Hongkong Land (HKL SP) - DBS Research 2017-11-10: In Good Shape

Hongkong Land (HKL SP) - DBS Vickers 2017-11-10: In Good Shape HONGKONG LAND HOLDINGS LIMITED H78.SI

Hongkong Land (HKL SP) - In Good Shape

  • Central office portfolio in good shape.
  • Higher net debt expected by year-end due to land premium payments.
  • Buy with US$8.93 TP.

What’s New 

  • Vacancy for Hongkong Land’s Central office portfolio inched up slightly to 2.4% in Sep-17 from Jun-17’s 1.5%, but should improve before year-end when new tenants take possession of their units. Given tight market supply, rental reversion remains positive, driving income growth. Retail portfolio remains effectively fully leased with flat base rental reversion. The Singapore office portfolio shows signs of improvement. 
  • Reversionary growth has started to turn positive but it is premature to conclude that the trend is sustainable. Vacancy stayed low at < 1%. In Beijing, WF Central, a retail-led mixed use development, is scheduled to open in late Nov. This should widen and diversify the company’s rental earnings base. 
  • Contracted sales in China fell 12% to US$195m in 3Q17. This brought total contracted sales for 9M17 to US$896m, representing 37% growth. In Singapore, pre-sales at Sol Acres and Lake Grande are ongoing. These projects have been substantially pre-sold with corresponding completions scheduled in 2018 and 2019. 
  • As of Sep-17, net debt was marginally higher compared to Jun- 17’s US$1.88bn. It is set to rise further by year-end due to land premium payments for new projects. Financial risk should remain well managed with gearing estimated to be < 15%. 
  • The stock, trading at 38% discount to our assessed current NAV, is inexpensive from a historical perspective. Tight vacancy and solid demand continues to support office rents in Central. Coupled with yield compression, office prices have appreciated further. These factors should warrant a higher stock valuation for Hongkong Land. 
  • BUY with US$8.93, based on 30% discount to our Jun-18 NAV estimate.

Jeff YAU CFA DBS Vickers | Ian CHUI DBS Vickers | http://www.dbsvickers.com/ 2017-11-10
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 8.930 Same 8.930