Hongkong Land - DBS Research 2017-03-06: Stepping up pace on regional residential investments

Hongkong Land - DBS Vickers 2017-03-06: Stepping up pace on regional residential investments HONGKONG LAND HOLDINGS LIMITED H78.SI

Hongkong Land - Stepping up pace on regional residential investments

  • Seeking investment opportunities in China and Southeast Asia.
  • Focus on residential projects for sale in China.
  • Some challenges when investing in Southeast Asia.
  • BUY with US$7.90 TP given our positive view on Central office market.

What’s New 

  • Despite the stock trading at steep discount to NAV and with a low gearing of 6%, Hongkong Land has no current plans to repurchase its shares. Instead, the company indicated in the result briefing that it was actively seeking investment opportunities in China and Southeast Asia for capital redeployment. 
  • The company acquired a development site in Bangkok at the beginning of this year, which will be developed into high-rise luxury condominium. Hongkong Land has 49% stake in this project with Singha Estate as its joint venture partner.
  • In China, the company outlined two criteria in selecting markets to invest. 
    • First, the size of the city should be decent.
    • Second, the supply and demand dynamics in the property market of the potential city should be favourable. 
  • In addition to Chongqing, Chengdu, Beijing, and Shanghai, Hongkong Land is interested in venturing into Wuhan, Nanjing and Hangzhou where its existing joint venture partners are also active. In making new investments in China, Hongkong Land prefers residential-led developments for sale and is selective on retail property projects as oversupply remains an issue.
  • In Southeast Asia, Hongkong Land continues to see potential in Indonesia, Thailand, the Philippines, and Vietnam. 
  • Nevertheless, there are challenges in making new investments in these countries. For example, it has been difficult to acquire freehold sites at reasonable prices for development in Bangkok. Besides, there is a limitation on project ownership of foreign investors in these countries. This requires foreign enterprises like Hongkong Land to partner with local companies to undertake property development.
  • Overall, residential contributions from Southeast Asia is expected to remain relatively smaller than those from China in the near term.

Jeff YAU CFA DBS Vickers | Ian CHUI DBS Vickers | http://www.dbsvickers.com/ 2017-03-06
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 7.900 Same 7.900