Hongkong Land (HKL SP) - DBS Research 2017-05-04: Riding On Sweet Office Upcycle

Hongkong Land (HKL SP - DBS Vickers 2017-05-04: Riding on sweet office upcycle HONGKONG LAND HOLDINGS LIMITED H78.SI

Hongkong Land (HKL SP - Riding on sweet office upcycle

  • Central office portfolio vacancy remained low at 2.4% at end-March with positive rental reversion sustained.
  • Mildly negative rental reversion for Singapore office portfolio.
  • Maintain BUY with TP of US$8.51. Expected encouraging tender result for the Murray Road car park building site to serve as key share price catalyst.

What’s New 

  • Benefitting from ongoing tight market supply, the vacancy of Hongkong Land's Central office portfolio stayed low at 2.4% in March 2017 (December 2016: 2.2%). 
  • Positive reversionary growth continued to push up its average office rents which stood at HK$103psf in 2016. Retail portfolio remained fully occupied as of March 2017. But base rent reversions, which was largely positive in 2016, has turned neutral as expected. 
  • The Singapore office portfolio registered mildly negative rental reversions due to supply glut. On a positive note, portfolio vacancy remained low at 0.3% in March 2017.
  • Continued sales at the Sol Acres and Lake Grande project has been progressing satisfactorily. The substantially-sold Lakeville project was completed in 1Q17. It is the only residential project in Singapore the company schedules to complete in 2017. 
  • In China, Hongkong Land recorded attributable contracted sales of US$287m, up 48% y-o-y but down 36% q-o-q.
  • In the past three months, Hongkong Land’s share price appreciated 14% amid the improving office market in Central. Meanwhile, the stock is trading 32% below our assessed current NAV. Valuation is by no means expensive from an historical viewpoint. 
  • The tender of the Murray Road car park building site will close on 12 May. We expect this tender to draw tremendous interest from developers as well as China-based financial institutions. Any encouraging tender results could prompt a revaluation of office assets in Central and re-rating of office landlords with heavy exposure there.
  • We believe that Hongkong Land could trade up to US$8.51, 30% discount to our December 2017 NAV estimate. 
  • BUY.

Jeff YAU CFA DBS Vickers | Ian CHUI DBS Vickers | http://www.dbsvickers.com/ 2017-05-04
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 8.51 Up 7.900