnings will be derived from office rentals. This represents a quality earnings stream and, given the current outlook for the office market in the group's core areas of Central, Causeway Bay and Tsim Sha Tsui, it should give rise to further appreciation in asset values. According to Asia Equity, the company is expected to post net profit of $100 million for the year to March 1994, up 96 per cent from 1993. This puts the shares on a price-earnings multiple of 7.4, even after the dilution from the rights issue. The longer-term outlook is extremely positive as the group recently completed Asia Orient Tower in Wan Chai; next year it will complete Asia Standard Plaza in Tsim Sha Tsui; and in 1995 it will add Asia Orient Plaza, in the same district. The quality of earnings will improve, with rental income accounting for 85 per cent of a 1994-95 forecast of $138 million net profit. Given the full impact of the six-for-five rights issue, the PE will fall to a still reasonable figure of nine. For investors nervous about stock market levels, Asia Standard does not class as a defensive stock, but since the share price is anchored by its enormous discount to net assets and strong earnings growth track, the downside potential appears limited.